Банкеръ Weekly



No matter which political force will govern Bulgaria after the parliamentary §elections in June, it will have to take into account the requirements of the international financial institutions, if it is interested in receiving financial support both from them and from other foreign creditors. Otherwise, no later than in the middle of next year the country will face difficulties in servicing its foreign debt, and along with this the threat of a new financial crisis and economic slowdown will become fully realistic.
Minister of Finance Muravey Radev has recently warned about this risk. He said that some political formations have planned, if they come to power after the elections, to immediately spend the country's fiscal reserves, which at present amount to BGL2.7BN. This statement of the financial ministry leader, however, is not a political juggle.
The new government will face two major problems - substantial foreign debt payments and considerable deficit on the current account. Since May till the end of 2001 the country will have to pay its foreign creditors more than USD900MN, while according to some present government forecasts the 2001 deficit of the current account will exceed USD606MN. At present Bulgarian foreign currency reserve is about USD3.2BN, and should no foreign financing be provided, it can easily slump below USD2BN. A development like this will bring a severe crisis, as in 2002 Bulgaria will have to repay its foreign creditors additional USD1.4BN.
The present government has planned to cover the 2001 payment even without crediting by IMF. While the foreign currency liabilities are exceeding USD1.5BN till the end of the current year, they have been planned to be covered by foreign investments revenues of about USD1BN, financing from the EU pre-accession funds amounting to more than USD250MN, as well as by credits launched by the WB, the European Investment Bank, by EBRD and by the Japanese Bank for International Cooperation. Yet a prerequisite for the inflow of foreign investments and credits by the international financial institutions is the signing of long-term agreements with the WB and with IMF by the next government.
On May 18, 2001 the WB announced the goals, which it considers important for the new government to pursue in a Draft Strategy for Support of the Country in the Period 2002 - 2004.
According to the international financial institution, after the elections the new government will have to continue the restructuring of the economy and the reforms of the administrative and legal systems. The major challenges are considered to be the maintenance of the current pace of economic growth and the efforts to overcome poverty.
Settling the poverty problem is of key importance for the economic and political stability in the country in a mid-term perspective. Unemployment has increased from 13% in 1996 to 18% in 2000. In case of steady GDP growth of 3% the share of poor population will decrease by 23.3% within five years, while in case of GDP growth of 5% - by 37.8%, note the WB experts.
They have also clearly formulated the goals for the new government in the sphere of economic reforms: Privatisation of the state owned companies in the energy sector and infrastructure, including BTC, Bulgartabak and electro energy production and distribution companies, should be finalised. Besides, the Draft Strategy clearly points out that BIOCHIM and DSK Bank privatisation is mandatory.
Should the next government wishe to sign an agreement with the WB, it will have to restructure several big companies, incurring losses - the regional heat supply companies, coal mines and the railways, as well as to facilitate the development of regional private gas supply companies. The new government will have to encourage private investments in transport and water supply companies.
According to the WB, prices of heat supply and electro energy should increase. Andrew Vorking, WB Director for Bulgaria, Romania and Croatia, specified that this should take place before the new heating season.
Fight against corruption is one of the important accents of the Draft Strategy prepared by the WB. It says that corruption in state and municipal administration has taken alarming proportions.
According to WB experts, if the future government would implement the recommendations of the Draft Strategy, it will be able to keep the present annual economic growht of 5%, one-digit inflation, annual budget deficit of 2%, annual export increase of 6.7%, current account deficit confinement upto 3% of GDP and reduction of bases for calculation of taxes and social insurance.
In the Draft Project for Support of the Country in the Period 2001 - 2004 the WB has declared that till the end of 2004 it can launch new credits to Bulgaria amounting to USD750MN.
USD450MN of them will be launched as support of the payment balance, while the remaining USD300MN will be used for specific projects.
In order to receive the payment of the balance support the government will have to prepare a large scale reforms programme. If it is approved by the WB, till the end of this year the newly elected government will be able to sign with the bank an agreement for Programmatic Adjustment Loan (PAL). According to the terms of this agreement, each year the country may get USD150MN. Before launching each tranche, the WB will evaluate the implementation of the commitments for the respective year.

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