Standard&Poor’s (S&P) has revised its foreign and local currency outlooks on Bulgaria to positive from stable, Finance Minister Milen Velchev announced in Parliament on February 10 during the debate on the no-confidence vote.
He said the country’s credit rating was being upgraded even though a no confidence motion in the Government was being debated.
At the same time, the BBB- long-term and A-3 short-term foreign currency, and the BBB long-term and A-3 short-term local currency sovereign credit ratings on Bulgaria were affirmed.
“The outlook change is based on Bulgaria’s robust economic growth prospects, as well as debt reduction that is proceeding faster than previously expected,” said credit analyst Moritz Kraemer on S&P’s website. At the same time, external liquidity has improved.
Despite extra government spending in late-2004, buoyant revenues have led to a general government surplus approaching one per cent of GDP. Conservative revenue estimates in the 2005 election-year budget are likely to lead to a balanced budget, notwithstanding politically driven pressures for extra spending, S&P expects.
General government debt has fallen fast, and this decline was further accelerated by the weaker US dollar and buy-backs of Brady bonds in 2004 and 2005. Accordingly, the debt ratio will fall further to 30 per cent of GDP in 2005, from 80 per cent as recently as 2000.
The ratings of S&P remain constrained by Bulgaria’s relatively low level of development and the sovereign’s weak external liquidity.
The central bank has more than doubled foreign exchange reserves since 2002, to an estimated $10 billion by year-end 2004, but about one-half of this sum is needed to back the currency board. Taking account of such an adjustment, the 2005 gross external financing requirements (current account deficit plus short-term debt plus long-term debt maturing within one year) will amount to 120 per cent of uncommitted reserves and will gradually rise in the run-up to the entry in the European Monetary Union, most likely to take place in 2010, S&P said.
Velchev himself was even more optimistic than what the credit rating agency sounded. In general, Bulgaria has strongly positive macroeconomic indicators, but one indicator – the current account deficit – is less than satisfactory and is some cause for concern to the International Monetary Fund (IMF) and investors, Velchev told Darik Radio on February 12.
Elaborating on the issue, Velchev said that consumption of goods and services actually exceeded production, meaning that foreign currency is flowing out of the country, which is not completely offset by the inflow of foreign currency in the form of foreign investment.
In addition to the usual economic policies such as improving the economic environment to attract investors and attracting new technologies, the Finance Ministry works in another direction, presenting Bulgaria’s production of goods and services in Europe and the world.
The point is to increase both the export and consumption of locally made goods and services, Velchev said. This, in turn, will improve the balance of payments by raising consumption, personal incomes, revenues and living standards.
The rate of increase in lending remains high but this is not a problem, as credits are expected to begin decreasing. The rise would have been much more dangerous were it not for the measures introduced by the Bulgarian National Bank (BNB) and the self-regulation undertaken by banks, Velchev said.
The finance minister is also optimistic that the Constitutional Court will confirm the legality of the 2005 budget.
The usual criticism again came from the IMF. Decreasing budget spending is one of the challenges facing Bulgaria in its accession to the European Union. This is inevitably connected with staff downsizing in the public sector, the IMF resident representative James Roaf told a news conference in Plovdiv on February 10.
Another problem for Bulgaria is achieving the Maastricht inflation criteria. A rate of four per cent at the end of 2004 is acceptable for Bulgaria but it will have to fall by the accession date.
In the short term, Bulgaria has to curb the demand for credits. Since no restrictions can be imposed on the private sector, it is the public sector that has to compensate the credit boom by means of strict fiscal policy, Roaf said.
The BNB will interfere in the process of credit expansion only when it believes there is a threat to the stability of the financial system, BNB deputy governor Tsvetan Manchev said. The central bank commends the competition and consolidation in the banking sector, said Manchev and added that would enhance the efficiency of the financial market.
He said the country’s credit rating was being upgraded even though a no confidence motion in the Government was being debated.
At the same time, the BBB- long-term and A-3 short-term foreign currency, and the BBB long-term and A-3 short-term local currency sovereign credit ratings on Bulgaria were affirmed.
“The outlook change is based on Bulgaria’s robust economic growth prospects, as well as debt reduction that is proceeding faster than previously expected,” said credit analyst Moritz Kraemer on S&P’s website. At the same time, external liquidity has improved.
Despite extra government spending in late-2004, buoyant revenues have led to a general government surplus approaching one per cent of GDP. Conservative revenue estimates in the 2005 election-year budget are likely to lead to a balanced budget, notwithstanding politically driven pressures for extra spending, S&P expects.
General government debt has fallen fast, and this decline was further accelerated by the weaker US dollar and buy-backs of Brady bonds in 2004 and 2005. Accordingly, the debt ratio will fall further to 30 per cent of GDP in 2005, from 80 per cent as recently as 2000.
The ratings of S&P remain constrained by Bulgaria’s relatively low level of development and the sovereign’s weak external liquidity.
The central bank has more than doubled foreign exchange reserves since 2002, to an estimated $10 billion by year-end 2004, but about one-half of this sum is needed to back the currency board. Taking account of such an adjustment, the 2005 gross external financing requirements (current account deficit plus short-term debt plus long-term debt maturing within one year) will amount to 120 per cent of uncommitted reserves and will gradually rise in the run-up to the entry in the European Monetary Union, most likely to take place in 2010, S&P said.
Velchev himself was even more optimistic than what the credit rating agency sounded. In general, Bulgaria has strongly positive macroeconomic indicators, but one indicator – the current account deficit – is less than satisfactory and is some cause for concern to the International Monetary Fund (IMF) and investors, Velchev told Darik Radio on February 12.
Elaborating on the issue, Velchev said that consumption of goods and services actually exceeded production, meaning that foreign currency is flowing out of the country, which is not completely offset by the inflow of foreign currency in the form of foreign investment.
In addition to the usual economic policies such as improving the economic environment to attract investors and attracting new technologies, the Finance Ministry works in another direction, presenting Bulgaria’s production of goods and services in Europe and the world.
The point is to increase both the export and consumption of locally made goods and services, Velchev said. This, in turn, will improve the balance of payments by raising consumption, personal incomes, revenues and living standards.
The rate of increase in lending remains high but this is not a problem, as credits are expected to begin decreasing. The rise would have been much more dangerous were it not for the measures introduced by the Bulgarian National Bank (BNB) and the self-regulation undertaken by banks, Velchev said.
The finance minister is also optimistic that the Constitutional Court will confirm the legality of the 2005 budget.
The usual criticism again came from the IMF. Decreasing budget spending is one of the challenges facing Bulgaria in its accession to the European Union. This is inevitably connected with staff downsizing in the public sector, the IMF resident representative James Roaf told a news conference in Plovdiv on February 10.
Another problem for Bulgaria is achieving the Maastricht inflation criteria. A rate of four per cent at the end of 2004 is acceptable for Bulgaria but it will have to fall by the accession date.
In the short term, Bulgaria has to curb the demand for credits. Since no restrictions can be imposed on the private sector, it is the public sector that has to compensate the credit boom by means of strict fiscal policy, Roaf said.
The BNB will interfere in the process of credit expansion only when it believes there is a threat to the stability of the financial system, BNB deputy governor Tsvetan Manchev said. The central bank commends the competition and consolidation in the banking sector, said Manchev and added that would enhance the efficiency of the financial market.
