THE exchange rate of the Bulgarian lev is among the most significant risks to the Bulgarian economy, because it makes the country's exports uncompetitive.
This is according to the Economist Intelligence Unit (EIU), in its latest Risk Overview report on Bulgaria, published last Thursday.
The overall risk for business operations is low but the most risky aspect is government effectiveness, largely because of red tape and corruption among state officials and problems in the judicial system, EIU said. Legal disputes have led to significant delays in the government's privatisation programme. Financial risk and infrastructure risk are also a concern. While the currency board system is helping to ensure currency stability, access to capital in the domestic markets is limited, the unit said.
EIU estimated that GDP grew by 4.5 per cent in 2003 on the back of strong growth in domestic demand. However, the current-account deficit rose sharply to more than eight per cent of GDP. The sharp rise in the lev's exchange rate will make it difficult for exports to grow more quickly and EIU's experts expect domestic demand to slow to more sustainable rates in 2004-05, leading to a slowdown in the rate of GDP growth in 2004-05.
The currency board arrangement is expected to keep prices under control and foreign debt is falling steadily as a share of GDP. However, if the current-account deficit were to increase further or if foreign direct investment inflows were much lower than forecast, external borrowing would increase and, if sustained, this could lead to concerns over the sustainability of the currency board arrangement.
The lev is expected to appreciate further against the dollar in 2004. Currency stability would only be at risk if the present high current-account deficit were to be sustained for several years. A banking-sector crisis is highly unlikely. Smaller businesses find it difficult to gain access to bank lending, although there is fierce competition among the largely foreign-owned banking sector for blue-chip and foreign clients. The stock market is small and illiquid and it will be some years before it will be used as a form of raising capital, EIU said.
- Business Staff
This is according to the Economist Intelligence Unit (EIU), in its latest Risk Overview report on Bulgaria, published last Thursday.
The overall risk for business operations is low but the most risky aspect is government effectiveness, largely because of red tape and corruption among state officials and problems in the judicial system, EIU said. Legal disputes have led to significant delays in the government's privatisation programme. Financial risk and infrastructure risk are also a concern. While the currency board system is helping to ensure currency stability, access to capital in the domestic markets is limited, the unit said.
EIU estimated that GDP grew by 4.5 per cent in 2003 on the back of strong growth in domestic demand. However, the current-account deficit rose sharply to more than eight per cent of GDP. The sharp rise in the lev's exchange rate will make it difficult for exports to grow more quickly and EIU's experts expect domestic demand to slow to more sustainable rates in 2004-05, leading to a slowdown in the rate of GDP growth in 2004-05.
The currency board arrangement is expected to keep prices under control and foreign debt is falling steadily as a share of GDP. However, if the current-account deficit were to increase further or if foreign direct investment inflows were much lower than forecast, external borrowing would increase and, if sustained, this could lead to concerns over the sustainability of the currency board arrangement.
The lev is expected to appreciate further against the dollar in 2004. Currency stability would only be at risk if the present high current-account deficit were to be sustained for several years. A banking-sector crisis is highly unlikely. Smaller businesses find it difficult to gain access to bank lending, although there is fierce competition among the largely foreign-owned banking sector for blue-chip and foreign clients. The stock market is small and illiquid and it will be some years before it will be used as a form of raising capital, EIU said.
- Business Staff
