ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
BULGARIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
In the aftermath of a resounding victory in the
parliamentary election in July 2009, the centre-
right CEDB has set out to govern alone,
despite lacking a majority in parliament (the
CEDB won 116 out of 240 seats). This
presents some risk to political stability,
although the prime minister and CEDB leader,
Boiko Borisov–who until the election victory
was the mayor of the capital, Sofia–feels that
this is the most effective path and hopes that
the other centre-right and right-wing parties in
parliament.
In 2008 the European Commission took a hard
line with Bulgaria regarding EU funds. The
suspension and loss of some EU funds has
delayed the implementation of several
important projects related to infrastructure,
institution-building and agricultural
development. However, it is also galvanising
the authorities to demonstrate greater
commitment to the kind of judicial and
administrative reforms demanded by the
Commission. These reforms, if continued,
should deliver more tangible results in the fight
against corruption and organised crime.
Economic Performance
The recovery in 2010 is expected to be
modest, with world growth picking up to 3.2%
at PPP exchange rates, and the euro zone
economy growing by just 0.8%. The weakness
of demand in the EU will continue to curtail
Bulgarian exports of goods and services. The
average price for dated Brent Blend crude oil
to is estimated to have reached US$62/barrel
in 2009, and expect it to rise to US$75/b in
2010, before slipping to US$70/b in 2011. The
decline in real GDP worsened in the third
quarter, to 5.8% year on year, compared with
4.9% year on year in the second quarter and
3.5% in the first quarter. Industrial output and
retail trade remain subdued, the construction
sector is struggling, and the rise in
unemployment has intensified. Real GDP is
contracting because of falling domestic
demand and the lack of external demand for
Bulgarian exports. Private consumption is
declining significantly as a result of the poor
outlook for jobs and wages, limited availability
of borrowing, the repayment of debt, and the
negative wealth effect from lower house
prices. The scarcity of external finance is
leading to an abrupt scaling back of
investment activity. Bulgaria's foreign sales are
suffering a sharp decline in 2009, but we
expect the fall in imports to be greater, which
will help the ongoing correction of the large
current-account deficit and is allowing trade to
make a positive contribution to growth in 2009.
a move away from the currency board, but
additional pressure would arise if Latvia and
the other Baltic states were to give up their
currency pegs.
The contraction of the merchandise trade
deficit has been the main factor behind the
partial correction of the current-account deficit
in 2009. The current-account deficit to is
expected to turn 10.9% of GDP in 2009 and
forecast that it will average 7.7% GDP in 2010-
11, down from 25.2% of GDP in 2008. This
forecast depends on a sharp contraction in
imports–sharp enough to outweigh the
estimated contraction in exports in 2009–as
incomes fall, consumers become more
cautious, and firms import fewer goods for
fixed investment in response to the depressed
economic outlook and a scarcity of external
finance.*
* The Economist Intelligence Unit Limited, December 2009
Political commitment to the currency board
arrangement remains strong, and the
arrangement is expected to stay in place until
euro adoption in 2013-14, with the lev fixed to
the euro at the rate of Lv1.95583:EUR1. The
government will apply for entry into the EU's
exchange-rate mechanism (ERM2) in February
2010. Despite a sharp drop in inflation
compared with 2008, the real effective
exchange rate (REER) of the lev is continuing
to appreciate in 2009, owing to the fall in the
value of the currencies of many of Bulgaria's
trade competitors. At this stage, concerns
about competitiveness are not likely to prompt
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
REAL GDP
(BGL millions)
CONSUMER PRICES (% CHANGE PA; AV)
(%)
45
14
40
12
35
30
10
25
8
20
15
6
10
4
5
0
2
2005
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