The news that last Monday Bulgaria issued a new public debt to the tune of nearly EUR 2 billion hardly surprised anyone. The country's financial experts knew about the move of the Finance Ministry, because Bulgaria's Minister of Finance Vladislav Goranov had organized the transaction for four whole days after the European Central Bank (ECB) reduced its basic interest rate to 0% and launched a new package of quantitative easing. Thus, the yield on the government bonds became more attractive.

In fact, the authorities sold two separate tranches of Eurobonds: seven-year bonds amounting to EUR 1.144 billion with an annual yield of 2.156% and twelve-year bonds with an annual profitability of 3.179%. The total amount of the new loan amounted to EUR 1.994 billion. This was the biggest Euro-denominated deal in Central and Eastern Europe, the Middle East and Africa since the start of 2016, Bulgaria's Finance Ministry informs without specifying whether it was a good or a bad move. Apparently, the transaction is good news for the investors, because the total amount of requested bonds equaled to EUR 3.6 billion, way over the amount ( EUR 2 billion) sold by the country's Finance Ministry, which pushed the interest rate down. The lower interest is also good news for the debtor, i.e. for the state and its taxpayers. Practically, Bulgaria borrowed last Monday the maximum amount of money from the foreign markets and is not allowed by law to issue new foreign debts by end 2016. The authorities actually did the same in 2015 when, again in March, they borrowed EUR 3.1 billion through three transactions: a seven-year loan with an annual yield of 2.17%, a twelve-year loan with an annual return of 2.73% and a twenty-year loan with an annual profitability of 3.26%. The investors' interest in 2015 was again strong and the total amount of requested bonds exceeded EUR 5 billion.

In fact, it is worth reminding that last year Bulgaria's authorities decided to issue government bonds worth EUR 8 billion in the period 2015-2017 with the assistance of several international banks. The Bulgarian Socialist Party warned back then that the country and its future generations would bear the heavy burden of paying a new large debt, which, despite the attractive interest rates, would increase to EUR 30 billion in twenty to thirty years. Moreover, the new debt would be accompanied with a huge demographic catastrophe in the country. GERB, however, explained that the authorities would use this money to pay for old foreign debts and finance the country's budget deficit. This year, Minister Goranov explained that the Foreign Ministry would take another loan, this time from Bulgarian banks to the tune of EUR 500 million, i.e. it would sell bonds to the local financial market, which is allowed by law. The money will be used as a financial buffer and the financial sector, which currently goes under a stress test and asset quality review can rely on these funds, if necessary. However, it is very unlikely that this buffer would be used by the commercial banks. Therefore, the money would become part of the country's fiscal reserve and the state would pay for government bonds maturing in 2017.

In most cases, the issuance of new debt is not necessarily a fearsome act. It is beneficial to a given state, when the money is not used to fill gaps in the state budget, or in public sectors which need to go under reforms. When money is borrowed to make a new added value and each Euro borrowed produces an added value worth two or more Euros, then the issuance of new debts is quite reasonable. However, this is not the case in Bulgaria. The competent authorities are trying to calm citizens down, saying that the ratio between the state's indebtedness and the country's gross domestic product is low. In 2016 the debt would grow from 10% to nearly 33% of the GDP, which is way under the maximum threshold of 60%, allowed by the EU. In other words, Bulgaria would again place among the most outstanding EU member states in terms of that criterion. However, according to estimates of the Directorate General for Economic and Financial Affairs, Bulgaria's GDP/debt ratio would exceed 40% in the next ten years, if that country continues to follow the current financial policy. In other words, the country is endangered of entering a debt spiral. Let us hope that the new debts would slowly turn into an added value, which, however, requires a new strategy. However, this is a different story.

English version: Kostadin Atanasov