THE GHOST OF THE FOREIGN DEBT SNARLS AT THE CORNER
The Audit Office recommends that a special administrative body be established in order to manage the state obligations until Bulgaria joins the European Union. The conclusion has been made as a consequence from the June 2004 review of the management of the government's obligations in 2003. Moreover, the Audit Office report informs that almost all EU member states have specialized bodies of this type. The bodies are established in two ways - either as a specialized debt management office in the Ministry of Finance (but not as part of its administration) or as a debt agency which is an independent legal entity. Ten countries have adopted that model of management - Belgium, Germany, France, Greece, Great Britan, Ireland, the Netherlands, Austria, Portugal, and Sweden. In five other members of the EU - Denmark, Finland, Italy, Luxemburg, Spain, the Ministry of Finance manages the debt directly, either independently or along with the Central Bank.According to the auditing report of the Audit Office, if debt transactions get separated and managed by an independent body, there will be a great positive effect - they will no longer depend on the political situation. Debt deals will be entrusted to professionals who will not think about keeping their job every time the country changes its rulers. However, the report specifies that if transactions with the foreign debt are entrusted to an independent body, a special administrative unit should be established in the Ministry of Finance and should be given power to supervise the activity of that body.The Audit Office pays special attention to the need that the government should provide the National Assembly with more extensive information about the condition of the state foreign debt and the perspectives of applying different approaches of management. That will help the parliament members get a clear idea of the financial instruments that will be used when new credits are signed, as well as with the results from their application. Besides, the MPs will have to be informed about the use of derivatives, the guarantees assumed, the changes in the state's credit rating, and the interest forecasts, as well as the current situation on the international financial markets.The financial ministry is advised that the state debt management strategy which is updated every year should become a major document for the adoption of the Law on the State Budget. The strategy should contain information about the tendencies in the level of the debt and the related possibilities for new commitments on behalf of the state as well as descriptions of the resulting risks for the budget.The Audit Office experts underline that the making of decisions on the debt management requires considerable professional skills. Meanwhile, most Bulgarian MPs and even members of the budget and economic commissions in the National Assembly are quite uneducated in this field. In fact, this is not an aspect in which the Bulgarian parliamentarians differ from their counterparts in many of the EU countries. It becomes clear from the report of the Bulgarian Audit Office that the MPs and the society in the West are regularly flooded with information and analysis dedicated to the management of the debt. For example, a board in the German parliament occupies with the credit financing of the Federal Republic from January 1, 2002, by initiative of the Federal Audit Office. The activities of that board are regulated by the Law on Management of Federal Securities.The board includes members of the parliamentary budget commission, representatives of the Federal Ministry of Finance and the Federal Audit Office. The number of its members and the method of work are defined by the parliament. The Federal Ministry of Finance and the Federal Audit Office have permanent representatives. The board can make decisions on attracting other participants, too. The federal minister of finance informs the board about all issues concerning the management of the debt. The debates within that board remain confidential, however. Every quarter of the year the board discusses problems in the current implementation of the debt strategy.Right now it would be useful to establish a similar body in Bulgaria, too, as it would act as a link between the parliament and the executive power. It could also help for accelerating the harmonisation of the debt management with the requirements of the European definitions and practice. The board could take up the functions of a consultative structure on the management of the fiscal reserve. The Ministry of Finance and the respective ministers will be able to periodically inform the board about the utilisation of the investment loans. Its meetings should also pay attention to the problems concerning the utilisation of the money launched by European funds, the Audit Office report continues.The problem put by the audit experts is not trivial at all. Since a year or two ago the rulers have been using every chance to underline that the cabinet of Simeon Saxe-Coburg-Gotha has reduced the state foreign debt by EUR2.6BN - from EUR9.9BN in the early 2002 to EUR7.3BN at the end of April 2004. For the same period, payments to foreign creditors have fallen, too - from EUR750MN in 2002 to the EUR400MN planned to be redeemed by the end of 2004. At the same time the fiscal reserve of the government has increased. According to the data published in the report of the Audit Office, in the end of 2002 the reserve amounted to EUR1.3BN and in the end of 2004 it is expected to reach EUR1.8BN. All these figures lead to the impression that Bulgaria can already forget about the problems with serving its foreign debt. Still, that may appear a dangerous delusion, since from 2005 Bulgaria is entering a period of constantly increasing payments of this debt. The report of the Audit Office indicates that the payments will exceed EUR600MN next year, will amount to EUR800MN in 2006 and will go beyond EUR1BN in the year the country joins the EU. A five-year fall of the debt payments will follow, but in 2013 the country will have to pay off EUR1.2BN to foreign creditors and two years later it will owe some EUR1.5BN. Should these expenditures be ignored in the current preparation of the debt management strategy, the state may appear in a very difficult situation when the time comes for it to make large payments to the foreign creditors.