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Is the foreign debt a problem for the Bulgarian economy right now
submited on 15.12.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 15.12.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
Using the macroeconomic approach, the problem could be both in the private and the public debt. The broad consensus is that Bulgaria does not have problems with the government debt. What is more as of October the total volume of the debt is covered by the fiscal reserve, i.e. the Bulgarian government does not have debt.
Many analysts use as leading indicator “the foreign debt” of the economy. Yet more frequently used term is “external misbalances”. The main risk for Bulgaria within this framework is the recently grown external indebtedness and the current account deficit (the latter as a result of the first).
Theoretically the worst case scenario is the cease of the new loans inflow into the Bulgarian economy, and respectively – a problem with paying back the existing loans. We must answer two questions.
- Is it possible and yet probable for the mother-banks to induce financial troubles and even bankruptcy of their daughter companies in Bulgaria?
- Is it rational for the big European banks to risk some BGN 8 billion equity in the owned in Bulgaria banks, in order to withdraw immediately some BGN 4 billion under practically unlimited refinancing by the ECB?
From a historical perspective the debt burden at the moment is lower compared to 1999 – both relative to GDP and domestic savings. The monetary stability then was kept, and the next decade reported record-high economic growth.
Many analysts use as leading indicator “the foreign debt” of the economy. Yet more frequently used term is “external misbalances”. The main risk for Bulgaria within this framework is the recently grown external indebtedness and the current account deficit (the latter as a result of the first).
Theoretically the worst case scenario is the cease of the new loans inflow into the Bulgarian economy, and respectively – a problem with paying back the existing loans. We must answer two questions.
- Is it possible and yet probable for the mother-banks to induce financial troubles and even bankruptcy of their daughter companies in Bulgaria?
- Is it rational for the big European banks to risk some BGN 8 billion equity in the owned in Bulgaria banks, in order to withdraw immediately some BGN 4 billion under practically unlimited refinancing by the ECB?
From a historical perspective the debt burden at the moment is lower compared to 1999 – both relative to GDP and domestic savings. The monetary stability then was kept, and the next decade reported record-high economic growth.
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