The National Bank of Bulgaria (BNB, the central bank) undertakes measures to support the banking system and protect it against the negative effects of the global downturn, says an analysis of BNB on major trends of development in the Bulgarian economy.

Thanks to amendments to the ordinance on mandatory minimum reserves banks hold with BNB, a total of about 1,800 million leva were released from such reserves in the last quarter of 2008. Following the amendments, the average effective percentage of mandatory minimum reserves for the entire banking system fell to about 7 per cent while the overall effect of the BNB measures translated into about 3,000 million leva released from such reserves. However, the analysis notes, releasing of liquidity cannot be expected to automatically lead to an increase in lending levels since in the current situation of uncertainty banks are very cautious to risk-taking.

In January-September 2008 Bulgaria reported a relatively high growth of 7 per cent of its gross domestic product (GDP) compared to the like period in 2007. On the other hand, the impact of the global economic downturn started to be seen in the indicators of the real economy. The growth in the industrial sector slowed down from 7.4 per cent in the first half of 2008 to 2 per cent in the last quarter, attributed to a setback in industrial sales for export.

The business indicators fell sharply in the last months of 2008, reflecting growing pessimism in estimates about the current economic situation and especially of the future situation in all economic sectors. In the first half of 2009 enterprises are expected to experience growing hardships in selling their produce, BNB says.

The global economic crisis will reduce external demand for Bulgarian goods. The worsening international situation will have a negative effect on investment plans of businesses in Bulgaria while the arrested growth of incomes will translate in lower consumption by households. As a result of the weaker external and internal demand BNB expects considerable decrease in the real growth of the GDP compared to 2008.

The inflow of foreign capital in Bulgaria remained high in January-November 2008. The financial account in the balance of payments has a surplus of 10,900 million euros, attributed to foreign direct investment of 5,270 million euros, deposits of non-residents in local banks totalling 2,480 million euros and an increase in nett external obligations of the private non-banking sector by 2,300 million euros.

The international currency reserves of the BNB totalled 24,864.8 million leva (12,713.1 million euros) at the end of 2008. The average monthly coverage by international currency reserves of imports of goods and services was kept at its level of six months.

BNB expects the positive nett inflow of external financial resources to remain in the first half of 2009 but to be lower than in the like period in 2008.

Inflation will continue to decrease in the first half of 2009 driven down by lower international prices of fuels and raw materials.

Source: BTA