IMF EXPECTS 17.5% CREDITING GROWTH IN 2006
James Roaf has been the IMF Resident Representative in Bulgaria since August 2003. Earlier, he worked in the IMF head-office in Washington (from 1999 till 2003) in the department responsible for Russia and Argentina. He started his professional career in the National Bank of Great Britain. He holds master's degrees in mathematics and economics.
Bulgaria has some of the toughest crediting regulation requirements in the world, still the amount of credits launched grew by 50% in 2004. As a result of the restrictive measures the central bank undertook at the end of 2005, however, the growth of credits was reduced to 30 per cent. According to the IMF Resident Representative in Bulgaria, crediting has had much stronger impact on the national macroeconomics in the recent years, but as a whole the situation in the country does not differ from that in some of the ten newly-accepted members of the European Union (EU).
Bulgaria's credits to GDP ratio is identical to that reported in Croatia (which is just claiming EU membership), Hungary and the Baltic countries. What is different is the fact that in 1998 that ratio was 10% in Bulgaria, compared to 42% in Croatia and 27% in Hungary.
Research by the IMF also proves that the crediting growth itself is a positive phenomenon, as it contributes to the country's economic growth. However, the speed it registers in Bulgaria raises questions about possible macroeconomic complications and problems with the banking system capital adequacy. The Bulgarian crediting expansion shown as a percentage of the gross domestic product in the period 2004-2005 reached 12 per cent.
Mr. Roaf is convinced that the growing deficit on the current account of the balance of payments is now one of the main challenges facing the Bulgarian economy. He commented that its amount simply proves that demand exceeds supply considerably. The crediting growth in turn coincides with the increase of the foreign trade deficit, while the balance on the current account as a percentage of GDP reached -14.6% in 2005.
Under the terms of a currency board and free capital flows, the Bulgarian authorities have limited control over the demand, Mr. Roaf underlined. At the same time, the Bulgarian National Bank (BNB) conducts a tough policy that restricts the growth of credits, therefore no economic stress should be expected in Bulgaria at present.
The short overview of the banking restrictions undertaken so far shows that the central bank has been strengthening its supervising activity since 2003. In 2004, most of the government deposits were removed from the commercial banks to BNB. Tougher requirements were imposed on the provisioning of loans and stricter conditions were set for increasing the lowest required reserves of credit institutions in the central bank. The capital adequacy rules were made more stringent, too, Mr. James Roaf added. Besides, he admitted that as a result of the measures taken by the BNB supervision Bulgaria is about to rank among the countries with the toughest banking regulations in the world.