Abstract
Bulgaria’s economy and political situation are in a state of flux,
pending the national elections in July.
The European Commission reinstated
the Instrument for Structural Policies for Pre-Accession (ISPA) and
pre-accession assistance (PHARE) funds for projects in Bulgaria, providing a
boost for the ruling
Socialist Party. This was in response to the
government taking strides to tackle corruption in the
infrastructure
sector. Nevertheless, this may be too little, too late as the popularity of
the Socialist Party
has been steadily deteriorating. BMI’s Country
Risk analysts expect a victory for GERB, the leading
opposition party,
whose platform centres on a tough stance on corruption and a promise for an
immediate
stand-by agreement with the IMF to tackle the economic
crisis.
A change in government will result in major policy changes, which
could also affect the infrastructure
sector. Assuming victory for GERB,
the party’s pledge to vehemently fight corruption does give reasons
to be optimistic that at least EU funds for infrastructure should not be
suspended again on the grounds of
corrupt practices. The possibility of an
agreement with the IMF, which will be accompanied by a reining
in
government expenditure and conservative fiscal policy, will limit the
government’s ability to spend
public money on infrastructure
projects, though we do not anticipate this including the BGN5.6bn
(US$3.6bn) fiscal stimulus plan that is in place to combat the crisis.
Nevertheless, the decision to reinstate EUR1.25bn in funding for transport
projects will catalyse
construction for several major road projects that
were at an impasse owing to the lack of funds, such as
the Trakia and
Struma highways. In addition, and perhaps most importantly, the vote of
confidence from
the EC encourages private investors. Already, Deutsche
Bank has expressed its intention to act as
financier for projects in
Bulgaria.
The energy and utilities sector saw some major developments this
past quarter as well. The governments
of Russia and Bulgaria began
negotiating a EUR3.8bn loan to finance the Belene nuclear power plant,
while Bulgarian Energy Holding (BEH) transferred its stake in the Trans-Balkan
Pipeline
Consortium, responsible for the Burgas-Alexandroupoli oil
pipeline project, to state-owned
Technoexportstroy.
For this quarter,
BMI maintains its concern for Bulgaria’s infrastructure sector as the
tight credit
conditions on global markets are affecting project financing
operations while the government relies on
private sector financing to
support long-term projects. According to data from the Bulgarian National
Bank, the foreign direct investment inflows were 50% less in the first four
months of 2009 compared
with the same period in 2008, while preliminary
Q109 data from the national statistics agency show that
construction
industry value declined by 1.3% compared with Q108. In BMI’s Q309
Bulgaria
Infrastructure Report we have slightly revised our forecasts
upwards for 2009 anticipating that value of
industry to be BGN4.5bn
(US$3.3bn).
As a result of dwindling external credit lines, shrinking
export markets, widespread deleveraging and the
gradual consolidation of
corporate and household balance sheets, economic growth will continue to
slow
for the remainder of 2009, with a -3.1% real growth rate expected for
this year, down from an estimated
5.8% in 2008.
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