What awaits Bulgaria in the new 2014 certainly will not resemble what we saw in the past years. The calls for austerity measures, at least in Europe, are subsiding. The world is no longer talking about rising unemployment – rather, the trend is reversing and the unemployed people will decrease. Now we are talking about growth, stability, recovery. The forecasts are for intensification of economic activities. This will inevitably lead to an increase in GDP for both the leading and all the other countries, including Bulgaria, but still a little delayed in time.
Practice shows that the situation in the U.S. and the euro area will inevitably have an impact on the Bulgarian economy, but with a delay of several months. The unemployment rate will decrease and the U.S. will establish a lasting rate of below 7 %, while in Europe – below 10%. The same can be expected for Bulgaria. Currently unemployed in Bulgaria are a relatively higher figure endash at the level of 11.2%.
Inflationary process will gather momentum and rising prices of goods and services will again come to the attention of central bankers. In response to the accelerated inflation, interest rates on interbank deposits will increase just as the yield on government bonds, however their price will be lowered permanently from now on. In a word, we are waiting for our bright future and this will be so until the next crisis.
In Bulgaria it still persists and has no intention to go, in spite of the sparks of positive signals. In times of crisis people save more, they are afraid to spend the money available and draw new loans. Against this background, interests on deposits and on loans are falling. Throughout 2013 locally operating commercial banks faced the challenge of constantly declining interest income caused mostly by the sheer volume of bad credits. In order to neutralize the negative interest rate trends, many banks resorted to increasing existing fees and commissions, as well as the introduction of new ones.
In 2013 the assets of the banking system increased by just over 3 billion levs, reaching a record total value of 86 billion levs. A record-high hit also the level of borrowings by companies and citizens. At the time being they reached 24 billion and 39 billion levs respectively. The capital of the banks did increase by only 0.3 billion levs and is currently 11.1 billion levs. The lending remained clogged throughout the year on a net basis (newly extended minus repaid and written-off loans) and the loan portfolio of the banking system remained virtually unchanged. The total lent funds currently reach 56.5 billion levs, the same level they stayed at the end of 2012. The continuing raising of money in conjunction with a blocked lending made banks face the dilemma of how to dispose of the ever-growing mass of liquidity. One of the areas was to return already taken loans from foreign banks. The total amount of deposits repaid surpassed 5 billion levs for the entire 2013. As a result, at the end of the year, Bulgariarquote s banking system borrowers became a net depositor against foreign banks. The local money market remained huddled and with limited liquidity options. The average daily turnovers gravitated around 200 million levs. The interest rates on most traded overnight deposits remained at historically lowest levels of all times at 0.02%. This is the average value as the index LEONIA and also the base interest rate.
Forecasts for next year show a GDP growth of 1.5% (by the European Commission), or 1.8% ( by the Bulgarian government), and reach up to 2% (by the European Bank for Reconstruction and Development). At least in the first months of 2014 any massive withdrawal of deposits from banks is unlikely, nor is it likely applications for new credits to hit high numbers. Local banks will remain handling with excess liquidity. Therefore interest rates on interbank deposits will most probably remain at current levels. Moreover, the ECB does not envisage any lifting of the key interest rate on the refinancing operations.
In the past year there was a great movement in the state debt. In 2013 a transformation of government debt was implemented – internal debt increased at the expense of the external one. The overall debt of the country increased by a total of only 350 million levs and reached an equivalent of 14 billion levs. Internal debt of 5 billion levs at the end of 2012 reached 6.3 billion levs at the end of 2013. For the entire 2013 the Treasury paid a nominal 210 million levs in principal repayment, but issued 1.5 billion levs in new domestic debt. External indebtedness fell from 8.7 billion levs to 7.7 billion levs at the end of 2012. Yet at the beginning of the year the maturity payment of the countryrquote s global bond issue in the amount of 820 million euros was made. But at the end of the period the external debt swelled by a new 290 million levs as a result of the privately placed Schuldschein loans.
In 2014, we can expect greater movement in the debt structure. Forthcoming are the maturities of government bonds with a nominal 1.05 billion levs issued on the domestic market. Interest that must be paid this year come to nearly 0.25 billion levs, or the state financial institution must pay a total of 1.3 billion levs in connection to these vehicles. Many of these payments, or about 900 million levs, are to be implemented in the first half of the year. One should not forget the maturity date of global bonds denominated in U.S. dollars, which is January 15, 2015, when the state has to dig for another 1.13 billion dollars. Therefore, the Ministry of Finance that announced in the last hours of the 2013 the issue policy and issuing calendar for January, said, the indicative total volume of external financing amounted to 3 billion levs. Funding from the internal market is expected to come to the gross amount of 1.2 billion levs. The concentration of maturities of domestic emissions in the first months of the year provides for a more intensive sale of government bonds maturing in three, six and nine months, i.e. within the beginning year. The aim is to „mitigate“ the net financial flows in the first half. The fiscal reserve tapered down to just over 4.5 billion levs, which is its sanitary minimum. The Treasury would find it difficult to cope with the payment of the aforementioned 900 million levs if it doesnrquote t want to worsen the problem with the reserve. On the other hand, it is practically impossible to emit more than the prescribed in recent years normal volumes of securities with maturities of more than three years without a significant upward impact on yields – an effect prejudicial to the interests of the government. Therefore from the planned for January sales of new emissions totaling 900 million levs, a total of 800 million levs are emissions due in six to nine months and for part of them new long-term bonds will be issued. Then, by the end of the first quarter, another 550 million levs in nominal value will again be placed. Certainly the profitability of Bulgarian securities will increase. At the end of 2014 the yield on the three-year bonds may be expected to rise from the current 1.6 to 1.85 % annually. Bulgariarquote s bonds maturing in five years are to jump from the current yield of 2.3% to 2.55% by the end of the year. At least at 3.85% annual yield would be traded the 10-year bills, which is by 35 basis points higher than the current 3.5%.
