Банкеръ Weekly

Briefs

BULGARIA ENTERS THE SEASON OF BIG DEBT PAYMENTS

Bulgaria's foreign debt has always been a threat for its economy. The beginning of the new millenium will test the vitality of the Currency Board because Bulgaria is entering the period of its biggest payments to foreign creditors.
On January 29, 2001, the Ministry of Finance has to pay off about USD161M in interests on Brady bonds. By the end of 2001 it should have paid off USD1.36BN, in 2002 - over USD1.4BN, and in 2003 - over USD1.5BN. During these three years the Bulgarian government will start paying off the principals on two of the three types of Brady bonds - Interest Arrears Bonds (IABs) and Front-Loaded Interest Reduction Bonds (FLIRBs). It is still to make its most considerable payments to state creditors, united in the Paris Club.
The money needed for redemption of the foreign debt will gradually decrease after 2003. It will amount to less than USD1BN annually in 2005.
Until July Bulgaria has to pay USD885M to foreign creditors - 65% of all funds they should receive by the end of 2001. All annual liabilities of the country of USD351.4M to the London Club, which unites private creditors-Brady bonds holders, will be paid off. For the first time in July 2001 creditors will also be paid 1% - USD16.1M, of the principals on the Interest Arrears Bonds (IABs), apart from the interests. Next year Bulgaria will begin paying on FLIRBs' principals which will take USD141M every year.
By the end of July 2001 creditors from the Paris Club will have received USD125.8M - more than half of the money the government should pay them for the whole year. Besides, USD228.2M or 61% of the annual amount which Bulgaria has to redeem to the IMF, will be added to the accounts of the fund in the first seven months of the year.
Since November 2000 rulers have been constantly claiming that Bulgaria is able to pay off its foreign debt without raising its amount or significantly decreasing the foreign reserve.
Is that true? According to the government's budget forecast, import is going to exceed export by USD1,187.2M, which will be the amount of the country's trade deficit. But the cabinet hopes that tourism will keep reporting good results in 2001 which will make service revenues exceed expenses by nearly USD520M. If these forecasts come true, the Current Account gap is expected to amount to USD669M. Foreign debt payments for 2001 should be added to this amount and it turns out that Bulgaria will have to cope with a currency shor-fall worth USD2,024.2M. This amount may even be smaller if the prices of power suppliers fall down.
But as far as figures depend on the market situation, the Current Account deficit may also exceed the expected parametres.
In 2001 Bulgaria counts on investments worth USD1,380M, half of which will come from privatization deals and the rest - from the establishment of new companies. Therefore, there is still a USD644.2M currency gap which will be filled by foreign financing.
By the time the 3-year agreement with the IMF is over, Bulgaria will have received other two tranches totaling USD136M. Negotiations with the World Bank for signing FESAL III and ASAL III loans will begin in March. If they come to a successful end, the country will provide other USD150M. It will also receive USD50M from the Japanese Ex-Im Bank. The government relies on other EUR250M (USD237M) from pre-accession funds of the European Union too. The money they provide is not expected to be paid off.
In case that all these amounts totaling USD573M, are spent, Bulgaria will only need about USD71.2M, which it can cover on the account of its foreign reserve.
The current analysis does not take into consideration the potential of the grey economy which surpises the financial sector almost every year by selling it between USD100M and USD150M.
However, the above-described scenario is both favourable and fragile. It can easily fail if the rulers loosen the financial discipline, if they fail to conduct reforms in the energy sector on which the international financial institutions insist so much, or if they fail to finish the privatization of BIOCHIM, DZI, BTC, Bulgartabak.

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