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Foreign financing increased, BoP statistics suggests.
submited on 01.04.2005 in category Fiscal affairs | Monetary policy | Macroeconomic developments
submited on 01.04.2005 in category Fiscal affairs | Monetary policy | Macroeconomic developments
On an 12-month basis to January 2005, foreign direct investment to Bulgaria reached EUR 2018 million (EUR 30.5 for January 2005). In Q4 of 2004 they skyrocketed to EUR 1032 m, or double the volume of Q4 of 2003. However, most of this volume came as a payment on the privatization of regional power distribution companies sold earlier in 2004. We can outline a pattern change in the FDI flows: whereas in 2003 flows were relatively evenly distributed throughout the months of the year, since beginning of 2004 small-size investments decline, while huge single transactions (mostly-privatization deals) are more visible.
New external borrowing by the private sector accelerated in the last months of 2004. The overall volume of new credit for 2004 is BGN 2190 m, with EUR 765 million as intra-company loans. To a great extent the expansion of external borrowing is a substitute for direct investment in big international corporations. An incentive is the different corporate tax treatment of dividend and interest income, which favors debt financing.
Increased purchasing power of households led to higher consumption demand, which was transformed in increased imports of goods and services. For the 12-month period ending January 2005 the trade deficit widened to EUR 2763 million (from EUR 2286 million a year ago). The current account for the 12-months until January was EUR -1505 million, compared to a higher deficit a year ago at EUR -1688 million.
Commodity exports grew by 19.8% in 2004 which suggests that industry as a whole is coping with competitive pressures on global markets.
Higher disposable income allowed increased travel expenses, including abroad. Bulgarians spent EUR 775 million in 2004 on international tourism, up by 16.8% compared to 2003.
Fiscal policies of Bulgarian government is still a major factor for the balance of payments dynamics. In 2004 (as is 2003) they had a rather restrictive impact due to the overall budget surplus. Thus the government was reducing the available funding for consumption and investment, ‘sterilizing’ it through the fiscal reserve held at the Central Bank. At the same time, seasonality in public expenditures deepened. The spending in the Q4 was severely disproportionate to the quarterly average – an additional BGN 1300 million for Q4 2004 – which drove higher the import of goods by EUR 670 million for the same period.
The policy of sovereign debt reduction in a long-term reduces the ‘crowding-out’ effect on private investment, as the overall decline in public debt resulted in higher credit ratings, reduced risk premium on Bulgarian borrowers and shrink the destruction of domestic savings.
New external borrowing by the private sector accelerated in the last months of 2004. The overall volume of new credit for 2004 is BGN 2190 m, with EUR 765 million as intra-company loans. To a great extent the expansion of external borrowing is a substitute for direct investment in big international corporations. An incentive is the different corporate tax treatment of dividend and interest income, which favors debt financing.
Increased purchasing power of households led to higher consumption demand, which was transformed in increased imports of goods and services. For the 12-month period ending January 2005 the trade deficit widened to EUR 2763 million (from EUR 2286 million a year ago). The current account for the 12-months until January was EUR -1505 million, compared to a higher deficit a year ago at EUR -1688 million.
Commodity exports grew by 19.8% in 2004 which suggests that industry as a whole is coping with competitive pressures on global markets.
Higher disposable income allowed increased travel expenses, including abroad. Bulgarians spent EUR 775 million in 2004 on international tourism, up by 16.8% compared to 2003.
Fiscal policies of Bulgarian government is still a major factor for the balance of payments dynamics. In 2004 (as is 2003) they had a rather restrictive impact due to the overall budget surplus. Thus the government was reducing the available funding for consumption and investment, ‘sterilizing’ it through the fiscal reserve held at the Central Bank. At the same time, seasonality in public expenditures deepened. The spending in the Q4 was severely disproportionate to the quarterly average – an additional BGN 1300 million for Q4 2004 – which drove higher the import of goods by EUR 670 million for the same period.
The policy of sovereign debt reduction in a long-term reduces the ‘crowding-out’ effect on private investment, as the overall decline in public debt resulted in higher credit ratings, reduced risk premium on Bulgarian borrowers and shrink the destruction of domestic savings.
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