Economist Rumen Galabinov, in front of “Trud”: The bad scenario for Bulgaria is accelerated inflation and return to recession
The state now often takes out domestic loans in the form of government securities
The Bulgarian economy is seeking to fall into stagnation – a combination of a one-time decline in the country’s domestic product.
This year’s recovery is fun and our economy is the most fun in the EU, and right now there must be effective and quick solutions to the pandemic crisis, as well as measures to deal with the effects of energy prices.
The combination of weak growth and high inflation, or so-called stagflation, is the big risk to our economy, Galabinov warns.
– More and more left and right are concerned by the state, which can enter in 2022 without a budget, Mr. Galabinov. How many and what buffers does the system have so that it does not affect ordinary people?
– Until a few ends of this year, there are still weeks in which there is a chance to start a conversation on the 2022 budget. and its adoption. If things are expected and the adoption takes place in January or February, you will have to spend 1/12 of the previous budget, which against the background of increased costs associated with the fourth wave of the pandemic, costs, contact energy prices and compensation of companies that are the free market of companies, as well as other compensatory measures and support, will certainly not be good. As far as there were a lot of buffers, they were mainly created in the first half of this year, when the revenue side of the budget was going well. In the second half of the year, especially now in the last quarter, the trend is the opposite – not so high revenues, a retention and even a reduction, as what came with a green certificate proved to be a deterrent to the economy for at least the first few weeks. We could not expect it to be on the rise. The latest Eurostat data confirm that Bulgaria has the lowest GDP growth in the EU – only 0.4%, which is negligible. At the same time, I digest information by 6%.
– What will happen to the payments of hospitals, municipalities, they say, without a budget in the first months of 2022, will not be a long spiral, which will ultimately hit the business, and hence jobs, income?
– The bad scenario for Bulgaria is accelerated inflation and a return to recession. With stagflation, savings fall and purchasing power falls. Poverty and inequality are growing. This is because the economy returns less value added and lower incomes are set. High prices, in turn, hit savings and impoverish people even more. Reduced savings are forcing banks to raise interest rates and narrow business lending opportunities. In Bulgaria, interest rates are already rising, and for reference you can see the auctions of government securities in the last month. General budgets will be under a lot of pressure at the beginning of the year. This will be reflected directly in meeting their costs, contact to cover electricity bills. For hospitals, costs related to the workload of covid wards, first-line medical staff and their remuneration have increased. Municipal schools and kindergartens will also be tested. After the new year, the cost of regulating the electricity market for households will increase, then it will be felt again for families. With regard to debt, in November, the state already often takes domestic loans in the form of issuance of government securities. In less than 2 months, they took 2 billion and a half from the domestic market, and with each subsequent auction of government securities we see how the return on investors is gradually rising and these have long become more expensive for the state. This is likely to be a trend that will continue over the years. There is a high probability of resorting to an external loan in the form of issuing euro liabilities on international markets within the remaining part of the limit or in the global program – about 2 million. euros.
– Where could we get the external loan and how would this link our page?
– As in the past, we have concluded framework agreements for the placement of Eurobonds and the appropriate investors from the international market who buy Bulgarian Eurobonds, which finances the Bulgarian state. We could also include direct loans with the designation of financial institutions, but it seems to me that we are likely to issue Eurobonds in this way – through borrowings from the foreign market. Bulgaria has a good credit rating and you have the opportunity to take relatively good conditions such as external financing.
– What conclusion did you draw for yourself from the public talks for forming the government of PP, BSP, ITN and DB? Is there a concept of bringing the country out of the crisis or did we look more “Yes, good” in the name of construction in the regular legislation?
– I was impressed that quite ambitious intentions have been made for changes in the future, but it will hardly be possible only in 2022. This would rather be part of a medium-term forecast framework for gradual reforms in the next 3 or 4 years. The formulation of the goals shows that there is an overlap in many things of economic, financial and tax policy. However, it remains to identify the specific measures to achieve these goals, which is why there is less talk about these meetings. This is the more difficult part – what specific measures we intend to achieve and in what time frame.
– All parties in the negotiations seem to agree with the replacement of the lev by the euro. Why do we see the European currency as a panacea?
– Bulgaria’s accession in the run-up to the eurozone, in the ERM 2 mechanism, is part of the path that Bulgaria has undertaken as a commitment to full membership in the eurozone, which could happen in a horizon of 3 to 5 years. now forward. There are a lot of things we need to do in your financial system. There are quantitative indicators that we must continue to meet. This has to do with controlling inflation, maintaining a budget deficit that does not exceed the actual Maastricht criteria must also maintain a fixed exchange rate and interest rates. We must be careful not to drastically increase the debt-to-GDP ratio, and this is what the government must do so that it does not deviate from these quantitative criteria for euro area membership. We must also make qualitative changes in our economy so as to increase our standard of living and our purchasing power.
– You say that the good life, financed by the printing house for money, slowly includes and comes other times. What times are coming?
– I say this about the restriction of the policy of eliminating the market with cheap money by the largest central banks, especially in the Federal Reserve and the European Central Bank and the redemption of central government debt by central banks. This frees up liquidity and money supply at relatively low interest rates and this goes on for a long time. This quantitative easing, along with the pros, has led to an increase in inflation in the last year. So there will be a rethinking of things. There will also be a possible gradual increase in short-term interest rates and a tightening of repurchase of government by central banks. This will happen on a global level, including for Bulgaria as a last resort. This is a new time to come. We should comply with it, because many parameters of our economic and financial policy will change.
– I can’t help but ask about the scandal surrounding the State Consolidation, which already looks like a snowball – how far will you unravel the strange connections and how does all this affect the companies in the assets of DKK?
– The state consolidation company manages many state assets in key areas of the Bulgarian economy and the ways in which they are managed is of particular importance. It would be good to have people with the appropriate education, qualifications and experience, as well as those who are not involved in bad practices, to put it mildly. In this sense, if the state considers, some of these activities, which are managed by DKK, can be privatized, concessioned or transferred, thus improving their management. But this must be done with an official and firm policy of the government, even with the legislative approval of the National Assembly. This is the way to conduct this activity transparently.
Rumen Galabinov was born on August 26, 1966. Former Chairman of the Protection Supervision Agency and Deputy Chairman of the Financial Supervision Commission, Head of the Insurance Supervision Department. He graduated from the University of National and World Economy with a master’s degree in economics, holds postgraduate degrees from the University of Georgetown, Washington, USA (Banking Risk Management), St. John’s University, College of Insurance and Risk Management, New York, University of Finance, England and Exeter. He has professional qualifications in security and risk management and securities markets from Germany and England. He has served on the Governing Council of international banks and security companies.