Bloomberg News

Bulgarian GDP Growth to Slow on Low Global Demand, IIF Says

October 17, 2011

(Updates with comments from the report beginning in second paragraph.)

Oct. 17 (Bloomberg) -- Bulgaria’s economy will expand at a slower pace than government’s estimates until 2014 as the euro- area debt crisis cuts demand for exports from the Balkan nation, the Institute of International Finance said.

Gross domestic product will slow to 1.9 percent in 2011, 2.2 percent in 2012, 2.5 percent in 2013 and 3 percent in 2014, the Washington D.C.-based institute said in a report, e-mailed by the Finance Ministry in Sofia today.

“Assuming the sovereign-debt crisis in the Eurozone is resolved in an orderly manner, real GDP should increase roughly 2 percent both this year and next,” according to the report. “A poor global growth outlook and increased risk aversion have greatly increased uncertainty. Even so, Bulgaria appears more resilient than many in the region.”

Bulgaria, the European Union’s poorest country in terms of economic output per capita, weathered the global crisis without borrowing from international lenders. Bulgaria relies on exports to fuel growth, after its economy contracted 5.5 percent in 2009 and grew 0.2 percent in 2010. The EU buys some 60 percent of Bulgaria’s exports.

The government previously cut its 2012 forecast to 2.5 percent, leaving this year’s estimate of 3.6 percent unchanged so far. The government’s April estimates for 2013 and 2014 are 4.4 percent and 4.2 percent, respectively.

“While the heavily export-dependent economy would undoubtedly be strongly affected by sustained output weakness in Europe, it appears much less vulnerable to shifts in market sentiment given its small government deficit and debt, current- account surpluses and the absence of large refinancing needs until 2013, when a $1 billion Eurobond falls due,” the IIF said.

Bulgaria runs a currency board system, which is based on a lev-euro peg, bans central bank lending and requires the lev in circulation to match foreign-exchange reserves. The system helps keep public debt at around 16 percent of GDP for 2011, below the EU limit of 60 percent. The budget deficit is forecast to narrow to 2 percent of GDP this year from 3.9 percent in 2010, according to the IIF report.

Budget Deficit

The 2011 gap will be less than the government’s earlier estimate of 2.5 percent, while the 2012 shortfall will drop below 1.5 percent, Finance Minister Simeon Djankov said on Oct. 14. The ministry will unveil its 2012 budget outline later this month, he said.

Greek-owned banks, which have about 30 percent of the country’s banking assets, are not a risk because they are incorporated as local banks, are well capitalized, regulated and supervised by the central bank, the IIF said.

The assets of the banking department at the central bank, at nearly 3 billion euros ($4.2 billion), “should be more than sufficient to provide liquidity to these banks if needed,” it said.

Classified loans in Bulgaria rose to 13.5 percent of total lending in July from 11.9 percent at the end of 2010, fueled by “weak economic activity and falling employment,” the institute said. Banks are well capitalized with the aggregate capital adequacy ratio little changed since last year at 17.4 percent of risk-weighted assets, it said.

Bulgaria’s health-care and pension systems, which “remain costly and inefficient and are plagued by misuse and fraud,” are in need of an overhaul, according to the report.

--Editors: Douglas Lytle, Andrew Langley

To contact the reporter on this story: Elizabeth Konstantinova in Sofia at

To contact the editor responsible for this story: James M. Gomez at

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