Bulgaria expects coronavirus to shrink economy, plans new debt

Bulgaria will have to raise 4.2 billion levs ($2.36 billion) in extra debt this year to fund a fiscal gap expected to emerge from falling revenues and the help it has pledged for businesses and workers hit by the coronavirus pandemic. Finance minister Vladislav Goranov also cut Bulgaria's 2020 economic outlook to a 3% contraction. The Balkan country had previously estimated its economy would grow by 3.3% this year.

Bulgaria's centre-right government on Monday revamped its fiscal plans to run a fiscal deficit of 2.9% of economic output and raised the ceiling on new debt it can raise to 10 billion levs. "All these measures have one and only goal: to guarantee that the state has enough liquidity and enough possibility to maintain its main functions," Goranov told reporters.

Parliament will debate the budget revision on Thursday. Bulgaria still expects to run a fiscal surplus of 1.3 billion levs in the first quarter but expects to tip into deficit in March, when it reported its first coronavirus cases.

Sofia, which recorded a budget surplus of 1.48 billion levs for the first two months of 2020, has closed schools, restaurants and bars, restricted inter-city travel and access to parks and banned all domestic and foreign holidays trips until April 13 to contain the spread of the disease. Before the coronavirus outbreak, which has infected 399 people so far in Bulgaria, the poorest but also least indebted European Union member state, planned to run a balanced budget and raise up to 2.2 billion levs in new debt this year.

SCENARIOS The finance ministry has worked on three possible scenarios on the pandemic's impact, but has revamped the state budget based on the most adverse possible outcome to ensure it has sufficient fiscal buffers, Goranov said.

The ministry expects 2020 inflation to stay flat, mainly due to a drop in oil prices and expected weaker domestic demand, while unemployment will rise 2 percentage points to 6.2%. Bulgaria pegs its lev currency to the euro in a regime which significantly curtails the central bank's monetary operations, leaving fiscal policy as the main tool to influence the economy.

Under the currency board arrangement Bulgaria maintains fiscal reserves, which stood at 10.6 billion levs at the end of February. The new fiscal deficit is estimated at 3.5 billion levs.

The government needs another 700 million levs to boost the capital of state-run Bulgarian Development Bank to provide loan guarantees to struggling businesses and people on unpaid leave. Part of the fiscal deficit is due to the 1 billion levs the country plans to spend to contribute to workers' wages at companies forced to halt or limit production or seeing serious drops in sale revenues, helping them avoid layoffs.

"There is a need to secure additional financing through debt financing in the amount of 4.2 billion levs on top of initial borrowing plans," Goranov said. He said the country is looking at all options to raise the new debt, including tapping both local and global markets. ($1 = 1.7761 levs)

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