Current Account Gap Down To 1.6% Of GDP Bulgaria s Foreign Debt To Foreign Creditors Declines Below 60% Of GDP BULGARIA: CURRENT SITUATION, TRENDS AND DEVELOPMENT OPPORTUNITIES May, 2002 Bulgaria Q1 GDP Up 3.2% Versus 4.0% In Q1 2001 CPI levels off from 9.2% y/y in April to 6.9% y/y in May Industrial Sales Rise 9.3% In April Unemployment Rate Slightly Down In May y/y To 17.63% Bulgarian Government Plans Zero Budget Deficit for 2005 Banking System BGN Deposits Decline By 2.64% m/m In May Banks Profit Up 40.6% In April
I. EXTERNAL SECTOR 1. 1. Current Account Current Account Gap Down To 1.6% Of GDP According to the Central bank s data for the first quarter of the year Bulgaria's current account deficit was higher than for the yearago period but it was lower as a share of GDP. At the end of March deficit was USD 233.4 mn, up from USD 231.5 mn a year ago. Compared to GDP, however, deficit declined from 1.7% to 1.6%. GDP this year is projected to amount to USD 14.165 bn. Trade deficit also increased, from USD 224.1 mn in January-March last year to USD 250.8 mn for the first quarter of this year. Deficit also rose as a share of GDP: from 1.7% to 1.8%. Compared to the first quarter of 2001, trade turnover decreased, with the decline in exports exceeding the decline in imports. At FOB prices, exports for the first quarter of the year amounted to USD 1.94 bn, down 6.8% year on year; imports amounted to USD 497.7 mn, down 4.1%. Foreign direct investment in Bulgaria in January-March amounted to USD 46.8 mn, down by nearly six times compared to the year-ago period because of the second GSM license was sold in the first quarter of last year and that substantial payments on inter-company credits were made in January- March 2002. As a whole, the deficit in the balance of payments was USD 309.9 mn at the end of the first quarter, compared to USD 237.2 mn at end-march last year. 2. External Debt Bulgaria s Foreign Debt To Foreign Creditors Declines Below 60% Of GDP According to the Ministry of Finance preliminary data the Government owed BGN 20.1 bln to local and foreign creditors at the end of April. The total amount of the cabinet's debt makes up 65.3% of the GDP projected for 2002 (BGN 30.783 bln). Last month government external debt declined, while domestic debt increased. At the end of April the government owed USD 8.372 bln to foreign creditors, down USD 78.6 mn on end- March. Debt to foreign creditors fell to 59% of GDP, due to payments made and the Brady bond swap. For the first four months of the year net financing was negative. For this period, the government received USD 122 million new loans and repaid USD 399.6 mn to foreign creditors. Of the total amount, USD 249.9 mn were principal payments, USD 149.7 mn interest payments. Nearly half of the amount was remitted in April: USD 118.4 mn. This includes USD 62.2 mn to the Paris Club and USD 38 mn to the International Monetary Fund. At the end of April the share of USD-denominated debt fell to 57.5%, while debt in Euro-currencies rose to 26.9%. At the same time, domestic debt increased by BGN 9.580 mn to BGN 1.927 bln at the end of the month. The rise was mainly due to government securities issued to cover the budget deficit, which amounted to BGN 1.198 bln at end-april. The share of securities in support of the structural reform declined to 37.6%, while the share of securities for financing the deficit rose to 62.2%. II. REAL SECTOR 1. GDP Growth Bulgaria Q1 GDP Up 3.2% Versus 4.0% In Q1 2001 Bulgaria recorded 3.2 % y/y economic growth for the Q1 of 2002, down from 4.0% in January-March 2001, according to the National Statistics Institute (NSI) data. The growth in the services sector was beneficial for the GDP growth but industrial output slowed down the rise in GDP. The trade deficit also played a role for the slower rise in GDP compared to the Q1of 2001. Preliminary NSI estimates put January- March 2002 GDP at BGN6.921 bln. (USD3.45 bln/3.55 bln) at current prices, or BGN870 (USD433.7/EUR447.3 ) per capita. The Q1 growth recorded by Bulgaria was higher than the 0.2% growth shown by the EU 2
member countries. The Government expected 2002 Q2 growth to be higher than in the first quarter due to a 15.5 % rise in industrial output in April 2002. However, the GDP over performed our expectations for a 2% growth in first quarter and the big surprise came from the industrial sector, where the monthly indicators had shown a real decline by 2.8% y/y in the industrial output for Q1 while the GDP breakdown revealed a 0.5% y/y increase. The large discrepancy between the monthly industrial statistics and the GDP industrial figures could be explained either with technical failures or some large deals outside the sample of the monthly index, most likely in the military industry. The service sector performed in line with our expectations and picked up by 6.6% y/y on the back of mobile phone services that triggered a robust growth of 30% in the telecommunication services. GDP, %,у/у Q1/ 01 Q2/ 01 Q3/ 01 Q4/ 04 2001 Q1/ 02 Agriculture -7.2-0.1 2.9 0.7 0.5 2.7 Industry 6.6 3.9 5.7 1.0 4.2 0.5 Utilities 2.9 4.3 3.5 5.8 4.2 6.6 Corrections 8.9 7.2 3.0 7.5 -.5-3.0 GDP 4.0 4.1 3.9 4.2 4.0 3.2 Consumption 3.0 5.8 2.9 6.3 4.5 3.6 Investments 17.2 15.5 15.0 29.4 19.9 4.5 Export 14.2 9.6 13.6-3.1 8.5-4.4 On the expenditure side, the total consumption rose by 3.6% y/y in Q1 with diverging moves of a 4.1% growth for the private consumption and a 0.4% decrease for the government expenditures. The export and investments deteriorated significantly compared to previous periods, as the total export of goods and services dropped by 4.4% y/y in Q1, while investments in fixed assets marked a steep slowdown to 4.5% y/y in Q1. The gross value added statistics preserved the 4-year pattern of a fast growing private sector at the expense of a declining state share. The private sector soared by 10.4% y/y and reached a share of 70.8% in the gross value added against 67.4% in Q1 last year. Given the relatively good GDP performance in Q1, as well as the strong recovery in the industrial sales and output in the April statistics, the 4% annual GDP growth forecast of the government looks now easily achievable. 2. Inflation CPI Levels Off From 9.2% y/y In April To 6.9% y/y In May According to the National statistics institute data (NSI) the drop in retail price in May was 2.1%. The accrued price rise for this year thus equals 2.9%. If oil prices remain low, the real inflation rate might turn out lower than the estimations. The May deflation as due to seasonal fluctuations and the lower oil prices. Foodstuff retail prices have dropped by 4.6% on the average. Services have become more expensive by 0.4%. 2001 2002 Months 12.31.01 01.31.02 02.28.02 03.31.02 04.30.02 05.31.02 12.31.01 100.00 01.31.02 102.76 100.00 02.28.02 104.39 101.63 100.00 03.31.02 105.17 102.41 100.78 100.00 04.30.02 105.06 102.30 100.67 99.89 100.00 05.31.02 102.99 100.23 98.60 97.82 97.93 100.00 The IMF demand for rising the electricity consumer price by 50% against a loan agreed with the current government is regarded as the major factor to rise inflation this year. The electricity price rise must be imposed by July. 3. Industrial Sales Industrial Sales Rise 9.3% In April Industrial output in April rose 4.5% m/m and 15.5% y/y according to the National Statistics Institute data. In January-April industrial production increased 1.3%, compared to the year-ago period. In April wood processing production jumped 16.3%, furniture production, 21%, textile production, 5.7%. Office and electronic equipment output rose 58.5%, rubber and plastics production, 16.7%. At the same time metal casting declined 11.2% on March, production of tobacco goods, 18.1%. Electricity, heating, gas and water supply also fell 9.9%. Industrial sales rose 9.3%m/m in April, Compared to April 2001 sales rose 6.3%. The positive data in April however could not compensate the decline since the beginning of 3
the year, which stood at 6.2% y/y. In April sales in mining increased 30.7%, in the processing industry, 11.2%. Textile and clothing sales rose 25% y/y. The chemical industry also posted a rise of 5.6% on March and 3.5% on April last year. Sales also rose in the production of machines and equipment. wholesales by 4.3%. The other sectors posted a rise. Sales of household appliances increased 9.3%, of foods, beverages and cigarettes, 2.6%. Real changes April,%,у/у January- April Industrial sales 6.3-6.2 Extracting industry 10.8 1.9 Manufacturing 6.0-7.6 Utilities 7.0-0.5 Industrial output 15.5 1.3 Retail sales 1.9 2.1 Wholesales 3.2-4.3 2. Unemployment Unemployment Rate Slightly Down In May y/y To 17.63% As compared with the same period last year, the number of registered unemployed people in May has declined by nearly 4800 people to total 673803 people, according to the Employment Agency data. The May unemployment rate reached 17.63%, or 0.12% down as compared with May 2001 and April this year. The lowest figures accounted Sofia City with 5.5%, while the highest still keeps the region of Targovishte with 32.05%. In May, the number of offered jobs have numbered some 17414 people, 14393 of which have been posted on the primary labour market. Some 3021 jobs have been created by programmes for encouragement of employment. Again in May, 14498 people have started work. III. FISCAL SECTOR Bulgarian Government Plans Zero Budget Deficit for 2005 A zero budget deficit will be envisaged in Bulgaria's macreconomic frame for 2005 after a 0.5% gap for 2004 and 0.7% for 2003. The Finance Ministry has forecast a 4.5 % economic growth for 2003 and 5.0% growth for each of the next two years until the current four-year term of office of the incumbent cabinet expires. A 9.0 % pay rise in the public sector is budgeted for 2003 and further 8.5% annual increases for 2004 and 2005. Since the average annual inflation for 2003 is expected at 4.5%, the actual income growth will be only 4.5% or equal to the projected GDP growth rate. Budget framework,% 2003 2004 2005 GDP, у/у 4.5 5.0 5.0 Budget balance/gdp -0.7-0.5 0.0 CA balance/gdp -6.0-5.2-4.7 IPC, year-average 4.5 3.5 3.5 Nominal wage, у/у 9.0 8.5 8.5 Social spending in 2003 will increase by 10% y/y to BGN5.184 bln (USD2.4 bln/2.65 bln EUR). Defence spending for 2003 will rise to BGN1.692 bln (USD0.8 bln/ EUR 0.87 bln), from BGN1.573 bln (USD0.73 bln/ EUR 0.8 bln) in 2002. Pension payments will rise in line with inflation and increases in the contributory income. For 2003, BGN1.060 bln (USD0.49 bln/0.54 bln EUR) will be earmarked to service interest payments on government debt, including BGN823 mn (USD380.6 mln/421.65 mln EUR) in interest on foreign debt. Bulgaria will not tap the international capital markets for fresh funding in the next 18 to 24 months. Capital investment for 2003 is projected at 3.1% of GDP and will be directed mainly to international investment projects and projects of national significance. The government will be banking over the next couple of years on money from the European Union (EU) preaccession funds and will provide the necessary co-financing. Bulgaria is entitled to annual financing of EUR254 mn (USD229.26 mn) until 2006 under the European Union's Phare, ISPA and SAPARD programmes. The underlying concept of the government's fiscal policy is to seek economic growth and budget stability through the reduction of the tax and social insurance burden, promotion of investment, simplification of the tax code and 4
streamlining the operation of the tax administration. IV. MONETARY SECTOR Banking System BGN Deposits Decline By 2.64% m/m In May As of end of May EUR/USD rate was 0.93870 or USD/BGN 2.08355. In the middle of June BGN closed at 1.9474/1.9478 per EUR, as some banks continued to sell EUR to boost BGN liquidity before companies tax payments. Against the USD, the BGN ended at 2.060/2.061, reflecting EUR/USD exchange rate on international markets through the BGN/EUR peg. According to the Central Bank data, the monthly BGN trading volume for the overall banking system was BGN1535.8mn. Placed funds in EUR and USD were respectively 8331.1 mn and 499.9 mn. The average price of placed funds in BGN continued to be near 1.69%. The average price of placed funds in EUR and USD was respectively 3.33% and 1.75%. The Base Interest Rate marked slightly decline after auction for 3-month T-bills at the end of May and reached 3.38% average. The low yields were achieved mostly because of lack of interest and the excessive liquidity in the banking system as a whole. 100000 9 95000 BGN 2.40 2.35 2.30 2.25 2.20 2.15 2.10 2.05 2.00 1.95 1.90 BGN/USD Exchange Rate Amount Yield Source : BNB 05.07.02 05.09.02 05.11.02 thousands BGN 05.14.02 05.16.02 05.18.02 05.21.02 05.23.02 05.28.02 05.30.02 90000 85000 80000 75000 70000 65000 60000 55000 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 3 months 12 months 2 years 3 years 5 years 7 years 7 years 3 m. 10 years BGN / USD May average BIR was 3.98%. The real interest rates estimated on a monthly interest rates levels and adjusted with the montly inflation rate was 2.90% for short-term BGN loans and 2.34% for term deposits in BGN on a monthly basis. According to the BNB statistical data the average margin of shortterm loan interest rates on annual basis was 5.60% and on long-term loans was 9.89%. The average weighedt effective interest rate on short-term loans in BGN was 9.58%, in EUR 9.70%, in USD- 5.98%. The average weighed effective interest rate on long-term loans in BGN was 13.87%, in EUR 10.70%, in USD 14.74%. The effective interest rate on BGN deposits was 0.38% for demand deposits and 2.95% for term deposits. The effective interest rates in EUR were 0.50% for demand deposits and 2.13% for term deposits. The effective interest rates in USD deposits were 0.71% for demand deposits and 1.57% for term deposits. 10% Лихвен диференциал Annual yield of 3 month securities decreased to 3.76%. as of May-end. 12 month securities annual yield remains 5.04%. In medium-term securities the 2-year securities annual yield was 5.73%; in 3-year securities the annual yield was 5.99%. The 5-year securities annual yield decreased from 6.75% to 6.72%; the 7- year securities annual yield was 7.43%. The 7-year 3month securities annual yield was 6.92%; and 10- year securities annual yield was 8.06%. According to the Central bank s statistical data as of May-end newly granted in BGN loans amounted to BGN 235.22 mn, compared to BGN 285.45 mn for the previous month. The credit activity in the banking sector decreased by 17.6% due to the decline from 18.1% in the segment of short-term loans and from 16.9% in the long-term losns segment. The monthly volume of the newly granted loans in foreign currency for the overall banking system in the EUR-segment was EUR 39.40mn versus EUR48.55 mn for the previous month. For the same period the newly granted loans in USD for the overall 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 5 31.12.2000 31.3.2001 30.6.2001 30.9.2001 31.12.2001 31.1.2002 28.2.2002 31.3.2002 30.4.2002 31.5.2002 8 7 6 5 4 3 2 1 effective annual yield % % Кредити- Осн.лихва Кредити- Депозити
banking system was USD 39.05 mn. and marked 24.1% monthly decrease. 400 350 300 250 200 150 100 50 0 31.12.2000 According to the Central Bank statistical data as of May-end the BGN deposits for the overall banking system declined by BGN 88.5 mn versus previous month and reached BGN 3264.8 mn. Thus, the BGN deposits in the banking sector marked a monthly decline by 2.64%. Versus the 2001 end the total deposit basis for the banking system reported decline by 3.99%. For the same period the demand deposits decreased by 8.91%. The term deposits segment increased by 4.27% for the overall banking system. By sectors of economy, the banking system reported the following monthly changes in the BGN deposit basis: decrease of state-owned companies deposits by 20.65%; increase of 6000 5000 4000 3000 2000 1000 0 Динамика на новите кредитите в БС 31.3.2001 30.6.2001 30.9.2001 31.12.2001 private merchants deposits by 0.01%; increase of non-banking financial institutions deposits by 0.99%; and decrease of individuals deposits by 1.05%. According preliminary Central Bank s statistical data the BGN equivalent of the foreign currency deposit basis for the banking system reached BGN 4876.0 mn as of Mayend. The USD denominated deposit basis increased to USD 2340.2 mn or by USD79.3 mn versus April- end. Thus, the monthly decrease in the BGN equivalent of 31.1.2002 28.2.2002 31.3.2002 30.4.2002 БС BGN БС USD БС EUR Динамика на депозитите в БС 31.12.2000 31.3.2001 30.6.2001 30.9.2001 31.12.2001 31.1.2002 28.2.2002 31.3.2002 БС BGN БС валута 30.4.2002 31.5.2002 31.5.2002 the foreign currency deposit basis for the system was 0.67 due to the USD/BGN foreigh exchage rate at the end of period. Allocated by sectors of economy, the USDdenominated deposits reported the following changes for overall banking sector: decrease in the state-owned companies deposits by 4.95%; increase in the private merchants deposits by 2.60%; decrease in the nonbanking financial institutions deposits by 6.97%; and decrease in individuals deposits by 0.64%. V. BANKING SYSTEM Banks Profit Up 40.6% In April The net profit of the banking sector rose by 40.6% in April, mainly due to a substantial increase in the net interest income. At the end of April banks posted a net profit of BGN 80.116 mn. In April credit institutions increased their income from interests by 33.2%.The total amount of assets of the banking system slightly rose by BGN 11.709 mn to BGN 12.722 bln at the end of the month. The banks in Group 2 (Biochim, Post Bank, SG Expressbank, First Investment Bank, Raiffeisenbank, Hebrosbank, BNP Paribas) remained the most active in financing the private sector, with credits amounting to BGN 1.293 bln. The share of the three biggest bank included in Group 1 (DSK Bank, Untied Bulgarian Bank and Bulbank) in the assets of the system, in the credits extended and in the deposits attracted marked a slightly decline. Their share in the profit of the sector however increased, reaching 64.9% of the banking system's net financial result at the end of April, from 63.4% at the end of March. The three institutions attracted 46.8% of the deposits in April and extended 33.6% of the loans. They held 45.5% of the banking system s assets in April. 6
The information contained in this bulletin is derived from public institutional sources and United Bulgarian Bank makes no representation as to the accuracy or completeness of such information. This material is not intended as an offer or a proposal for the purchase or sale of any financial instrument. Additional information on the theme researched in this report is available upon request. Contact: Chief Economist P. Tsekova phone (359 2) 9854 2288 e-mail cekova_p@sof.ubb.bg, Analyst N. Racheva phone (359 2) 9854 2289 e-mail racheva_n@sof.ubb.bg 7