Bulgaria’s Economy Minister Petar Dimitrov and his immediate predecessor Roumen Ovcharov have issued separate warnings that the global financial crisis will affect Bulgaria’s economy, especially because 60 per cent of the country’s exports are to other European Union countries.

Opinions in Bulgaria among senior political and financial circles have been mixed about the possible impact of the crisis. Even as Bulgaria’s stock exchange was hard-hit in line with the fallout of the crisis on other European bourses, Prime Minister Sergei Stanishev held a news conference on October 9 to say that the country’s banking system was stable.

However, on October 12 Bulgarian media reports said that President Georgi Purvanov was to call a meeting of the consultative council on national security to discuss the global effects of the crisis and the possible effect of the collapse of Western Banks on Bulgaria’s economy.

On October 11, speaking in the Bulgarian seaside city of Varna during the fifth youth socialist forum, Economy Minister Dimitrov said that the global financial crisis would affect Bulgaria’s economy because of a reduction in demand from EU states. The extent of the impact would depend on the extent of this reduction, he said.

An ebb in foreign investment would lead to a reduction in jobs, Dimitrov said.

Dimitrov said that the global financial crisis would pull salaries down. That oil prices were decreasing and that natural gas prices were expected to fall was no great joy for business because it meant that the market was shrinking, Bulgarian news agency Focus quoted Dimitrov as saying.

News website mediapool quoted Dimitrov as saying that the possible reduction of Bulgaria’s exports would have an extremely negative impact on the country’s trade balance, which in August 2008 amounted to more than 8.3 billion leva.

On the positive side, it was possible that some share capital would migrate from Western Europe to Bulgaria because of the country’s “very attractive” business climate, including its attractive tax policy.
 
Former economy minister Ovcharov, now the chairperson of Parliament’s committee on the economy, told Bulgarian National Radio (BNR) that the global financial crisis probably would manifest itself as a slowing down of domestic economic growth.
 
Ovcharov told BNR that a two per cent lower economic growth could be expected for 2009, which would mean that next year it would be five per cent.

Asked to comment on the Government move to increase the guarantee limit on bank deposits, Ovcharov said that the move was largely meaningless but was beneficial from a psychological point of view as a gesture towards reinforcing trust.

He said that Bulgaria should remain an “island of stability” where there was guaranteed growth in return on investments in the country. Achieving this would cushion Bulgaria from the global crisis, Ovcharov said.

On the banking front, Focus reported that Hungary’s OTP, owner of Bulgaria’s DSK – the former state savings bank – issued an assurance saying that the bank had been prudent in its lending policy, had a strict credit rating system and classification of clients database and thus the bank was not vulnerable to the crisis rattling Western European markets.
 
Focus quoted Maria Ilieva, executive director of Bulgaria’s MKB Unionbank, as saying that 2009 would be the year of deposits. Financial institutions in Bulgaria would do whatever it takes “even at the risk of lower profits” to maintain credit interest rates.

Lending would slow with stricter requirements for candidate borrowers and some of those who intended asking for loans would wait until better times came, Ilieva said.