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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011
BULGARIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
As the IMF point out, the current recession
was preceded by an investment boom in
construction, real estate and the associated
financial sectors. Now that the boom (which
was always unsustainable, Bulgaria's current
account deficit in 2007 hit almost 27% of GDP)
is well and truly over in these sectors, the
strong associated decline in investment could
have large negative effects on output.
Moreover, it will take considerable time before
the excess labor and resources that are no
longer needed in these sectors can be
absorbed by other sectors, which suggests
that the rate of unemployment may rise yet
further and remain higher for some
considerable time.
Following several years of strong increases
(around 6% a year) Bulgarian growth declined
sharply in 2009 when the economy was hit
hard by credit squeeze which formed part of
the global economic and financial crisis.
Capital inflows, which had been keeping the
current account deficit afloat, dropped from a
peak of 44 percent of GDP in 2007 to less
than 10 percent of GDP in 2009. As a result,
investment, which had risen by over 20
percent annually during the previous two
years, fell by nearly 30%. And as the
investment flows dried up, the Current Account
deficit closed rapidly, as imports (and
domestic consumption) dropped back sharply.
Employment also started to fall, while the
unemployment rate rose rapidly, hitting a
seasonally adjusted 9% in March and April this
year, according to Eurostat seasonally
adjusted data.
Recent changes in pension system
parameters and contribution rates have also
put significant pressure on Bulgaria's pension
finances. During the years 2003 to 2007 total
revenue surged by about 51 percent and
Bulgaria experienced the strongest rise in its
revenue-to-GDP ratio among the new EU
member states (about 4.5 percent of GDP).
This sudden increase in income encouraged
the Bulgarian authorities to offset part of the
additional revenue by lowering social security
contributions. Rates were cut by 6 percentage
points from 2002 to 2007 (for the pension and
unemployment funds) and there was a further
2.4 percentage points reduction in 2009.
As a result budget financing of the pension
system has risen sharply during the recession.
Before 2008 budget transfers to close the
financing gap of the pension fund had
averaged about 3 percent of GDP. This
increased to about 5 percent of GDP in 2009
and for 2010 the budget anticipates a transfer
of more than 6 percent of GDP. And if there is
not a sharp rebound in domestic consumption
(which in all probability there won't be) these
shortfalls become structural, not cyclical, and
solutions will need to be found.
Bulgaria does not publish seasonally adjusted
quarter-on-quarter growth numbers, but given
that the economy only shrank by 1.5% yearon-year
(according to the flash estimate
published by the statistics office on August
13), which was the lowest figure recorded
since the country entered a recession in the
first quarter of 2009 (and down from an annual
drop of 5.9% in Q4 2009), the economy does
at least seem to have stabilised.
As for the details agriculture contributed to the
improvement, with an increase of 1.6 per cent
year-on-year, while the services and industrial
sectors only declined by 1.7 per cent and 0.3
per cent, respectively. Private consumption,
which was one of the main drivers of
economic growth in earlier years, was down
an annual 7.6 per cent for the quarter, while
investment was 1.4 per cent lower. So there
has been no real improvement in private
consumption, nor should we expect to see any
in the near term
Despite an increase in exports (up 11.4% on
the year) and continued decline of imports
(down 1.2%), the trade gap for the second
quarter was expected to be 4.2 per cent of
GDP. As a result, the EU 2009–12
Convergence Programme is forecasting a
steady decline in potential growth to an annual
0.3 percent in 2050, and this meagre growth is
only obtained by assuming a - totally
unrealistic (in what will then be such an old
population) - labour participation rate of 70
percent. Personally, I think these numbers are
way, way to optimistic, and all of this is badly
in need of a current calibration based on what
is already happening in ageing societies like
Germany and Japan. Bulgaria's sustainable
growth rate doesn't start to get affected in
2050, it is already on its way down now.
Information obtained from the Exchange.
BULGARIA EXTERNAL SECTOR INDICATORS
2002 2003 2004 2005 2006 2007 2008 2009 2010
Gross external debt, Euro million 10,768,9 10,640,6 12,561,9 15,506,9 20,690,9 29,016,8 37,112,4 37,808,1 36,918,3
Gross External Debt (% GDP) 63.5 58.1 61.7 66.7 82.0 94.3 104.7 108.2 102.5
Current Account (% of GDP) -2.4 -5.3 -6.4 -11.6 -17.6 -25.2 -23.0 -8.9 -1.0
FDI (% of GDP) 5.8 10.1 13.4 13.6 23.5 29.4 19.0 6.9 4.5
BULGARIA MACROECONOMIC INDICATORS
2006 2007 2008 2009 2010
Gross domestic product (million BGN) 51,783 60,185 69,295 68,322 70,474
Gross domestic product (annual real growth rate, %) 6.5 6.4 6.2 -5.5 0.2
Consumer price index (average annual change, %) 7.3 8.4 12.3 2.8 2.4
Industrial production index (annual change, %) 6.0 9.6 0.7 -18.3 2.0
Key Information Contacts
Financial Supervision Commission www.fsc.bg
Central Depository www.csd-bg.bg
Bulgarian National Bank www.bnb.bg
Invest Bulgaria Agency www.investbg.government.bg
National Statistical Institute www.nsi.bg
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