LM Legal Services Blog

The Bulgarian government has approved the draft amendments to the Law for the Forests and has sent them to the parliament for voting. According to the draft amendments more than 100 state owned companies that look after the forests will be allowed to cut and sell timber. Until now only private companies have been doing this after participating in tenders. There will be preferences for strategic partners of the state in the tenders for the production of timber.
The amendments shall make the regulations concerning the process of constructing skiing slopes and lifts pretty lose. The current obligatory requirement to exclude the plots of land where the skiing slopes and lifts will be positioned from the forestry fund shall not be in force any more. However, this shall not apply to plots of land where wind power turbines will be constructed.

The construction and the notarial chamber have offered to the Bulgarian government to freeze the interest rates for mortgages in case that this is the only home of the mortgagee.  It was proposed that the properties of the debtors should not be repossessed.  This will stabilise the property market according to the chamber.  Some analysts predict that the turnover in construction will decrease by 2 billion levs because of the recession. At the same time the debts between constuction companies will increase which will create a lot of tention.

The State
Bulgaria can repay its foreign debt according to the Bulgarian National Bank. The Bulgarian government has to pay 2,69 billion Euros to its foreign creditors. At the same time the fiscal reserve is 3,73 billion Euros. The foreign debt has decreased from 3,02 billion Euros to 2,69 billion Euros in March this year. The government has to repay the Euro bonds emitted in 2002, which amount to 1,6 billion Euros. The other debts are: 760 million Euros to the World Bank, 330 million Euros to the European Investment Bank and 17 million Euros to the European Bank for Reconstruction and Development.

Private Companies
The situation with the foreign debt of the Bulgarian private companies is different. In the end of April 2008 the debt was totaling 28.03 billion Euros – similar in size to the Bulgarian GDP for 2007. In four months this debt has increased by 2.97 billion Euros and the annual increase was 9.59 billion Euros. 10.7 billion Euros of this debt have been in the form of loans which foreign owners gave to their Bulgarian companies. These loans have been granted for the purchase of equipment and technologies, and subsequently, the official statistic considers them foreign investments. Unlike direct investments, these loans have to be repaid. It is not clear if these in-company loans have led to the accumulation of profit, sufficient enough for their repayment or the companies just sell their production and services for levs on the domestic market and then buy Euros to repay the loans.

The Banks
According to the Bulgarian National Bank, the foreign financing received by the Bulgarian banks by April 2008 has increase by 740 million Euros and has reached 6.49 billion Euros in total. The increase is the result of short-term deposits of foreign financial institutions at Bulgarian banks, rather than long-term credit lines.

The question is how long the country will be able to withstand the speedy increase of the foreign debts and whether this will lead to shrinking of the currency reserve.