site.bta EC: Banking Crisis Weighs on Credit Expansion and Investment in Bulgaria

EC: Banking Crisis Weighs on Credit Expansion and Investment in Bulgaria


Brussels, December 9 (BTA Correspondent Nikolay Jeliazkov) - The
European Commission (EC) Tuesday presented details about
President Jean-Claude Juncker's 300,000 million euro investment
plan. The summary about Bulgaria concerning the needs of
investments states that uncertainties in the banking sector amid
a large amount of non-performing loans (NPLs) weigh on both
credit expansion and investment in this country.

The share of investment in GDP in Bulgaria is in line with other
similar economies in the EU, but has declined substantially
since the 2009 crisis, from a peak of 33 per cent of GDP in 2008
to only 21 per cent by 2013, the summary says. This is mainly
driven by the drop in private investment which is expected to
continue in the coming years. This reflects continuing
deleveraging in the economy and low profit expectations.
Foreign direct investment (FDI) into the country has slowed to
1-2 per cent of GDP since the crisis. The uncertainty in the
country could hamper a recovery in FDI. Public investment, on
the other hand, has remained stable, largely driven recently by
EU funded projects. However, public investment is set to peak in
2014 and fall significantly by 2016. This is because its yearly
growth profile follows the programming cycle of EU funds.

Limited FDI inflows and high corporate sector debt are holding
back the growth of private investment in Bulgaria. External debt
has come down over several years, but private sector debt
remains considerably higher than in other similar economies.
Deflationary pressures and low nominal growth puts further
pressure on private sector debt going forward with a negative
impact on investment.

In the light of the recent banking crisis, uncertainties in the
banking sector amid a large amount of non-performing loans
(NPLs) weigh on both credit expansion and investment. There is
also limited demand for credit, mainly due to persistent
weaknesses in the business environment, the forecast says.

Bulgaria has significant investment needs, some of which could
be supported by public investment schemes, possibly together
with private investment. Bulgaria is the least energy efficient
economy in the EU when it comes to industry, transport and
housing. There is also a major investment gap in construction:
roads, railways and energy interconnectors. In particular,
investment in gas networks is needed for improving security of
supply and connectivity with EU markets.

In the country specific recommendations for Bulgaria, the EC
recommended that Bulgaria: reinforce budgetary measures to
ensure that the medium-term objective is reached; implement
educational reforms to increase the level and relevance of
skills; implement a comprehensive tax strategy to strengthen tax
collection; ensure cost-effective provision of healthcare;
improve the business environment, especially for SMEs; adopt a
long-term strategy for the pension system; improve the
efficiency of the Employment Agency; accelerate interconnector
projects, in particular for gas; scale-up the reform of the
energy sector to increase competition, market efficiency and
transparency, and energy efficiency, as well as create a
transparent wholesale market for electricity and gas.