Bulgarian Govt Predicts Greater FDI, Domestic Consumption Starting 2011

Bulgarian Govt Predicts Greater FDI, Domestic Consumption Starting 2011

Bulgaria's Finance Ministry has unveiled a set of moderately optimistic projections for the financial and economic development of the country in 2011, and in the 2012-2014 period.

Thus, the government expects a gradual decrease of the unemployment rate to start in the second half of the year, with 2011 bringing a stabilization of the labor market after the negative developments in 2009 and 2010 caused by the economic crisis.

The average 2011 unemployment rate is expected to be 10%, and the employment rate itself is expected to grow by 0.2% at the end of the year. The government expects predict that the relatively high unemployment will keep down the real growth of salaries.

However, in 2012-2014, the Finance Ministry expects an "acceleration of productivity combined with a moderate growth of employment, with the unemployment rate expected to go down to 8.9% in 2014.

The ministry has restated its goals from the recently adopted government budget forecast for 2012-2014 to continue to keep the budget deficit below 2% of the GDP. Thus, it plans to lower Bulgaria's budget deficit to 1.5% of the GDP in 2012, 1% in 2013, and 0.5% in 2014. The 2011 budget deficit is projected at 2.5%, while the 2010 deficit was 2.75%.

The reduction of the budget deficit in the three-year period is supposed to be achieved while keeping the taxes at their present level, which is the lowest in the EU with flat 10% corporate and income tax rates, a gradual increase in the excise duties in order to reach the minimum EU levels, and increasing tax collectibility. The Finance Ministry has further declared its resolve to keep the annual state spending below 40% of the GDP, including Bulgaria's contribution to the common EU budget and the national co-financing for EU-funded projects.

"The macroeconomic forecast for the period until 2014 provides for moderate economic growth rates of between 3.6% and 4.4%. The domestic consumption will be increasing its positive contribution by stimulating imports. This will also result in a reduction of the net exports. In spite of that, the GDP share of domestic consumption will remain below the pre-crisis levels," the ministry says in its Tuesday's statement.

It expects a 3.1% increase of the end consumer spending of the Bulgarian households in 2011, which is to result in a 1.9 pp increase of domestic consumption, or a 3.2% increase year-on-year. The main reason for that will be the low 2009 base. By 2014, private consumption is expected to grow by about 4% annually.

The projected increase of domestic consumption and exports are also expected to lead to an increase of foreign direct investment by 5.5% in real teams in 2011 year-on-year. The Finance Ministry's projection comes just after preliminary data of the Bulgarian National Bank (BNB) showed that Bulgaria attracted only EUR 53.4 M (0.1% of GDP) of foreign direct investment in the first two months of 2011, compared to EUR 214.9 M (0.6% of GDP) attracted in January - February 2010.

Thus, Bulgaria's FDI continues to collapse after the country got only EUR 1.458 B in foreign investments in 2010, and EUR 3 B in 2009, down from the peaks in 2007 (EUR 9 B), and 2008 (EUR 6 B).

Bulgaria's export is expected to grow by 8.2% in 2011 year-in-year, a slowdown largely caused by the substantial growth it registered in 2010 - about 33% y/y. In the medium run, the Bulgarian Finance Ministry expects the export to grow by annual rate of slight over 7%. The annual import growth rate is expected to be below 7.3% by 2014.

Bulgaria's average 2011 inflation rate is expected to reach 3.9% caused primarily by the impact of international fuel and resource prices and the recovering domestic consumption. Services are expected to see greater price increases than food and consumer goods in the medium run. The administrative prices and tax policies of the government are expected to have a negligible effect on inflation.

As of 2011, the Finance Ministry expects a gradual recovery of the influx of foreign capital to Bulgarian subsidiaries.

Because of the high liquidity of the Bulgarian banks, no substantial transfers to the Bulgarian banking sector are expected.

In the medium run, Bulgaria's current account deficit is projected to stay within 4% of the GDP. The low deficit will be sustained by the relatively low trade deficit (below 10% of the GDP), larger transfers of funds, primarily from the EU, and a positive contribution of the service sector. /Source: Sofia News Agency/

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