Moody's: Political Unrest in Bulgaria Won't Harm Fiscal Stability

Business » FINANCE | July 3, 2013, Wednesday // 16:34| Views: | Comments: 4
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Bulgaria: Moody's: Political Unrest in Bulgaria Won't Harm Fiscal Stability

Ongoing political turmoil in Bulgaria is not likely to adversely affect the country's economic, fiscal and institutional strength, according to rating agency Moody's.

In a report published Wednesday, Moody's assesses Bulgaria's institutional and economic strengths as 'moderate', while financial affairs are rated of 'high' strength.

The agency takes into account continuing street protests, writing: "The electorate has become increasingly disgruntled with austerity measures, and voter disenchantment has been expressed through street demonstrations in recent months."

"Although such public pressure may slow the pace of fiscal consolidation and force early parliamentary elections, all the major parties remain committed to prudent fiscal policies," adds Moody's.

The rating agency further comments that debt levels in Bulgaria continue to be lower than in other EU countries, but says it expects a slight growth of budget deficit.

"Moody's expects the budget deficit-to-GDP ratio to rise to around 1.4% in 2013 due to (i) the still-high unemployment rate; (ii) an anemic expansion in industrial output (which will contain the rise in income from spending-related taxes, household incomes and company profits); and (iii) subdued import demand (limiting the growth in import-related revenues)."

It adds that in 2013 there might be the need for increased social spending, and that deficit might marginally grow in 2014, too.

The agency writes that Bulgaria's economy remains to be relatively small, but praises ongoing diversification.

The potential risks that Moody's sees for Bulgaria are related to its economy's tight connection with the EU, the intensive presence of Greek financial institutions, and weak external liquidity.

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» To the forumComments (4)
#4
Mephisto - 5 Jul 2013 // 12:02:39

George,

you are right regarding the general trends of the world economy in the future. But you are definitely too optimistic about Bulgaria's potential - I guess you have a desk job, and this desk is very far from Bulgaria. No offence, George!

Bulgaria's potential to export water melons, tomatoes, and a lot of other agricultural products to Western or Northern Europe are very small, and for most products close to zero.

The big majority of Bulgaria's producers have not the required HACCP standards, which is an absolute k.o. criterium in most markets. Those who have it on the other hand, are usually not able to deliver in time, they don't have the required cooling facilities or poor packaging and therefore deliver instead of fresh tomatoes "mashed" tomatoes. And George, this is a business where the buyers dictate the conditions. You have to be with your truck at a certain time at the client's (because the other trucks are already cueing and the buyer's customers are already waiting for the fresh product). When you don't turn up at the agreed time, and then even with less produce or produce at a quality that is good for the garbage, you are out. Permanently. Go to Fruit Logistica in Berlin once and talk to the buyers. Then you will understand why Bulgaria has almost no exports to Western Europe...

As for the water melons: don't even think about it to export them to these countries. Water melons are very low value products, the transport costs of a truck with water melons to Scandinavia is maybe twice higher than the value of the cargo.

Tomatoes or other products are by the way perfect for contract farming. I know some foreign investors that tried to work with Bulgarian farmers. For example an Italian that wanted to start a production of tomato paste in Bulgaria. He invested millions, made contracts with 150 farmers or so, paid them something in advance, delivered the seeds, trained them, etc. - result: the farmers sold the fresh tomatoes later on the local market or on the street were they received 2 stotinki more. The tomato paste factory was one more investment ruin...

#3
George Zheliazkov - 4 Jul 2013 // 17:05:14

Here that’s another very real and stimulating possibility and trend for the improvement of the Bulgarian economy. Invest in farming and agriculture. Bulgaria still has the cheapest agriculture land in the EU!
In the short run stop throwing tomatoes, watermelons and etc., export them to northern countries like Sweden, Finland, Norway, Russia etc. I’m sure they never tasted the southern quality and a willing to pay 4-5 Euros per kilo. In the long run the world will need everything the Bulgarian agriculture can produce.
Be prepared!
http://rt.com/business/world-hunger-2050-grain-research-664/

#2
Mephisto - 4 Jul 2013 // 11:37:49

George,

I agree in general with what you say, especially the last sentence. But let's be realistic about Bulgaria: China and the other emerging markets are almost exclusively buying commodity-type goods (soda, petrol(!), metal scrap) from the country with no or very little value added. Because Bulgaria has very few products that are competitive in these countries.

One additional info regarding Fiat: Fiat has had an extremely successful and profitable year and is the fastest growing car producer these days. They have and will invest billions in new factories in Russia, India, China. Considering their previous miserable failure in Russia it will be interesting to see if they learned from their mistakes. Business environment in these countries is for foreign investors quite challenging as you can see from numerous disasters in the past.

#1
George Zheliazkov - 3 Jul 2013 // 19:50:16

“Political Unrest in Bulgaria Won't Harm Fiscal Stability”
But would laziness do it? Because as far as I know my fellow Bulgarians they rather do anything else but work. Moody, in my opinion you are wrong and Bulgaria will suffer the financial consequences of its political unrest. And those will be rather devastating.

“The potential risks that Moody's sees for Bulgaria are related to its economy's tight connection with the EU, the intensive presence of Greek financial institutions, and weak external liquidity.”
Yes this time you are right!
The EU is the real trouble, countries like Portugal, Spain, Italy, Ireland, Britain, Greece etc. are in real trouble and their only option for growth is trade with the emerging markets! Remove the visa requirement for example for countries like Russia, China, India etc. so their middle class (around 500 million people) can come and visit the tourist destinations of the EU.
More industrious countries like Italy should invest in Russia, China, India etc. with companies like Fiat and try to compete in those growing car markets just like the Germans and Americans do….
Bottom line here is that the Bulgarian and EU growth is inevitably connected to the emerging markets!

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