Balance Of Payment Current Account Deficit At USD 215.8 Mn In January- October, Or 1.4% Of GDP The Gross External Debt Was USD10.553 mn At The End Of November Or 68.1 Of GDP BULGARIA: CURRENT SITUATION, TRENDS AND DEVELOPMENT OPPORTUNITIES December, 2002 GDP Up 4.5% In Third Quarter, Y/Yr December 2002 Inflation At 1.2% M/M Trade Net Sales Grows 9.0% In November On A Y/Y Basis December To 16.27% Unemployment Decreased Revenue In 2003 National Budget Set At BGN7.669 Mn, And Expenditure At 8.022 Mn Government Securities Remain Major Priority In 2003 The Net Financial Result Of The Banking System In November Reached BGN 258 mn
I. EXTERNAL SECTOR 1. Current Account Balance Of Payment Current Account Deficit At USD 215.8 Mn In January- October, Or 1.4% Of GDP In January-October 2002, Bulgaria's balance of payments on current account was in USD215.8 mn deficit (equivalent to 1.4% of GDP), down USD325.4 mn from the USD541.1 mn (4 %) versus the same period last year. The October 2002 deficit alone was USD155.3 mn, compared to USD114.1 mn for the same period of 2001.The balance on goods was in a deficit of an estimated USD198.3 mn for October 2002, USD20.4 mn worse than the USD177.9 mn for the same month a year ago.at USD1,087 mn (7 % of GDP), the ten-month balance of goods deficit showed a 156.1 million dollar improvement from the 1,243 million dollar (9.2 per cent) gap for January-October 2001.Over the last 12 months, the price of crude oil has been 34.5% than in October 2001. The October 2002 balance on services was in USD8.1 mn, USD5.5 mn worse than for the respective month of last year. The January- October 2002 balance on services was USD641.4 mn, USD66.8 mn better than the USD574.6 mn for the same period of 2001. The balance on travel reached USD690.7 mn in January-October 2002, compared to USD618.1 mn in 2001. During the period, the credit on income was USD276.4 mn, down USD20.6 mn from 2001, when it stood at USD296.9 mn. The debit on income was USD478.4 mn, down USD93.5 mn from 2001 as a result of the lower interest rates on the international financial markets and the March 2002 foreign debt deal. Net current transfers added up to USD432 mn for January-October, up USD29.5 mn from the like period of 2001. October foreign direct investments were USD100.6 mn, including the proceeds from the privatisation of Commercial Bank Biochim. The ten-month FDI figure was USD389.7 mn, down from USD493.9 mn for the same period of 2001. The decline was largely due to the negative net amount of intra-company credit which resulted, among other things, from foreign companies' investment decisions in an environment of slow growth rates of the world economy. Bulgarian residents' portfolio investments abroad dropped by USD120.7 mn in January- October 2002 while increasing by USD116.6 mn in the comparable period a year ago. The decrease was largely attributable to the sale of the collateral released after the foreign debt exchange operation in March. Resident commercial banks upped their portfolio investments abroad by USD73.1 mn, down from an increase of USD80.7 mn for January-October 2001. Commercial banks' forex deposits abroad diminished by USD351 mn, compared to a USD69.7 mn increase in the ten-month period of 2001. The reasons for this reversal include bank investments in Bulgarian government securities issued on the international and local financial markets, and an increase of loan-financing of local companies. The overall balance for January-October 2002 was in a USD561.3 mn surplus, compared to a USD76.2 mn deficit in 2001. USD mn, Preliminary data Sep., Prel. Sep, Rev. Oct Jan- Oct. Jan- Oct y/y,% A. Current account balance 153.8 38.3-155.3-215.8-60.1 Balance of goods -62.9-93.9-198.3-1087.2-12.6 Balance of services - Travel revenues 191.1 249.8 102.8 166.5-8.1 68.1 641.4 1218.8 11.6 10.0 Balance of Income -2.8-11.6 0.0-202.1-26.5 Current transfers 28.4 40.9 51.1 432.0 7.3 B. Capital and Financial account -115.9 129.7 169.7 1130.9 95.4 FDI, net 25.2 40.5 99.3 384.1-20.7 Net errors and omissions 59.1-24.2 126.3-353.7 210.5 Overall balance (A+B+C) 97.0 143.8 140.7 651.3 - Source: BNB 2
During the period, the central bank's forex reserves rose by USD463.5 mn, while shrinking by USD154.8 mn in January- October 2001, excluding exchange rate fluctuations. The sale of the securities, which were released as collateral by the March 2002 foreign debt exchange operation, contributed to the increase of the BNB forex reserves. 2. External Debt The Gross External Debt Was USD10.553 Mn At The End Of November Or 68.1 Of GDP The gross stock of Bulgaria's external debt was USD10.553 mn or 68.1% of GDP at the end of November 2002, according to the Central bank s data. The debt decreased by USD65.6 mn from the end of last year, when it exceeded USD10.618 mn or 78.3% of GDP. Long-term debt amounted to USD9.161 mn short-term debt to USD1.391 mn. End- November 2002 public debt decreased to USD8.232 mn (53.1% of GDP), down by USD150.2 mn from end-december 2001 when it stood at some USD8.012 mn. The government debt was USD7.861 mn at the end of November, or USD150.2 mn less than the USD8.012 mn at the end of 2001.At the end of November last year, the private sector owed foreign creditors USD2.321 mn. This marked a USD331.8 mn increase from end-2001. The debt of private commercial banks increased by USD23.3 mn to USD329.3 mn between end-december 2001 and end-november 2002, and the debt of private non-financial corporations rose by USD308.6 mn to USD1.992 mn during the same period. t the end of November, the gross stock of Bulgaria's external debt consisted of securities (USD4.563 mn or 43.2%), financial loans (USD4.955.3 mn or 47 %), commercial credit (7.6 %), and non-residents' deposits (2.2 per cent). A total of USD1.718 mn were paid in gross foreign debt service this year in January-November 2002. Of these, USD1.398 mn were principal repayments and USD320 mn were interest payments. Public-sector debt payments amounted to USD1.370 mn (USD1.082 mn principal and USD287.9 mn interest). This compares to USD1.125 mn for the same period of 2001. Private-sector debt payments added up to USD347.9 mn, of which USD315.7 mn on principal and USD32.2 mn in interest. Private commercial bank debt payments totalled USD132.8 mn. Private non-financial corporations paid their foreign creditors USD215.1 mn between January and November 2002. The new credits and deposits received in January-November 2002 were USD1.097 mn in the eleven-month period of 2002. Of these, USD547.6 mn went to the public sector and USD549.9 mn to the private sector. Private commercial banks received USD144.7 mn in credits and deposits. Private non-financial corporations received credits amounting to USD405.2 mn, up from USD302.1 mn a year earlier. II. REAL SECTOR 1. Gross Domestic Product (GDP) GDP Up 4.5% In Third Quarter, Y/Y According to the National Statistic s Institute data Bulgaria's gross domestic product increased 4.5% in the third quarter of 2002, year on year, and stood at BGN 8.971 bn at current prices. GDP per capita was BGN 1128. The share of the agricultural sector in the gross value added decreased from 20.8% to 19.3%, of the industrial sector, from 27.4% to 26.6%. Compared to the year-ago period, consumption increased 2.4%. The volume of foreign trade turnover rose 6.5%. Exports went up 5.9%, while imports declined 0.3%. GDP real Growth (%,у/у) Q1/ 01 Q2 02 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Agriculture -7.2-0.1 2.9 0.7 2.7-0.2-0.5 Industry 6.6 3.9 5.7 1.0 0.5 6.8 4.8 Services 2.9 4.3 3.5 5.8 6.6 5.3 6.3 GDP 4.0 4.1 3.9 4.2 3.2 5.3 4.5 Consumption 3.0 5.8 2.9 6..3 3.6 1.5 2.5 Investments 17.2 15.5 15.0 29.4 4.5 10.9 6.3 Export 14.2 9.6 13.6-3.1-4.4 0.8 5.9 Import 7.7 15.5 22.9 6.5 1.2 0.7-0.3 Source: NSI, preliminary data 3
For the first nine months of 2002 GDP increased 4.4%, year on year, and stood at BGN 23.441 bn, or BGN 2948 per capita. The private sector created 73.7% of the gross value added, up 7.9% compared to the yearago period. The share of the public sector in the gross value added decreased 3.7%, the share of the services sector rose 6.1%. Individual consumption increased 2.5%. Foreign trade deficit for January-September stood at BGN 831.5 mn. 2. Inflation December 2002 Inflation At 1.2% M/M According to the National Statistic s Institute data December 2002 inflation stood at 1.2%. The month's inflation was largely generated by rising food and oil prices. December 2002 food prices increased 2.8% from November 2002, non-foods 0.7%, and catering 0.3%. Prices of services dropped 0.4%. In the category of housing, electricity and fuel, prices edged up 0.2%. Liquid fuel for household use grew 4.7%, solid fuel 1.7%, and gaseous fuel 1%. In health care, December saw a slight rise in dental service fees and a slight fall in the prices of medicines and other medical products. Education fees remained unchanged. The 2.5% price rise in transport was largely due to price changes for fuel and lubricating oils (5.2 % up). The communications sector experienced a 3.2 % price fall, resulting from the service promotion campaign conducted by the Bulgarian Telecommunications Company around Christmas. % Change December, December, Weight m/m y/y CPI 1.2 3.8 100.0 Food 2.8-4.1 44.6 Non-food 0.7 10.6 26.3 Services -0.4 11.6 25.4 Catering 0.3 4.0 3.7 Source: NSI zero. Cumulated inflation for non-foods was 10.4%, catering 3.9%, and services 11.4%. Average annual inflation in 2002 stood at 5.8%, down from 7.4% in 2001 and 10.3% in 2000. 2. Industrial Output Trade Net Sales Grows 9.0% In November On A Y/Y Basis In January-November 2002, net sales of goods and services in the sector "Wholesale and retail trade; Repair of motor vehicles, motorcycles and personal and household goods" have increased by 3.5% in comparable prices from this time in 2001.An increase is identified in all main trading activities but is the most tangible in wholesale trade 4%, followed by retail trade 2.9% and trade in automobiles and fuels and car repairs 1.3%. In November 2002 the real volume of the net income was 9% higher than this time a year before. The increase was 10.8% in wholesale trade, 5.3% in trade in automobiles and fuels and car repairs, and 3.3% in retail trade and repair of personal and household goods. Real changes (%) November, у/у January- November, y/y Industrial sales 3.8-1.0 Extracting industry -9.9-1.1 Manufacturing 8.1-1..0 Utilities -13.8-0.8 Industrial Output 11.0 3.3 Retail Sales 3..3 2..9 Whole Sales 10.8 4.0 Source: NSI In retail trade, sales of textiles, clothes and footwear has increased the most 7.3%, coming ahead of foods, drinks and tobacco products 6% and household goods 3.6%. The downward trend persisted in trade in pharmaceuticals and medical goods fetching minus 5.9%. Cumulated inflation, December 2002 from December 2001, was 3.8%. Only five of the twelve months saw rising food prices and the cumulated inflation for this category is below 4
3. Unemployment December Unemployment Decreased To 16.27% According to the data of the Employment Agency over the past year, the number of jobless people declined by 12.4%. The unemployment levels declined from 18.57% in January 2002 to 16.27 % late last year. The current figure is the lowest since November 1999. In December last year, the registered number of jobless people in the labour bureaus was 602 500 people. The unemployment rates were also accounted by international statistics. According the EUROSTAT data in early 2002, Bulgaria accounted for the highest unemployment rate of all EU member states, while by mid-year, it managed to provide better results than Poland and Slovakia. Over the past year, via the mediation of the Employment Agency, a total of 210 000 unemployed people found new jobs. Additionally, a total of 96 000 jobs were opened under the programms of the Ministry of Labour and Social Policy and another 31 000 by the Economy Ministry. IV.FISCAL SECTOR Revenue in 2003 National Budget Set At BGN7.669 Mn, And Expenditure At 8.022 Mn Parliament set the revenue in the 2003 national budget at BGN7,660,341,900 including BGN6,093,041,200 in tax revenue, BGN1,565,735,700 in non-tax revenue, and BGN1,565,000 in benefits. The 2003 revenue from corporate taxes is projected at BGN872,557,800 including BGN47,616,300 from taxes charged on dividends and incomes; BGN26,343,000 from taxes on insurance and reinsurance premiums; BGN375,235,400; from taxes on natural persons' incomes; BGN2,943,152,100 from value added tax; BGN1,501,281,000 from excise duty and road toll; BGN180,100,000 from customs duty and other customs charges; and BGN146,755,500 from other taxes. Non-tax revenue is divided into revenue and incomes from property amounting to BGN1,024,525,100; stamp duty totalling BGN352,560,300; fines, sanctions and penalty interest totalling BGN125,511,900;others, BGN63,138,300. General Budget 2003 % of GDP Balance -0.7 Revenues, % of GDP Tax revenues, including 37.9 30.2 - Social insurance 10.5 - VAT 8.3 - Excise, road fees 4.3 - Personal income 3.0 - Corporate taxes 2.5 - Others 1.6 Non-tax revenues Grants 6.3 1.4 Expenditures Non-interest Interest 38.6 36.2 2.5 Projected GDP, NGN mn 35 286 Source: Ministry of Finance, preliminary data The 2003 national budget expenditure is projected at BGN8,021,618,100, including current expenses totalling BGN5,032,208,600; capital expenditures amounting to BGN537,760,900; national currency reserve growth of BGN9,500,000; contingency reserve of BGN72,300,000; and transfers amounting to BGN2,099,848,600. The budget deficit is set at BGN361,276,200. Privatisation proceeds in 2003 are projected at BGN495,000,000. A possible conflict in Iraq will have a minimal or almost no effect on the national budget, according to the Ministry of Finance. If the conflict lasts about three months, as most observers expect, and the price of oil reaches 40 dollars a barrel, it will have an impact above all on average annual inflation, which may rise from 4.5% to 5.7%. This will be mainly due to fuel prices. III. MONETARY SECTOR Government Securities Remain Major Priority In 2003 As of end of December EUR/USD rate was 1.02550 or USD/BGN 1.90720. At the beginning of January BGN closed at 1.85/1.83 versus USD reflecting EUR/USD exchange rate on the international markets through the BGN/EUR peg. For the same period high oil prices have an adverse impact 5
on the Bulgarian economy as it relies heavily on imported energy resources, and also because such price hikes push up inflation. For an economy such as Bulgaria's, which generates a rather low GDP, oil costs are of great importance. Although the impact is not positive, it is by no means destabilizing. BGN 2.20 2.10 2.00 1.90 1.80 1.70 12.02.02 12.04.02 BGN/USD Exchange Rate 12.06.02 12.10.02 12.12.02 December effective average BIR was 3.76%. The real interest rates estimated on a monthly inflation rate were: for short-term BGN loans (-0.42%) and for one month term deposits in BGN (-1.0%) on a monthly base. According to the Central's bank statistical data the average margin of short-term loan interest rates on annual effective base was 6.83%. The average weight effective interest rate on short-term loans in BGN was 10.22%, in EUR 9.41%, in USD- 6.57%. The average weight effective interest rate on long-term loans in BGN was 14.19%, in EUR 10.19%, in USD 8.73%. The average effective interest rate on one month term deposits was 3.20% on BGN deposits, 2.21% on EUR and 1.57% on USD deposits as well. The average effective interest rate of the demand deposits respectively was 0.40% on BGN, 0.55% on EUR and 0.69% on USD deposit base. % 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 12.14.02 BGN / USD 12.17.02 Interest Rates Defferential 03.31.01 12.31.01 01.31.02 03.31.02 04.30.02 05.31.02 06.30.02 07.31.02 08.31.02 09.30.02 10.31.02 11.30.02 12.31.02 Credits-Base interest rate 12.19.02 12.27.02 Credits-Deposits 12.29.02 According to the Central's bank statistical data current monthly BGN trading volume of inter-bank deposits for the overall banking system was BGN1389.9 mn. Placed resources in EUR and USD were respectively 1359.1mn and 663.3 mn. The average price of placed resources in BGN slightly increased from 1.0% to 1.23% on a monthly base. For the same period the average price of placed resources in EUR declined from 3.33% to 3.06% and in USD continued decline from 1.35% to 1.24% for one month period. Annual average yield on Treasury bills increased from 3.76% to 4.78% at the end of December. The annual average yield of medium and long-term bonds for the overall banking system decreased from 6.39% to 7.71%. In 2003 the Ministry of finance (MF) plans to increase the BGN issue of government securities by 10%, or BGN 150 million. Depending on the market conditions, the increase can reach BGN 400 mn After in 2002 the government conducted four operations for exchange of USD-denominated bonds issued under the Act to Settle Non- Performing Loans, known as ZUNKs, for EUR-denominated bonds, this year the MF will continue to convert such long-term securities. The first subscription for this year will begin on January 13 and will continue until January 20. The exchange itself will be made on January 24. The minimum amount of dollar ZUNKs an investor can swap is USD 10,000. According to the MF, the operation is part of the government's plans for reducing the risk of USD bonds by converting them into EUR-denominated papers. Such exchanges will be organised quarterly. According to the Central s bank statistical data the stock of domestic credit remained stable at some at 22% of projected GDP, as lending to the private sector continued to expand. The stock of credits to private companies and households grew by 44.13% y/y and covered nearly 90% of financing. Simultaneously with the conventional credit instruments for the local market, a rapidly growing number of retail products and 6
services started to offer joint or individual financing schemes for retail trade which succeeded to cover a large market segment during the Christmas and New Year holidays. According to the Central's bank statistical data as of end of December newly granted domestic BGN loans for overall banking system amounted to BGN 251.19 mn. For the same period the newly granted loans in EUR and USD were respectively 82.92 mn and 56.28 mn. (million BGN) New Credits Dynamics on Banking System 400 350 300 250 200 150 100 50 0 12.31.01 04.30.02 06.30.02 08.31.02 10.31.02 12.31.02 Banking system BGN Banking system USD Banking system EUR According to the Central s bank statistical data money supply indicators continued to provide positive signs for economic growth. M3 aggregate picked up by 12.3% y/y. The share of foreign currency remains high at about 40% of M3 and reported no changes compared to a year ago.the official data do not include cash holdings in foreign currency because of underestimates the ratio of currency substitution. At the same time the structure of bank deposits reported that more than 60% of them are held in foreign currencies although BGN instruments offer better interest rates and returns. As a whole the substitution is dominant in saving instruments, indicating that the economic agents are not fearing short-term currency risks but prefer to be more cautious in longterm perspective. On the other hand the large size of merchandise turnover to GDP provides transaction cost incentives for holding foreign currency deposits. The money multiplier increased slightly to 3.19 y/y at the end of December. We expect further development of the indicator with the rising role of bank cards and more aggressive retail banking. According to the Central's bank statistical data as of end of December BGN attracted resources for the overall banking system reached BGN 5505.9 mn. Thus, the BGN deposits in the banking sector grew by 8.56% m/m and 21.04% y/y. (million BGN) 6000 5000 4000 3000 2000 1000 Deposits Dynamics on Banking System 0 12.31.01 04.30.02 06.30.02 08.31.02 10.31.02 12.31.02 Banking system BGN Banking system foreign curr. The BGN equivalent of the FX denominated attracted resources for the overall banking system reached BGN 5291.90 mn as of end of December. Thus, the reported monthly decrease in the BGN equivalent of the FX deposit base for the system was 1.20% m/m as a result of the USD depreciation. The USD denominated deposit base for the overall banking system as well recorded nominal growth respectively by 25.52% IV. BANKING SECTOR The Net Financial Result Of The Banking System In November Reached BGN 258 mn According to the Central Bank s data the net financial result of the commercial banks declined from BGN 38mn in October to BGN 18mn in November. The income balance was affected by exchange rate fluctuations, as the net income from the interest rates improved in November, while profits from trading and revaluation operations dropped two times on a monthly base. The cumulative profit in January-November moved to BGN 258mn and dropped by 16.6% y/y. The assets of the bank system grew by a real 16.7% y/y as of end-november over a rapid credit expansion and increased holdings 7
of securities. The stock of credits to nonfinancial institutions and clients picked up by 34.2% y/y and the stock of securities by 41.6% y/y. 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) 811 2288 e-mail cekova_p@sof.ubb.bg, Analyst N. Racheva phone (359 2) 811 2289 e-mail racheva_n@sof.ubb.bg 8