A Bulgarian financial delegation headed by Finance Minister Vladislav Goranov has been touring the European financial markets this week in an attempt to feel the market adjustments and promote the country’s government bonds which are to be issued by end March. The tour started in London on Monday and the officials later visited Paris, Munich and Frankfurt.

The first step towards the marketing of the new debt has been already made through the registration of a medium-term debt issuance programme at the Luxembourg stock exchange to the tune of ЕUR 8 billion. The abovementioned program was assessed positively by the Moody’s international rating agency. However, itwouldonlyhaveanindirectimpactovertheseparate bond emissions which are to be issued by the end of 2015. According to the state budget act, Bulgaria can borrow this year a maximum of EUR 3.5 billion worth of new debts at the international markets. The National Assembly already ratified intermediary contracts with four large international banks which are to fulfill the financial operation on behalf of the Bulgarian government. Experts contend that the first issue of government bonds will be placed at the financial markets by end March and will be to the tune of EUR 1-1.5 billion. However, the maturity of the loan has not been set yet, although it is expected to cover at least a five-year period. Everything depends on the calculations of Bulgaria’s Ministry of Finance which has to come up with a solution that avoids the accumulation of excessive payments within one year only.

ThelastdebtissuedbythiscountryattheinternationalmarketswasinJune 2014, when the investors bought government bonds worth EUR 1.5 billion at an extremely low interest rate of just over 3%. However, things have changed significantly ever since and the new interest rate will most probably be different than last year’s. There are two main, yet controversial factors, which could influence the profitability of the state bonds. The international credit rating agency Standard&Poor's downgraded the Bulgarian bonds to “junk” status in December 2014. Therefore, all investors who dare buying such “junk bonds” would ask for a higher interest to make up for the risk they take when buying Bulgarian bonds. In other words, Bulgaria will have to pay more for the money it borrows at the international markets.

Ontheotherhand, however, theEuropeanmarketscurrentlyhavelargevolumesoffree and cheapfinancialresourceprovided bytheEuropeanCentralBank, which has to be invested somewhere, in order to yield some profit. The money surplus and the low, or even negative interest rates, will obviously mean lower interest rates paid to Bulgarian government bonds.ThecurrentsituationfavorsBulgariaandnowistherighttimeforthecountrytoissueanewpublicdebt.

The situation will become clear be the end of the week, when the tour of the Bulgarian financial experts and bankers is to end. Thus, Bulgaria will be able to issue new government bonds at the international markets by the end of March. Incurring new debt is not the best case scenario in terms of this country’s economic policy. However, most countries worldwide borrow loans and Bulgaria makes no exception to this trend. In fact, its debt ratio is under 30% of the gross domestic product and will remain at a relatively low level even after the new emission of government bonds.

English version: Kostadin Atanasov