Macro-economic stability in Bulgaria is under no threat in the short and medium term.

Problems, though, could emerge in the long run if the Bulgarian Government failed to timeously implement vital public sector reforms.

This was the main conclusion of an October 22 round table organised by Open Society Institute in Sofia, which pooled analysts from local think-tanks.

Panellists presented counter-arguments to recent statements from international media and institutions that the Bulgarian economy might be reaching the “overheating” stage.

Georgi Ganev, an analyst at the Bulgarian Macro-economic Association, said that soaring inflation and the rising gap in the current account were a problem, but was not a harbinger of a crisis. He attributed inflation to one-time effects and not to general problems in macro-economic development.

Regarding the current account gap, he attributed the record levels to unprecedented foreign investor activity. Ganev said that Bulgaria’s current risk to return on investment ratio, which assesses the level of risk an investor can take, was among the most favourable worldwide. It was logical that high foreign currency flows would be growing at a rate faster than foreign currency outflows. This meant that the reason behind the growing current account gap stemmed from positive developments and was better than the reverse, meaning no investment – no current account deficit scenario. He called this situation an “immediate halt”, describing it as a panic-driven investment withdrawal on first signs of a crunch.

He said that an anchor of macro-economic security was the record-high surplus on the balance of payments. It was due to the successful governmental policy of early public debt payout and accumulation of foreign currency reserves, in stock at the central bank and used in case of large fluctuations in the local currency’s exchange rate. At present, these were 40 per cent of GDP.

Furthermore, the economy is living its heyday in terms of output. In absolute terms, it has surpassed the “legendary” 1989 levels, Ganev said. Combined with a record-low unemployment, the macro-economic situation was under no threat, he said.

Ganev saw the main threat in mistakes on the part of the Government. Namely, he urged the Cabinet not to give in to teachers’ calls for a double salary hike. He said that if it was an isolated one, the hike would not do damage to the state budget. A budgetary crunch, however, would be imminent if others on the budget payroll made similar requests after the teachers succeeded.

Georgi Angelov of Open Society Institute concurred, adding that future macro-economic stability lay in the Government’s resolve to persuade the public sector of the need for unpopular reforms. He voiced analysts’ opinion that reforms in the public sector had built up a decade-long delay and entailed not only salary hikes, but also streamlining. The public administration sector was in need of staff cuts, the closure of hospitals and schools alike.

Georgi Prohaski of the Centre for Macro-economic Development saw no signs of an impending financial crunch because of stability at the banking, capital market and corporate levels. Even though banks are amassing large loan portfolios, the bad loans ratio was low, he said. A further sign of trust in banks was individuals’ growing deposit exposure.

The capital market is also accumulating higher turnovers, as are companies of all types. According to a survey by the Bulgarian Macro-economic Association, the number of firms expecting their situation to worsen has gone down from 16 per cent in July last year to eight per cent as of June this year. A problem over the long run would be mass exodus of qualified workforce, according to Prohaski.

Luchezar Bogdanov of Industry Watch dismissed economic overheating forecasts for Bulgaria as exaggerated. The Bulgarian Government was prudent in spending, had reported economic growth for the 10th year running, had paid out its foreign debt and had been accumulating foreign currency reserves as a cushion against risks to the lev to euro exchange rate.

The expert saw the biggest threat over the long run in the net emigration rate. If local and foreign nationals grew exasperated and out of desire to live in Bulgaria, then Bulgaria would exhaust its potential for further development, innovation, productivity and economic growth rate.

Dimitur Chobanov of the Institute for Market Economics said that imprudent fiscal policy could prove the stumbling rock for the economy. Foreign investors would loseconfidence in the country and, therefore, stop granting loans to the Bulgarian Government if the country lacked the will to implement reforms.