Банкеръ Weekly

Briefs

FOREIGN TRADE DEFICIT RECORD HIGH AT BGN7.1BN

A few days ago the National Statistics Institute (NSI) made an announcement about a new gap in the Bulgarian economy. The record high deficit in the country's foreign trade balance reached BGN7.1BN (EUR3.6BN) in 2004. That figure means that in 2004 the country's import exceeded its export by the historical 45% compared to 2003.So far, the gap in the balance of payment has been successfully filled by revenues from foreign direct investment which went beyond EUR2BN in 2004. That helps the macroeconomic indicators to resist the pressure from the trade disbalance. And the public finance deficit is going straight to zero.Most experts not engaged with the rulers comment that Bulgaria's negative trade balance will not be overcome soon. That would not be an obstacle for the growth, provided that the import keeps increasing the production exporting capacity. The increased import is considered to have a healthy impact on the economy, because it stipulates future activity. On the other hand, the negative balance remains a challenge to the current account. The reason is that the financing of the deficit depends on the inflow of foreign investments. Therefore, on a macro level foreign trade and foreign investments act like communicating vessels that determine the stability of the public finances.Figures provided by the Bulgarian National Bank (BNB) show that from 2000 to 2003 the average annual rate of growth of import (CIF rates) of investment goods remained below the average one for consumer goods - 15% and 21% respectively. The same indicator for the first ten months of 2004 on an annual base is 22 and 26% respectively. On the other hand, the general export in terms of FOB rates has been growing by up to 10% a year since 2001.It's also true that Bulgaria has already become dependent on the European Union being its export partner (57% in terms of FOB prices in 2003 and approximately 60% in 2004). On the other hand, forecasts for the economic growth of countries in the Еurozone are moderately conservative which will certainly reflect on the opportunities to increase the Bulgarian export. Statistical figures show that the tendency for exceeding growth of the import compared to export has been observed since 1997, when the currency board arrangement was introduced in the country. Under its terms, the economy should be generating growth mainly through the export since money in circulation increases when foreign currency revenues increase. However, the existence of a foreign trade deficit means that the growth is mainly generated through domestic or foreign credits. Still, some day this money has to be paid back which means that the growth may disappear, too. That is why the IMF experts disagree with the expansion of the bank crediting that provoked a chronic gap in the balance of payment current account.Last year the trade disbalance went up by EUR1.33BN. In 2003, the trade deficit was BGN5.6BN. The total amount of foreign trade merchandise traffic registered by December 2004 was BGN38.4BN which was 20.5% higher compared to 2003. Commodities worth BGN22.7BN were imported in 2004. That amount includes transport costs, too.Examining the import in terms of merchandise groups shows that most of it is meant for further export. That is most valid for the machines and raw materials. For example, the import of textile materials exceeds 30% of the total amount of imported raw materials, but provides more than 60% of the export of all consumer goods.Also positive from an economic point of view are the electricity import figures. Despite this product's growing prices, its share in the total import amount is decreasing. Other things being equal, that should mean that the national economy consumes less energy. Export figures indicate that Bulgaria exported BGN15.6BN worth production which is 19.9% more than in 2003. Italy followed by Germany, Greece and Turkey have been Bulgaria's major export partners in the recent years. Last year 43% of the Bulgarian goods were exported to Italy, Germany, Turkey and Greece. Unrefined copper and electricity had the highest share in our country's exports. Petrol, flat-rolled products, copper anodes, ladies' blouses, and dinitrate carbonate fall into the group of the ten most exported commodities. Like in 2003, Bulgaria's main partners in the sphere of imports were Germany, Russia and Italy. The worth of the imports from these countries accounted for 37% of the aggregate amount that entered Bulgaria. Oil, natural gas and second-hand vehicles were among the most imported goods. The analysis of the turnover shows that for the time being the Bulgarian economy manages to cope with the high oil prices and the low UD dollar rate, as they neutralize their effects each other. On the other hand, a beneficial development of the Bulgarian industry is observed due to the favourable situation on the markets of raw materials worldwide (especially metals). In that situation the forecasts are that the dynamics of the country's trade turnover will remain unchanged in 2005. Unless a serious delay in the Eurozone's growth occurs.

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