- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
submited on 09.07.2012 in category Regulated markets | Fiscal affairs | Privatisation | Political stability | Monetary policy | Macroeconomic developments
Just a week ago the Bulgarian government managed to place on the market 5-year bonds worth €950 million euros at 4.25% interest, attracting many foreign institutional investors. This issue of bonds again raised the question whether interest rates on the Bulgarian government debt are low and how Bulgaria compares to other European countries.
Although the newly issued debt will mature in five years, the best and comparable data is available for government securities with remaining 10-year maturity. Recent data from the European Central Bank, compiled based on information from national governments in Europe, is available until May 2012. Interest rates on 10 year government bonds in Bulgaria are 5.11% for May 2012 and 5.07% for June.
Where does Bulgaria stand compared to other European countries?
Interest rates on long-term debt in Bulgaria are the lowest in Central and Eastern Europe after interest rates in the Czech Republic (3.3%) and Slovakia (4.8%), which is, however, a member of the Eurozone. There is no data on interest rates in Estonia, which has the lowest public debt in the EU and therefore it is insufficient to obtain reliable statistics.
If we consider only EU-member countries outside the Eurozone, interest rates are lower in the Czech Republic, in the UK (1.8%), Sweden (1.5%) and Denmark (1.4%). They are higher in Latvia, Lithuania, Poland, Romania and Hungary, which is the country in the EU that pays the highest interest on long-term debt outside the euro area.
Bulgaria has lower interest rates than all countries at risk of fiscal crisis (often called "peripheral") in the Eurozone, including Greece, Portugal, Ireland, Cyprus, Spain, Italy, Slovenia.
Nine member countries of the Eurozone, usually considered the "core" of the Eurozone, pay lower interest on their 10-year government bonds than Bulgaria - Slovakia, Malta, Belgium, France, Austria, Holland, Finland, Luxembourg and Germany (1.3% ), whose government has the most affordable access to debt financing in Europe.
It is interesting to see whether there is an improvement or deterioration compared to the corresponding month of previous year.
Only in 2 of 10 EU-member states outside the Euro area there is an increase of interest rates – small one in Lithuania and more significant in Hungary (by 1.2 points), which had its own fiscal problems before the outbreak of the European debt crisis.
On the other hand, 7 of 16 Eurozone members (excluding Estonia) have reported an increase of interest rates on government bonds and 9 have seen a decrease.
The data unambiguously shows that:
1) The countries that are on the verge of a fiscal and/ or banking crisis are in the Euro area, but not in Eastern Europe as predicted by many "experts" at the beginning of the global financial crisis;
2) Countries outside the European Monetary Union are likely to implement policies that reduce fiscal risk, unlike the countries in the eurozone, which tend to delay reforms in anticipation of another "bailout" package. Hence, interest rates on government bonds have fallen in the former, whereas have risen in the latter.
Bulgaria continues to be among the countries that retain the course of fiscal prudence, reflected in the steady decline of interest rates on Bulgarian government bonds, which, however, remain above pre-crisis levels. The still significant difference between interest rates on Bulgarian and German 10-year government bonds (3.8 points in May 2012) shows that there is potential for further lowering of the risk premium for Bulgaria.