Balance of Payment for the First 9 Months of 2006

The Bulgarian National Bank published recently the preliminary data for the balance of payment for the first 3 quarters of 2006. Both, the current account deficit and the financial account surplus are growing. The aggregate account for the first 9 months is positive and arrives at 1 285.8 million leva.

The current account development is characterized by growth of the export (F.O.B) with 30.9%, which is higher than the growth of the import (F.O.B) with 26.4% for the first 9 months of the year. The different growth is not enough though to change the balance between the import and the export. The export increase is so far with real value of 2 099.6 mln. Euro while the import value reaches 2 578.4 mln. Euro. Thus, the deficit on the trade balance grows which reflects the current account automatically.

The export structure is substantially changed from 2005, and now the share of energy resources grows with 4.3 percentage points, the raw materials with 1.5 percentage points, while the share of investment commodities decreases with 0.7 percentage points and the consumer goods with 5.1 percentage points. The reason behind this development is the increase of revenue from the energy resources (77.1%), which is far more pronounced than the increase in the consumer revenue with 8.1%.

The structural change of the import is similar to the one noticed in the export. The shares of energy resources and raw material resources increase respectively with 3.2 and 0.1 percentage points, while the shares of consumer and the investment commodities decrease with 0.8 and 1.9 percentage points.

The transformation of the foreign trade is caused by the price increase of fuel and some basic raw materials in the international market, which reflects trade internationally (the relationship between export and import). Moreover, the imported quantities of petrol and other fuel which are processed and exported has been increased substantially. The data shows that approximately 2/3 of the import increase of energy resources is caused by export increase.

The revenue increase from the services offered by local residents is by 11% for the considered period, while the received services increased with 20.1%. A matter of importance is the fact that the increase of the tourist services to foreigners is quite insignificant – just 4.5%. Overall, the positive balance in the service sector decreases with 95.8 million euro.

The income and the current transfers also influence the increased deficit in the current account. The net income decreases by 173.5 mln. Euro, which is caused by the increased payments on foreign direct investment in the country that cannot be compensated by the remittances of the Bulgarian citizens working abroad. Moreover, the net current transfers decrease by 119.8 mln. Euro because of the small percentage of free-of-charge revenue from Bulgarians living abroad, and the increased revenue from EU funds by 17.6 mln. euro. The reason behind the drastic decrease of private transfers can be found in the economic stabilization of the country, and the unification of families abroad from one perspective and the methodology of reporting from other.

In the financial account the surplus has been increased by the impressive 128.4% compared to the same period in 2005 and currently reaches 3 287.8 billion Euro. The foreign direct investment in the country is 2 845.1 billion Euro, which is approximately 11.8% from the anticipated GDP of the country for the whole 2006. These results are caused by the enhanced stability of the country, the positive expectations from the EU membership, the improvement of some strategic elements in the business environment (i.e. the change of the direct corporate taxation), and the good correlation between income and investment risk.

Another aspect of the financial account, which deserves attention, is the considerable difference in the foreign deposits in local banks. Approximately 983.3 mln. Euro have been withdrawn from the banks only in the last 3 months. A possible explanation is the changed politics of the BNB in regards to credit activity made in June, 2006. Recent changes abolish the previously imposed limits, which respectively allows corrections in the balance structure and smaller deposits from the mother bank institution. It is highly probable though, that these resources have not been removed from the economy, but just invested under different heading.

Overall, the aggregated balance of the current, financial and capital accounts, adjusted for statistical error, is positive. This is a sure sign for the solidity of the Bulgarian economy. The attraction of foreign capital though is not a single-act but rather a continuous process, which is becoming more and more dynamic with the increased competition from neighboring countries. They are taking more steps now to improve their business environment; respectively each postponement of the reforms can be seen as missed opportunities for rise of employment levels and income in the Bulgarian economics.