FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
BULGARIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
Relations between the BSP and its main
partner in the ruling coalition, the centrist
NMSP (formerly the Simeon II National
Movement), are likely to remain problematic
until the next election, which is due in mid-
2009. The BSP has been weakened by its
association with scandals regarding EU
funding and by the EU’s recent decision to
impose strict financial sanctions. The position
of the NMSP has been under scrutiny, in view
of the party’s declining popularity, its
participation in a leftist-led government, and its
poor performance in elections for the European
Parliament and municipal councils in 2007.
These strains have culminated in the departure
from the party of 16 deputies, some of whom
were expelled, and all of whom have joined the
newly formed Bulgarian New Democracy
(BND) parliamentary faction. The NMSP leader,
Simeon Saxe-Coburg, remains committed to
the ruling coalition, but the risk of further
fragmentation hangs over the party.
Following the European Commission’s second
post-accession "benchmarking" report, in which
Bulgaria was urged to make immediate
improvements to its system for administering
EU funds, it has been confirmed that up to
EUR 1 billion (US$1.6 billion) in pre-accession
assistance could now be lost. As monetary
policy is constrained by the currency board,
the burden of restraining domestic demand
falls on fiscal policy. The main risk to the public
finances over the forecast period is that
populist spending measures and slowing
economic growth might undermine the fiscal
position and threaten economic stability.
However, no government, whether led by the
BSP or by the CEDB, is likely to jeopardize the
policy anchor provided by Bulgaria’s currency
board system as the country prepares for Euro
adoption, which the Economist Intelligence Unit
does not expect to take place before 2013.
Economic Performance
The continuing turmoil in international financial
markets has raised the risk of an abrupt
contraction in global liquidity that would have a
strong negative impact on investors’ appetite
for emerging-market risk. The pace of growth
in the world economy weakened sharply in
2008 and will slow further in 2009, with
recovery only starting in 2010, as slower
growth in the US and other developed
economies feeds through to emerging
markets. Bulgaria’s large external financing
requirement makes it vulnerable to changes in
the availability of external liquidity, and there is
a growing risk that EU demand for Bulgarian
exports could fall sharply. Weaker economic
growth will lead to a fall in oil prices in 2009,
with the average price for dated Brent Blend
falling from an estimated US$110/barrel in
2008 to US$91/b, rising back to US$100/b in
2010 as world economic conditions begin to
improve. The US dollar has weakened against
the Euro in 2008, but will strengthen slightly in
2009-10 as the US moves into recovery before
the Euro zone.
Real GDP growth accelerated to 7.1% year on
year in the first half of 2008, with spending on
fixed investment surging. Although the pace of
growth so far in 2008 has been stronger than
previously expected, GDP growth has been
increasingly unbalanced–the rate of import
growth was 3 percentage points higher than
the rate of export growth in the first half of the
year, widening the current-account deficit to
new record levels.
A very poor harvest in 2007 and higher world
energy prices pushed up inflation to over 15%
in mid-2008, the highest level since the late
1990s. A much more successful harvest in
2008 is already having a dampening effect on
food prices, and headline consumer price
inflation is set to fall sharply in the second half
of 2008 and early 2009. The currency board
arrangement is expected to remain in place
over the forecast period, with the Lev fixed to
the Euro at the current rate of Lv1.95583: Euro
1. High inflation and a strengthening of the
Euro have caused the real exchange rate of the
Lev to appreciate sharply in 2008. The fixed
exchange rate could also come under pressure
if external competitiveness were to be eroded
by high levels of inflation and growth in unit
labor costs.
The current-account deficit is only likely to
begin to narrow once domestic demand
growth and, in particular, spending on fixed
investment slow significantly. The current-
account deficit will possibly contract from an
estimated 25.4% of GDP in 2008 to around
22% of GDP in 2009 and just under 16% of
GDP in 2010.*
* The Economic Intelligence Unit Ltd., October 2008.
Key Information Contacts
Financial Supervision Commission www.fsc.bg
Central Depository www.csd-bg.bg
Bulgarian National Bank www.bnb.bg
Invest Bulgaria Agency www.investbg.government.bg
National Statistical Institute www.nsi.bg
2006-ORIGINS OF GROSS DOMESTIC PRODUCT (%)
Services
Industry
2006-COMPONENTS OF GROSS DOMESTIC PRODUCT (%)
Agriculture & forestry
8.5
Private consumption
Public consumption
Gross fixed investment
Change in stocks
Exports of goods & services
Imports of goods & services
90
80
60.0
31.5
83.0
77.2
70
64.0
60
50
40
26.2
30
20
10
0
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