Last week came the balance of payments data for the first five months of the year (to May inclusive). The data confirm the defined trend since the beginning of the year to reduce the current account deficit and trade balance in country (good news), but with a significant decline in foreign direct investment and capital by the end of the country (bad news).
For May 2009 the current account deficit has amounted to 260.7 million in the amount of 789 million for May 2008 January – May 2009 the negative balance on current account amounted to 5.8% of GDP (1971.7 million) in 10.5% (3566.6 million) for January – May 2008 The impact of the crisis word you say. Reduction in trade deficit during the last five months over the same period last year resulting from the acceleration of exports at the expense of imports and exports by reducing with a lower percentage (30.7 percent on an annual basis) to the reduction in imports (33.4 % on an annual basis).
Financial account for the first five months of the year amounted to 519.8 million in the amount of 4521.9 million for January – May 2008 Foreign direct investment in the country (which are an integral part of the financial account) amounted of 1133.6 million (3.3% of GDP) in 2443.9 million (7.2% of GDP) for January – May 2008, ie in nominal terms fell by 54 percent for that period. Reduction of liabilities in the financial account speaks of the end of capital from the country during the first five months of the year, which is not only the increased risk profile of the country and withdrawal of financial resources but also ekspanzionistichnata fiscal policy management. Not only that the government loose fiska in recent months and started to spend in the fiscal reserve, and minimum reserve requirements were reduced by 12% to 10% and 5% of the funds attracted by banks from abroad antikrizisna as a measure to increase liquidity of the banking system. These actions affected mainly by the leakage of capital and reduction of net financial balance of the account.
On the basis of balance of payments data can make the following conclusions:
Since the current account deficit equals the difference between savings and investment in the economy decrease the deficit in terms of crisis is the result of less foreign direct investment in the country and a reduction in consumption.
Deterioration of the budgetary balance (eg the emergence of budget deficit) means that reducing public savings in the economy, leading to current account deficit of balance of payments other conditions being equal (eg, if not offset by increased private savings or a reduction external debt).
Although the current account deficit in previous years was twice as large as now, the reserves of the BNB increased, ie do not jeopardize the financial deficit and macroeconomic stability in the country despite the constant statements of foreign analysts in this direction. This year, in conditions of crisis and the emerging budget deficit, despite the relatively low current account deficit, foreign reserves of the BNB reduced. Precisely in this lies the vulnerability of the economy.
The analysis shows that the main danger to the economy comes not from the private sector – in terms of crisis and withdrawal of investments by country, the trade balance svi significantly, and as envisaged. This is because the market is flexible and react quickly to the changing economic conditions. Danger for the Bulgarian economy is related to fiscal policy and government interventions. Pre outlay of the past government in the last weeks of their mandate are not yet reflected in the balance of payments, but these are a source of threat in terms of the deteriorating balance of payments and total reduction in reserves of the BNB.
The reduction of reserves of the BNB in practice means a reduction of money in the economy, which in turn is accompanied by a decline in inflation. In June, NSI reported monthly deflation amounted to 0.4 percent and average inflation for the first half was 5.1 percent at 14.1 percent last year at this time. We see again how behind a visible improvement of macroeconomic indicators – namely, reduction of inflation – may remain at risk of crisis and economic instability, not a pickup.
Analysis of makrodannite must be done in context and to monitor the overall picture of economic development and what should make the new government in this situation is very limiting government outlay and stabilizing the budget.
Adriana Mladenova, IME