Банкеръ Weekly



These days it became clear that the Bulgarian economy again breaks negative records. Although the Government never missed an opportunity to boast of its achievements on a macroeconomic level, NGO experts estimated the debts of enterprises by end-2003 at the critical amount of BGN46BN. This is 2.8 times higher that in end-1997 when hyperinflation ate up liabilities of companies from the non-finance sector of the economy. The annual analysis of the Bulgarian Industrial Association (BIA) shows that in 2003 the growth of debts continued to be considerably higher that the growth of GDP (4.3%) and of investments (14%). The pace of their increase went up from 12.4% in 2002 to 21.5% in 2003, that is almost twice. The balance is quite alarming. In the end of 2003 enterprises' liabilities were 34% higher than Bulgaria's GDP (BGN34.41BN), while in 2002 they were 17% higher than GDP (BGN32.335BN).As a whole in the last five yearsdebts were rising by 23% annuallyThe leaders in accruing liabilities were companies from the sectors of trade, transport, manufacture of foods and drinks, of metals and metal products. The construction branch was the only one that dropped from the black list in 2003. That was mostly due to the efforts of entrepreneurs, BIA experts commented. According to them, the Bulgarian economy is already in a risky situation even if the annual growth of GDP is around 5 per cent. The reason is that proceeds from sales of enterprises from the real sector are already equal to their liabilities. (In the end of 1998 that ratio was 2:1.)Economists who do not belong to the Government point out that this means a delay of the national capital's turnover which could grow into a liquidity crisis of the real sector companies. Another problem is that once they go into the economy of parallel money firms are not in a position to come out of the mire of mutual indebtedness and inevitably join the chain of delayed payments. Thus, the vicious cycle is complete. In thе beginning the enterprises cannot get in due time or never get their money from sold goods and services. Therefore, they are forced to delay payment of wages to their personnel or even not pay them at all. Afterwards they stop paying their bills to the National Electricity Company (NEC), the water and sewage utilities, the Bulgarian Telecommunications Company (BTC), etc. At the same time debts to the republican budget are accrued from overdue payment of local fees and taxes. At the end of 2003 the republican budget's receivables from unpaid taxes amounted to BGN910MN, or about 50% of all tax liabilities of enterprises for the year. Judging by BIA's most recent data, liabilities in the private sector already reach 87% of the total intercompany indebtedness, while those in the public sector have dropped to 13 per cent. In 2003 that ratio was 86% to 14 per cent. Worse than that, 25% of all liabilities have been completely frozen and are not serviced. That makes some BGN7.5BN of overdue liabilities to various economic entities. Practically, the financial sector is the only one, untouched by the crisis. After the bad memory of the banking crisis in 1996-1997 strict discipline was introduced into that branch. The State has also contributed to the deepening of the problem by unevenly distributing budget funds and extending subsidies to some sectors of the economy. The budget mistake is systematicBIA's Chairman Bozhidar Danev claims. The reason is that the budget is approved in December, while the institutions do not know what resources they will have at their disposal until March the following year. The money itself reaches hospitals, schools, kindergartens, etc. only in September when they have already accrued debts to their suppliers. On the other hand, due to expectations of being granted subsidies, economic agents close contracts in advance, but very often payments under them are not effected. Thus, the State has become one of the major originators of the debt play and gives no signs of intending to undertake measures to deal away with the problem. One of the possible solutions is the introduction of the institution of the private bailiff in Bulgaria's legislation. The idea is to ensure in that way quick and efficient collection of receivables. Moreover, competition between the private bailiffs would reduce the costs for gathering debts. Hence, taxpayers' expenses will go down and will encourage economic growth. In countries like Turkey and Greece, non-payment of liabilities is regarded as a crime, but in Bulgaria the power plays the role of a passive observer of the gradual bankruptcy of enterprises.Otherwise, the problem was widely proclaimed as one of the nine measures in the programme for reviving the country's economy, proposed by former vice premier Nikolay Vassilev in 2002. Still then the Government declared it would change the legislative framework in order to make possible the transformation of direct credit liabilities into bonds, to be traded on the secondary market. Today, however, it is obvious that intention for tightening financial discipline has altogether dropped from the Cabinet's agenda.

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