Elisabetta Falcetti joined the Office of the Chief Economist of the European Bank for Reconstruction and Development (EBRD) in 2000, where she is country economist for Bulgaria and Romania. A graduate in Economics of ‘L. Bocconi' University in Milan (Italy), she obtained her Ph.D. from the same university in 1999 for her thesis ‘Exchange Rate Policy and Debt Management'. Before joining the EBRD, she worked as a consultant at the International Monetary Fund in the Western Hemisphere Department.
Elisabetta Falcetti met Milena Hristova - Editor of novinite.com and The News.
Q: Experts point out macroeconomic stabilization, reduced government sector and financial sector restructuring among Bulgaria's most significant achievements. What do you personally consider the country's most significant success?
A: I guess all of them because all of them underpinned the successful turn around of the Bulgarian economy after the crisis in 1996 - 97. Being a macroeconomist, I tend to put more emphasis on macroeconomic stabilization and financial restructuring. Those are preconditions for attracting higher FDI inflows that are badly needed in Bulgaria. Bulgaria has achieved strong macroeconomic growth and has almost completed the restructuring/privatisation of its financial sector. What is still to follow is an equally sharp restructuring of the enterprise and public sectors.
Q: What in your opinion is the most significant challenge Bulgaria faces now?
A: Firstly, the challenge is to preserve the macroeconomic stability that Bulgaria has achieved at such a high cost, and secondly to complete structural and institutional reforms. On the macroeconomic side this would imply preserving fiscal discipline, i.e. maintaining low budget deficits, containing future public wage increases, and finding a solution to the financing problems of certain municipalities.
Q: How do you assess the way the government manages foreign debt?
A: I believe they are going in the right direction. They are not passively managing the existing stock but they are trying to increase the maturity of the debt. As a result of this more active debt management strategy, we've seen longer-term issues last year. They are also shifting the currency composition of the existing debt towards the reserve currency, i.e. Euros, by decreasing the share denominated in US dollars and increasing the share in EURO. The objective is to keep the existing stock constant and work on the composition and maturity of the debt. So I have a definitely positive assessment of what they have done so far.
Q: Which sectors in Bulgaria are mainly of interest to the EBRD according to its two-year strategy?
A: In the new EBRD Country Strategy we identify three priority sectors: (i) infrastructure, particularly in the energy and telecommunication sector. (ii) financial sector development, especially the non-banking financial services- still at an early stage of development in Bulgaria -., and (iii) private sector development. Based on our past experience in Bulgaria and in other transition countries, we will be working very closely with a number of Bulgarian municipalities, including Sofia, and will be strongly supporting the SMEs sector with a series of targeted projects.
Q: Bulgaria positions itself in the middle of the chart ranking 27 countries in which EBRD invests according to 8 dimensions. Do you think there is a cause for complacency?
A: Well what we can see from the chart is that reforms pay off. My main disappointment is not finding Bulgaria in the upper part of the chart, given the successful stabilization it has achieved. What is impacting Bulgaria's rating are measures like governance and enterprise restructuring, competition policy, the non-banking financial sector development (the capital market is still too tiny, for example), as well as the investment climate. On the last two dimensions there have been positive developments. The government is trying to develop the equity market by putting on sale minority shares of some of the companies that are up for privatization. Moreover, an anti-corruption strategy has also been prepared under the assistance of the World Bank that ensure further improvements in the investment environment.
Q: What obstacles stand in the way of investors in Bulgaria, EBRD being one of the major investors?
A: There is need to further improve the country's investment climate and reform the public administration. I believe another important constraint lies in the financing of business. This is partially the result of the 1996-97 crisis, after which banks have been reluctant to finance private sector projects and new businesses and preferred to invest in T-bills that were more profitable and less risky.
Thanks now to the increased competition in the banking system, where more that 80% of total assets are owned by foreign banks, bank credit to the private sector has resumed to pre-crisis levels and the spread between the lending and the deposit rates has gone down. This explains the higher rates of growth of lending to the private and the enterprise sector although further improvements in the borrowing culture (robust business plans, etc.) need to be encouraged. I hope this trend will continue because this is really where growth comes from.
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