Bulgaria’s Electric Grip Gripes
Bulgarian securities sold off as Prime Minister Borisov resigned and withdrew his party from the government after facing violent street protests against an electricity price hike for Czech Republic-owned utility CEZ. In a last-ditch attempt to appease popular backlash from years of austerity moves to avoid IMF resort, he rescinded the increase and dismissed technocrat Finance Minister Djankov, a former World Bank executive responsible for the Doing Business publication. GDP growth was positive last year on relative budget balance but pre-election spending and lower EU grants had begun to upset 2013 fiscal plans, which rely on reserves to support the currency board arrangement. External public debt is low at just 20 percent of GDP after payment of a maturing Eurobond, but per capita-income remains at the bottom of new entrants and non-performing loans in the foreign-dominated banking system are almost one-fifth the total. Credit expansion is under 5 percent and with headquarters paring local lines a “deposit war” in 2012 swelled accounts at double that pace. In regular economic monitoring Brussels has warned of potential weakness spread by the heavy Greek bank presence in particular in addition to continued underperformance in anti-corruption efforts. Recent state enterprise privatizations involving Russian bidders have aroused suspicion and criminal and terrorist gangs still roam as evidenced by a headline-making bomb attack on Israeli tourists. Prague in turn reacted angrily to the scapegoating of its biggest listed stock exchange firm which was previously accused of monopoly behavior on power costs. Recession lingers there on zero interest rates as the central bank thus far refrains from currency intervention. New president Zeman will appoint a board member in 2014 and will prioritize recovery policies. The current account deficit improved to 2 percent of GDP in 2012 on steady exports and reduced imports, as VAT hikes may send inflation toward 3 percent.
Romania was admitted to the EU at the same time and depends on an IMF precautionary facility which was extended three months to achieve government-run firm divestiture targets. The budget gap came in under the Maastricht 3 percent of GDP goal on 5 percent inflation due to fuel price adjustments. The thinly-held local debt market should be catalyzed by future incorporation into the GBI-EM index as the overall EMBI-originated complex marks two decades of benchmarking. According to sponsor JP Morgan the across-the-board sovereign and corporate size is almost $10 trillion and the 70 countries represented are mostly investment-grade. Growth and debt dynamics far outpace the developed world and combined foreign exchange reserves are $8.5 trillion accounting for three-quarters of the global amount. Post-crisis net private financial inflows have been $2 trillion and per capita income has almost tripled since the early 1990s to $7,500. Competitiveness and social indicators place many developing economies in the leading ranks and anti-poverty progress has been notable although the Millennium Development Goal challenge into mid-decade requires a jolt.
