Bulgaria alongside Romania, will experience a shock because of the global slow down of the world economy according to analysts. There will be job cuts both in these countries, as well as in Spain, Italy and the U.K. where many Bulgarians and Romanians work to support their families back home. The lack of access to foreign capital will be the major problem for the the East-European economies next year according to BNP Paribas. The huge foreign disbalance must be corrected now to avoid problems in the future. The expectation is that Romanian economy will shrink by 0.6%, while Bulgarian economy will shrink by 1,2%. The official unemployment figures are on the increase and has already reached 5.9% in Bulgaria and 4% in Romania in October 2008. In the last six years, unemployment has been steadily decreasing due to the emigration of work force to the West. The return of many of the this guest workers back home will combine with the inability of those who remain abroad to support their families in their homeland. In Bulgaria the money sent from workers abroad used to amount to 5% of the GDP according to the International Organisation for Migration.
Archive for November 2008
Bulgaria lost 220 million Euros with the decision of the European commission not to resume the accreditation of the two PHARE agencies in the country which has been taken in July of this year. The two agencies, one at the finance ministry, the other at the regional development ministry, have been administration 560 million Euros coming from the EU, of which 340 million Euros have already been allocated. The rest – 220 million Euros – had to be contracted in November 2008 but have been frozen and can not be used now.
The reason for this is that according to the European Commission, the measure which Bulgaria introduced in the last six months have been only promises and there have not been any concrete results. The problems linked to corruption, the application of law, the conflict of interest, the qualification and the number of the employees in administration and the management of the funds. This decision of the European Commission aims to protected the interests of all European citizens, including the Bulgarians, said Kristina Nagy, the speakeswoman of the European Commission. This action against an EU member state is without precedent in EU history. The aid that has been canceled or frozen is for farmers, road-building and other infrastructure projects.
There won’t be any skyscrapers in the near future in Sofia. The fear of bankruptcy put on hold all projects Manhattan style in the Bulgarian capital. Some of the projects for new shopping centres have also been stopped indefinitely. Many of the investors contemplate selling their plots of land rather than pushing ahead with their plans. Others decided to make completely new projects. They think that it is safer to have their money in cash which will give them the opportunity to buy bigger plots of land in two years time.
Due to the unpredictability of the property market at the moment, nobody expects the investors to pay the fee for planning permission for the first skyscraper in Sofia, despite the fact that ten companies have expressed interest in the project. Nobody can predict the fate of the first 90 m high skyscraper in Sofia which had to be built behind the central railway station. The project is only at the planning stage and the developers have not submitted the documentation in the municipality.
Some of the investors who started building office buildings combined with apartments, now would like to change their plans because of the falling prices of apartments.
“At the moment there are several projects approved by the municipality but they have not been launched yet by the developers. Everybody waits to see which way things will go. In March of next year the first blows will come. Then we shall see who will sell and who has the real intention to build”,
said Petar Dikov, the Chief Architect of Sofia. A clear example is the shopping mall on the junction of Todor Kableshkov Blvd and Bulgaria Blvd which for the second consecutive year has not even reached the ground level stage. A Lithuanian investment company has put on hold for an indefinite period their 500 million Euro project called Sofia Acropolis. The initial plans were to build a 800 000 sq. m. of shopping and entertainment area.
However, having in mind the atrocious practice of the last years to give planning permissions virtually for any building anywhere, if the uncontrolled construction stops, there are expectations that this might be to the benefit of Sofia.
Рublished in the Financial Times
By Kerin Hope and Theodor Troev in Sofia
There are warning signals everywhere, yet the European Union’s poorest member insists it can weather the global financial crisis.
Standard and Poor’s last month downgraded Bulgaria’s long-term debt to BBB. Fitch this month cut its rating to BBB- just one notch above junk bond status.
On Friday, the Bulgarian Industrial Association urged the finance ministry to redraft next year’s budget and cut the growth forecast from 4.7 per cent to 2 per cent of gross domestic product.
“We are witnessing an unprecedented global crisis… for the first time, the tensions in Bulgaria’s economy are caused not by internal but by foreign factors,” the association said.
However, Plamen Oresharski, the finance minister, rejects a suggestion that after bail-outs of Hungary and Ukraine by the International Monetary Fund, Bulgaria may be among the next in line.
“We are not in a similar position. Our banking system looks sound, with a good level of liquidity and healthy reserves,” he said. “Our concerns about the real economy are greater, but we still expect comparatively strong growth next year.”
Thanks to a record grain harvest, the economy is projected to expand this year by 6.9 per cent.
But the current account deficit – the highest in south-east Europe at about 24 per cent of GDP – appears unsustainable given an accelerating decline in foreign direct investment.
Investment inflows fell 48 per cent in the third quarter, according to central bank figures, following the collapse of a holiday-home construction bubble and a freeze on transfers by eurozone banks to their Bulgarian subsidiaries.
“Construction has been the most important growth driver, even more than in Spain, so the outlook is grave,” said Lubomir Christoff, a former chief economist at the central bank.
Sergey Stanishev, prime minister, has suggested Bulgaria should join the EU’s exchange rate mechanism next year. But although Bulgaria can point to a budget surplus and a low public debt (about 18 per cent of GDP), an annual inflation rate above 10 per cent rules out any chance of an early entry to the euro.
Mr Oresharski argues that an accumulated fiscal surplus of Lev12bn ($7.8bn, €6.2bn, £5.2bn) provides a cushion.
“One relief is that the government doesn’t have any short-term borrowing requirements,” he said.
In spite of rapid credit expansion since EU accession last year, total bank indebtedness is still low at about 30 per of GDP.
Lending is tight because foreign banks have lost access to funding from parent groups squeezed by the global credit crunch.
“We’ve been told to rely on our own resources, which means lending will slow,” said a senior executive at a foreign-owned bank.
Bulgaria’s currency board, which pegs the lev to the euro, is intended to eliminate foreign exchange risk. The arrangement also requires that money in circulation does not exceed central bank reserves.
With reserves at 180 per cent of currency in circulation, the lev was buttressed against an all-out attack on the currency board, Mr Oresharski said.
But other currency boards in the Baltics look less stable following Latvia’s request last week for EU help to fend off a crisis.
The total amount paid cash in hand by Bulgarian companies to their employees totals 4 billion levs (2 billion Euros) per annum according to Mediana social agency. More than 50% of the Bulgarian workforce confess that they receive part of their income unofficially, according to the Ministry of Social Affairs. The average income for the country is 523 lv. At the same time many Bulgarians have bought new homes and cars. According to the General Labour Inspectorate, 90% of the inspected companies have labour contracts with their employees at the minimal wage. The loss of the state in unpaid tax is enormous.