Bulgaria continues to borrow loans on the domestic market – from local banks, pension companies and other corporate investors.

On November 22, the Bulgarian National Bank held an auction for the sale of government bonds amounting to EUR 255 million. Since the beginning of 2021, Bulgaria has held a total of 11 auctions and sold government bonds to the tune of EUR 1.94 billion. Experts attribute the recent auctions for the sale of treasury bonds to the expected budget deficit at the end of the year. Following the last amendment of this country’s 2021 state budget, the budget deficit is expected to reach EUR 2.4 billion at the end of the year, investor.bg informs.

Will this country’s government debt continue to rise and does it pose a risk to this country’s financial stability? By law, the debt ceiling set in the 2021 state budget is EUR 2.3 billion and the money borrowed cannot exceed this ceiling without the permission of Bulgaria’s National Assembly. In other words, this country can sell more treasury bonds amounting to EUR 358 by the end of 2021.

Despite the rapid increase of Bulgaria’s government debt in 2021, most experts and analysts contend that the amount of money borrowed does not pose a serious threat to this country’s macroeconomic stability. This is explained by the fact that Bulgaria’s fiscal reserves exceed EUR 5.42 billion. Moreover, this country’s public debt is relatively low. “Bulgaria’s public debt is significantly lower as compared to other EU countries. At the end of June 2021, the government debt/GDP ratio stood at 24.7%, whereas the average government debt/GDP ratio in the EU is 91% and the average government debt/GDP ratio in the Eurozone stands at 98%”, Lachezar Bogdanov from the Institute for Market Economics explained.

It is worth reminding that an interest rate is paid on each loan borrowed. It is a type of income for investors and an additional cost for loan borrowers. Currently, market conditions favor borrowers, because interest rates are extremely low. “Against the backdrop of a relatively high fiscal reserve and increased budget revenues, Bulgaria’s Ministry of Finance is flooding the market with treasury bonds with a higher yield and lower maturity”, the financial expert Petar Iliev from Money.bg noted. So far, this country’s Ministry of Finance considers this price as acceptable. According to this country’s Minister of Finance Valeri Balchev, Bulgaria borrows new loans to pay old debts, to increase social expenditures, make additional payments with regard to the Covid-19 pandemic and make payments to farmers.

English version: Kostadin Atanasov