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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005
BULGARIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Politic and Economic Environment:
Bulgaria has a low wage structure and a
well-educated workforce. With IMF
assistance, the economy has recovered
slowly from a severe crisis in the financial
sector in 1996-1997. Subsequent disruptions
arising from restructuring, war in Kosovo and
financial crisis in Turkey have also hindered
recent economic performance. However, in
comparison to neighboring Romania,
political stability and leadership have been
relatively good, making reasonable progress
possible over the last three and a half years.
This has helped provide hope of EU
accession by 2007. IMF assistance led to the
establishment of a currency board
arrangement pegging the lev to the euro.
This arrangement has resolved the inflation
problem and set the stage for the economy's
recovery and growth.
While the office of the President in Bulgaria
has limited political power, it was expected
that Parvanov would be a key player in
foreign policy issues, especially those
concerning rebuilding relations with
neighboring countries. Particularly, it was
believed that he would also be instrumental
in re-establishing economic and political ties
with Russia, Ukraine, neighboring Balkan
countries and the Middle East. Parvanov was
also expected to be involved in steering
Bulgaria's accession into the European
Union, and toward the country's goal of
gaining entrance into NATO
Another pressing issue is the call by the
European Commission for the nuclear
reactors of the Kozloduy nuclear power
station to be closed. The reactors provide an
inexpensive source of power to Bulgaria.
Despite this reality, however, the Bulgarian
government decided that the benefits of EU
inclusion outweighed the benefits of cheap
electricity and began to close its nuclear
reactors in late 2002. The country is slated
for entry into the EU in 2007.
Key Information Contacts
Financial Supervision Commission www.fsc.bg
Central Securities Depository www.cdad.bg
Bulgarian National Bank www.bnb.bg
Ministry of Finance www.uae.gov.ae/mop
Ministry of Economy and Commerce www.minfin.government.bg
ECONOMIC RATIOS
Domestic
savings
PAGE 68
Bulgaria
Lower-middle-income group
Trade
Indebtedness
Investment
The parliamentary election held on June 25th
resulted in no one party winning a clear
majority. The Bulgarian Socialist Party (BSP)
will be the largest party in parliament,
winning 31% of the vote, with the Simeon II
National Movement (SNM), the main party in
the current government, placing second with
20%. The BSP is expected to form a coalition
government with the ethnic Turkish
Movement for Rights and Freedoms (MRF)
who garnered 13% of the vote. No major
changes in economic policy are expected
after the election.
Declarations by the SNM that it would not
form a coalition with the BSP may complicate
attempts to form a government. The results
of the referendums on the EU constitutional
treaty in France and the Netherlands have
increased the risk that Bulgarian entry to the
EU will be delayed beyond January 2007.
Although the main parties are all promising
faster economic growth and increases in
wages in their electoral campaigns, there are
only minor differences in macroeconomic
policy between the parties. 1
Economic Performance:
Real GDP increased by 4.3% in 2003,
roughly in line with 4.8% growth in 2002 and
4.5% growth in 2001 and 2000. Growth was
highlighted by a sharp increase in consumer
credit driven consumption and investment.
Inflation stood at a relatively low 2% in the
third quarter of 2003 due to the appreciation
of the euro. The unemployment rate, which
had increased to more than 18% in 2000 as
large numbers of jobs in state-owned
businesses were eliminated, dropped to a
four-year low of 12.98% in August 2003, and
stood at 13.2% in November 2003, due in
part to the effectiveness of new community
jobs programs. Prudent spending habits
combined with a surge in import derived tax
revenues tilted the fiscal position into a
surplus of 2.5% of GDP in 2003.
GROWTH OF INVESTMENT AND GDP
(%)
40
20
0
-20
97
GDI GDP
From 1997 through 2001, foreigners have
directly invested more than US$ 3.5 billion in
Bulgaria; more than US$ 1 billion arrived in
2000 alone. FDI covered almost 90% of the
current account deficit in 2003. The
government is counting on sustained FDI
inflows of US$ 1 billion over the next few
years as the centerpiece of its plan to
finance the current account deficits it
anticipates. The high rate of FDI contributed
to building the international reserves to 5.3
billion Euros by the end of the third quarter of
2003. With the establishment of the currency
board and stabilization of the currency,
inflows of funds in private bank deposits
have also created a flow of financial
resources into Bulgaria. 2
There is a forecasted slowdown in annual
real GDP growth to 4.8% in 2005 (from 5.6%
in 2004), and to 4.3% in 2006, as domestic
demand growth eases and export growth is
constrained by weaker foreign demand.
Inflation is set to average 4.4% in 2005 and
4% in 2006. The current-account deficit is
expected to rise to 8.6% of GDP in 2005,
pushed up by high oil prices and strong
domestic demand.
The forecast for economic growth has been
raised to 4.8% this year to reflect the strong
increase in domestic trade and exports in the
first four months of 2005. In addition the
forecast for the euro's exchange rate has
been lowered following the French and
Dutch referendums; this gives a boost to
Bulgaria's export competitiveness but also
contributes to an increase in our forecast for
inflation this year. 3
1 Bulgaria Country Report, Economic and Political Outlook,
The Economist, www.economist.com
2 Economic and Political Overview, County Watch
Incorporated, 2005
3 Bulgaria Country Report, Economic and Political Outlook,
The Economist, www.economist.com
98 99 00 01 02 03
* World Bank reports