Bulgaria entered the coronavirus crisis in good financial health - with low debt, 10 billion levs in the fiscal reserve and a current budget surplus of 1.2 billion levs as of May. However, money might run out quickly depending on the economic repercussions of the coronavirus, and it remains unclear how and when the economy will begin to recover. That is why the government is proposing a drastic increase in the amount of new debt which it can issue this year - 10 billion levs instead of 2.2 billion levs.
It should be noted that the new cap on the borrowing of 10 billion levs does not necessarily mean that the government will issue debt in that amount this year. The idea is that the large sum will give Bulgaria room to issue bonds on international markets if favourable conditions arise.
The new financial conditions abroad
According to Goranov, 4.2 billion levs are needed at first to cover the additional expenses. The rest will be raised if it is deemed necessary after the crisis or in the following months for additional liquidity support. "We are considering all options and are preparing for issuing both domestic and foreign debt," said the finance minister.
If the government chooses the right moment, Bulgaria can easily issue debt of up to 2.5 billion euro in the form of 7 or 10-year Eurobonds, says Martin Tarpanov of Sofia-based investment intermediary Deltastock. "But we must accept that perhaps the favourable interest rates that we had only a month or two ago have already gone irrevocably. However, our country would certainly achieve significantly better financing conditions compared to other countries in the region with similar risk and credit profile," adds Tarpanov.
"Although it has decreased, the liquidity of the foreign debt market remains available and in this sense, it is a matter of tactical decision to choose the right timing," opines Dimitar Georgiev, head of financial markets at Elana Trading. According to him, a delay to Bulgaria's entry into ERM II will have an impact on the profitability of possible debt issuance on international markets.