Sofia, February 26, 2015/ Independent Balkan News Agency
By Clive Leviev-Sawyer of The Sofia Globe
Bulgarian President Rossen Plevneliev has said he would not veto the bill passed by Parliament on February 25, which ratified the Cabinet’s agreement with four foreign banks to manage the issuance of up to eight billion euro in new debt by the end of 2017.
Speaking to reporters after a business awards ceremony late on February 25, Plevneliev said that he would not heed the calls from the opposition socialists, made earlier in the day. In 2013, Plevneliev vetoed a Budget revision that increased the now-departed Plamen Oresharski administration’s borrowing ceiling by one billion leva (about 500 million euro), so the president had “16 times the reason” to veto new debt plan, socialist MPs said following the bill’s passage on the House floor.
Plevneliev said that the analogy was flawed and the circumstances of the two situations were radically different. “At that point I argued that the ruling majority wanted to artificially increase spending and artificially reduce revenue, opening a huge deficit, and I was proven right,” he said.
Bulgaria’s finance ministry has argued that the new debt was necessary mainly to refinance existing commitments, with about six billion euro worth of bonds due for repayment before the end of 2017. The rest of the money would go to finance Bulgaria’s budget deficits over the 2015/17 period.
Plevneliev re-iterated the point made by Cabinet officials and MPs from the ruling coalition in recent days, namely that the ratification of the agreement with the four banks only provided the framework to take on new debt, while the actual issuance of new bonds would still have to be approved by Parliament.
“I want to say clearly that today’s Parliament decision does not mean that billions would be borrowed. The 2015 Budget clearly stipulates a limit for new debt and it will be observed. The same will apply to 2016,” he said.
Bulgaria’s ruling coalition has argued that the low interest rates on international markets made it a good time to refinance expiring debt now, while passing a medium-term new debt programme (as opposed to tackling the issue on a year-by-year basis) would boost the confidence of prospective investors.
Despite uncertainty whether the National Assembly would pass the bill, the agreement was ratified by a wide majority following last-minute reversals from one small party in the ruling coalition and two opposition parties, which decided to switch sides and support ratification following “personal assurances” given by Finance Minister Vladislav Goranov that the government will not borrow the entire eight billion euro figure envisaged by the agreement and that the Cabinet will find a way to borrow at least one billion euro less.
This change of heart prompted praise from Plevneliev, both for Goranov’s efforts to explain the reasons for taking on new debt and for “the wide agreement reached in Parliament”.
Bulgaria’s cabinet signed the dealership contract, between Bulgaria in its capacity as issuer and Citigroup Global Markets, HSBC Bank Plc, Societe Generale, and UniCredit Bank AG in their capacity as organisers and dealers on February 6.
The Finance Ministry said that six billion euro worth of new debt, which will have a longer maturity period of up to 30 years, would be used to refinance several bond issues due for repayment by the end of 2017. The rest of the money would be used to finance the Budget deficits in 2015/17, which the ministry estimated at 3.3 billion euro.
According to the ministry’s calculations, this would increase Bulgaria’s foreign debt from 27.1 per cent of gross domestic product at the end of 2014 to 31.3 per cent of GDP at the end of 2017. The figure would be lower in the scenario described by Goranov, where Bulgaria would take on less foreign debt, although he did not specify whether such a shortfall would result in a corresponding increase in domestic borrowing or reduced budget deficits.