Bulgaria’s Govt Debt To Rise to Healthy EUR10BN in Three Years

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Politicians love manipulating the public with the issue of the public debt. When in power, they claim that they take new money borrowed to back loans incurred by their predecessors. When they are in opposition, their favorite motto is that the government debt is rising that future generations will have to pay back. In all these stories there is some truth. But every half-truth is very close to an outright lie. Tales that new loans should not be taken because they would lie on the shoulders of future generations are primitive populism and border with financial retardation.

Experts know that the debt has existed for as long as a state has existed. Without it, a country can not develop and carry out its basic functions. The reason is that state revenue is always less than the financial needs of government for the country in the administrative, social, foreign political, economic and military sectors. Therefore, a government debt and a government always go hand in hand. The important questions are what the size of this debt is, what the cost of servicing is, how is it structured in terms of maturities of principal and interest payments, what the possible sources of refinancing are and to which ones the state has real access. In other words, it’s all about proper debt management. Not surprisingly, one of the Maastricht criteria is that debt does not exceed 60% of the gross domestic product of the state. In recent years we have all witnessed what comes out of non-observing these rules.


for Bulgaria the national debt is not a problem

and is not expected to be. At least such are the conclusions of the three-year programme of the government. As Finance Minister Peter Tchobanov, mentioned recently, the public debt at the end of 2013 was 14.1 billion levs – by 300 million levs less than it was in March. This is the final result regardless of the apocalyptic predictions of opponents of the government and President Rosen Plevneliev during the update of the state budget in the middle of 2013. They all claimed that the increase in the state debt by 1 billion levs, that the country could issue during the year, was done with unclear objectives and the money would be stolen. As we have seen the funds in question were neither stolen nor were spent aimlessly. They had paid the government debt issued by the government of GERB and were used to increase the fiscal reserve.

Almost the same tragicomedy is currently playing out in the media with those 4.4 billion levs which according to the Budget Act the government will issue as a

new debt in 2014

On this topic, the most accurate and certainly the most knowledgeable again are the explanations already given a month ago by Finance Minister Peter Tchobanov. According to him, 3 billion levs will be used to refinance old debt. Of it a 1.7-billion-lev-part is the debt on global bonds of Bulgaria maturing in January 2015. The remaining 1.3 billion levs will be used to repay old – especially domestic debt, which matures in 2014. To finance the budget deficit will be needed another 1.4 billion levs. If it turns out to be less than the planned money, what is saved will go in the fiscal reserve. So for purely fiscal reasons, the public debt in 2014 will increase to 15.5 billion levs. A further

increase, however, will be incurred under the investment programme

According to the three-year budget forecast the government plans to acquire several loans. “The external financing in 2014 from official international financial institutions such as the International Bank for Reconstruction and Development and the European Investment Bank will amount to 384.8 million levs. Expected increase under the credit agreement over a structured programme loan to co-financing EU projects between Bulgaria and European Investment Bank in 2014 is at about 160 million euros. An option is seen that within 2014 talks may be held with the EIB to conclude a new agreement on structural programme loan amounting to 500 million euros for co-financing of projects implemented with resources from the EU funds for the period 2014-2020, subject to a subsequent ratification, the forecast of the government says. According to it, once all these projects are carried out, the national debt in 2014 will increase by a total of 3.4 billion levs and at the end of the year will total 18 billion levs.

Over the next two years – 2015 and 2016 –

the government debt will increase by an additional 2 billion levs.

The reason for this is will be repayment of old debts and financing of various projects related to economic development. There is a planned framework loan from the EIB that will be used finance small projects in the agricultural sector amounting to 150 million euros. Again with the same bank, the government will conclude an investment loan for 300 million euros under the project “Transit Roads VI”. The money from this loan will be used for reconstruction and modernization of the road network. The third loan that is planned is with the Chinese Eximbank. Its size will be 200 million euros to finance the Bulgarian-Chinese investment projects in the manufacturing sector, infrastructure and technology.

Apart from the investment loans, in the period 2015-2016 a new debt will be issued to repay bond obligations already incurred. In all cases in 2016 the government will need to release bonds worth nearly 1 billion euros to provide the necessary funds, which in 2017 will be used to repay the 5-year issue with a nominal value of EUR 950 million, placed by Finance Minister Simeon Dyankov of the former GERB-led cabinet. The calculations for all loans and repayments say that the total government debt at the end of 2016 will reach 20 billion levs, or 22.1% of the projected GDP. Even with this increased borrowing Bulgaria will remain among the countries in Europe with the lowest debt to gross domestic product ratio. More importantly, however, the servicing of these debts will not increase the burden on the state budget. Since the beginning of 2014 and by the end of 2016 the interest payments will gradually increase from 663.2 million to 780 million levs per year. But as a share of GDP, they will continue to stay within the healthy 1 percent. In other words, the cost of servicing the debt will not pose a risk to the Treasury. Unlike the situation with the funds for the maintenance of the pension system and social benefits, healthcare sector and education.


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