The Bulgaria 2011 Review: Finance

Bulgaria's Finance Minister Simeon Djankov. Photo by BGNES

Bulgaria and the Eurozone

Bulgaria Still Wants In, Preaches Common Sense

In 2011 Bulgaria's center-right government continued, even though with varying degrees of zeal, to pursue European integration and made clear that the single currency woes and doomsayers' warnings of a possible crack-up will not give it a pause.

"I know now it's fashionable to predict the end of the monetary union, but I think common sense will still dominate and it is going to survive. Of course, in the end we want to be a part of it," Traicho Traikov, Bulgaria's Economy Minister, told CNBC on the first day of December.

"For us, being a part of the euro zone means lower interest rates on credits for business," Traikov said.

The country has repeatedly changed the time frame for adopting the euro. Ambitiously scheduled initially for 2010, the country's entry into the eurozone was first set back for some time around 2012 with experts saying it is conditional on continued fiscal prudence and lower inflation.

The center-right government, which swept to power in the summer of 2009, was very enthusiastic about adopting the single currency only to be forced to put off plans after the country's 2009 revised budget gap exceeded the three percent EU threshold.

The failure of previous governments to take that step earlier is often attributed in Bulgaria to behind-the-curtain maneuvers by European officials - Eurozone President Juncker and European Central Bank President Trichet in particular – who allegedly created their own tools for managing the EU.

Bulgaria is the poorest EU member state but tight fiscal policy helped it achieve one of the smallest debt to gross domestic product ratios in the European Union and a budget deficit of around the Maastricht-agreed 3% of GDP ceiling.

Finance Minister Simeon Djankov's belt-tightening policy however has drawn criticism of creating the illusion of a healthy economy on the back of the people, who are three times poorer than the average EU citizen and are just getting poorer.

Public Opinion Hardens Further against Euro

Unlike the government's enthusiasm, public support for Bulgaria's eurozone membership was seriously dented in the second half of 2011 following the troubling developments in the monetary union.

While at the end of 2010 the Bulgarian society was cut in two over calls for immediate introduction of the European single currency, surveys by the Open Society Institute and Transatlantic Trends 2011 found out that those who oppose euro adoption now are a huge majority.

In July, just a quarter of the respondents favored the adoption of the single currency, down by nearly 10% in comparison with the beginning of the year. Opponents also increased - over half of the respondents said they were against the euro and nearly a quarter said they have no opinion on that issue.

The Currency Board regime in which Bulgaria operates enjoys has proved to be one of the most trusted institutions. The people prefer to use the lev instead of switching to the euro, even though the local currency is pegged to the euro.

Obviously Europe is falling short of providing Bulgarians with confidence that it can handle the crisis stemming from unsupportable debt loads in countries like Greece, Portugal and Ireland and the crisis in Italy. Indicatively the highest levels of support for adopting the single currency were seen as far back as in 2008-2009.

Credit Rating News

S&P Affirms Bulgaria's Ratings, Govt Overexcited

Standard & Poor's Ratings Service confirmed at the end of December its long- and short-term foreign and local currency sovereign credit ratings on Bulgaria at 'BBB/A-3' with a stable outlook. The government greeted the news with excessive excitement.

"The ratings on Bulgaria reflect our view of the government's strong track record of appropriate fiscal policy and low gross and net general government debt," the rating agency said in a statement.

According to the agency the country enjoys solid medium-term growth prospects despite the expected slowdown in 2012, particularly if backed by improving absorption of EU funds and other benefits stemming from EU membership.

"Only two EU countries have had their credit rating affirmed as stable this year," Finance Minister Simeon Djankov declared in his comment on the S&P announcement.

In his words, the greatest news is possibility that S&P might consider increasing Bulgaria's rating "if the government continues its current structural reforms and manages to put them fully into operation."

S&P expects Bulgaria's economic recovery "to lose steam in 2012, and growth to decline to 1.5%, from around 2.0% in 2011, reflecting a general economic slowdown in Bulgaria's main trading partners, coupled with ongoing banking-sector deleveraging in the home countries of Bulgaria's foreign-owned banks".

The stable outlook reflects S&P analysts view that Bulgaria's authorities will continue to maintain a favorable fiscal position on the back of ongoing budgetary consolidation and structural reforms, despite the likely slowdown in economic growth prospects and against its gross external debt position.

Fitch Lowers Bulgaria Credit Outlook to Stable

International credit rating agency Fitch lowered in the middle of December the outlook for Bulgaria's credit rating from positive to stable.

Bulgaria's credit ratings, according to Fitch, however stay the same - at BBB- for foreign currency and BBB for domestic currency.

The revision is a part of a Fitch campaign to revise its ratings for the region of Central and Eastern Europe where it expects economies to suffer a slow down due to problematic growth in the EU.

According to the report, the geographical structure of Bulgaria's trade give its some degree of protection, given that 25% of Bulgarian exports are to Turkey and the country has significant trade with other non-EU CEE countries, such as Serbia and Croatia.

Fitch however expects those countries to be also hit by a slowing down of the eurozone in 2012, which is expected to create a secondary negative effect for Bulgaria.

The credit rating agency further considers that a target of 1.5% deficit in Bulgaria's state budget for 2012 is well set, but warns that revenue might be harder to collect next year.

Bulgaria Stock Exchange Developments

EVN Snaps Up Bulgaria Units on Bourse, BGN 93 M Raised

Bulgaria sold almost all of its 33% stakes in Austria's EVN unit in the country right after the trade with its shares on the local stock exchange started on December 21.

A total of 112,795 shares in the two companies - Electrosnabdiavane and Electrorazpredelenie - were sold, raising BGN 92.97 M, well above the government's target of BGN 78.4 M.

Bulgaria offered 62 106 shares in Electrosnabdiavane and 51 612 shares in Electrorazpredelenie at a minimum price per share of BGN 120.31 and BGN 1,373.92 respectively.

The average price achieved during the trade for the shares from the two companies was BGN 156.60 and BGN 1632.56 per share respectively, data showed.

The remaining 923 shares were offered for sale Thursday.

Austria's EVN AG acquired more than 97% in the capital of its two units in Bulgaria right after the trade with their shares started on the local stock exchange.

The majority owner bought out nearly all shares right away because the terms of the tender allowed that they all are offered for trade on the very first day - December 21, analysts have explained.

Such a development is highly likely to lead to the delisting of the two companies, which make up the power utility Bulgarian unit, more successful and with higher profits than any of the other electricity distribution companies in the country.

Experts have repeatedly called on the government to launch high-quality initial public offerings to bring back to life the capital market, dented by low liquidity and lack of quality stock, as well as to boost revenues.

That's why the sale of the minority stakes in the electricity distributors on the stock exchange was a must-do task for 2011.

The looming delisting of EVN Bulgaria unit however has triggered speculations that the bourse was just used as a tool by the government to sell its minority stake to the majority owner at a much lower price.

In 2004, the Balkan country sold 67% in its three power distributors to Germany's E.ON, Austria's EVN and Czech CEZ.

E.ON serves households in North-Eastern Bulgaria, including the Black Sea city of Varna. Czech power utility CEZ supplies power to over 2 million households and companies in western Bulgaria, while EVN serves the south-eastern parts of the country.

At the beginning of December German electric energy company E.ON struck a deal to sell its Bulgarian unit E.ON Bulgaria to private Czech company Energo Pro.

Bulgaria Hopes to Sell 50.5% in Bourse in H1 2012

Bulgaria hopes to find an investor for its only stock exchange in the first half of next year, but the bourse's chief executive has declined to reveal the names of potential bidders.

"[The] majority of our stock exchange is state-owned. Our finance minister strongly believes that the government shouldn't be a shareholder for a very long period. This means that they've decided to part with that stake in the near future to a strategic investor," the exchange's chief executive, Ivan Takev, told Dow Jones Newswires on October on the sidelines of a Marketforce- and IEA-sponsored European exchange summit in London.

"We've had some meetings with potential bidders. There is definitely interest in buying that 50.5% stake... Selling in the first half of next year is achievable," Takev said.

The statement came shortly after insiders told local media that the government's hopes to sell the majority stake in the bourse by the end of the year have gone sour as no bidders have declared interest so far.

Shortly after the Bulgarian Stock Exchange launched the sale of its shares in January, Finance Minister Simeon Djankov announced that there is a "huge" interest among investors. CEE Stock Exchange Group however was the only one to openly declare its interest.

Bulgaria's only stock exchange became a public company in the middle of December last year after the Financial Supervision Commission approved its prospectus and the bourse was listed on its own platform. The capital of the bourse is a total of BGN 6 582 860 at BGN 1 apiece.

Bulgaria's Finance Ministry raised at the beginning of October its share to 50% plus one share from 44% in the country's stock exchange. The government bought 715,000 shares at BN 1 apiece. The bourse will sell the remaining 50% held by private investors including brokerages and banks.

The shareholders said the move aims to ease the future privatisation of the exchange and the search for a strategic investor.

Since 2008, the stock exchange has traded on the Deutsche Boerse's Xetra platform under a contract that expires in 2012. Bulgaria has discussed ways to sell its bourse stake over the past decade with Sweden's OMX AG and exchanges in Austria, Greece and Poland to boost interest in local stocks and make trading more transparent.

Sofia Stock Exchange has been the top performer in South East Europe since the beginning of the year, according to a Financial Times ranking.

The region's top performer is Bulgaria with a rise of 29% in USD terms and 22% in local currency. According to FT data, that's the world's best in USD terms and second only to Zambia in local currency.

Bulgaria Budget 2012

Bulgaria Parliament Approves Austerity Budget

Bulgaria's parliament approved in November the draft budget for 2012, which aims at a budget deficit of 1.35% of gross domestic product, a growth of 2.3% and inflation of 2.5%.

The austerity draft budget was given the green light thanks to the votes of the MPs from the ruling GERB party and 17 independent ones, including those from the conservative Order, Law and Justice Party (RZS) – one of the strongest opponents of GERB until the October elections.

The opposition, left-wing Bulgarian Socialist Party (BSP) of the right-wing Blue Coalition, the ethnic Turkish Movement for Rights and Freedoms (DPS) and the far-right, nationalist Ataka did not suport the draft budget.

The draft does not include upping the minimum monthly wage from BGN 270 to BGN 290, effective May 1, 2012, or increasing State assistance for maternity leave from BNG 240 to BGN 270 – these changes will be passed at second reading.

It became clear Tuesday, after the meeting of the Three-Way Council between the business, the cabinet, and the trade unions, that only minimum retirement pensions (BGN 136 a month) will go up next year.

The TV channel bTV, citing unnamed sources at the Finance Ministry, reported these pensions will be increased to BGN 145, which will involve 700 000 retirees. Retirement age for both men and women will go up by one 1 year. The initial plan was to increase all pensions to BGN 200 a month without tying it with retirement age.

The draft budget also includes a provision giving the State the opportunity to get a bond issue from the international market up to BGN 2 B or the equivalent in foreign currency. This was included in budget 2011 as well, but now Finance Minister, Simeon Djankov, forecasts that it could be indeed used in 2012 over payment of global bonds in the amount of EUR 818 M, scheduled for January 2013.

The minimum threshold for the fiscal reserve is set at BGN 4.5 B, same as this year, while the initial idea to allow it to go down to BGN 3 B was later scrapped. The planned deficit under the consolidated budget is BGN 1.09 B or 1.3% of the Gross Domestic Product (GDP) with an expected deficit of BGN 1.96 B or 2.5% of GDP.

Over the worsening economic situation in the European Union and risks faced by Bulgaria, the cabinet meanwhile decided to allow updating the budget even before its final approval, meaning the budget can be changed in just weeks under the proposal of Members of the Parliament.

Two years ago Bulgaria's finance minister Simeon Djankov famously used a meatless pizza as a metaphor for the austerity 2010 budget. Local media have described budget 2012 as a meatless pizza too, which is however even not decorated with olives.

Tax Policy

Yes to Low Taxes, No to EU Rates

Bulgaria's government confirmed in the last days of 2011 that the cabinet plans to lower the Value Added Tax, VAT, which now stands at 20%, by 1%-2% by 2013.

The intention to reduce VAT had been written in the program of the ruling, center-right Citizens for European Development of Bulgaria party, GERB, and would be implemented by the end of their current term in office, the finance minister pleged.

Bulgaria has the lowest personal and corporate income tax in the EU at 10%, which was introduced at the beginning of 2008, replacing the previous system, which combined several different tax rates - between 20 and 24%, depending on income.

Plans for a VAT increase emerged at the beginning of last year, but they ran counter to the promises the center-right government made after coming into office and were quickly dropped.

Right after the elections in the summer of 2009 the cabinet had vowed to cut the tax from the current 20% to 18% in 2010 and by a further 2% by the end of its term.

Earlier in the year Bulgaria took a stand against a European Commission proposal for the introduction of new taxes across the European Union, including a financial-transaction levy and a new value added tax.

"Bulgaria doesn't support the introduction of new taxes because it will impose an extra burden on EU citizens and companies," the government said.

According to it the introduction of the financial transactions tax on an EU level will put in danger the competitiveness of financial hubs in the EU because there is yet no agreement to introduce it on a global level.

According to the ministry the idea for a new EU value added tax will practically take over the functions of the separate nations in imposing the levy.

Bulgaria will insist on raising funds for the Cohesion policy and extending its scope in a bid to avoid a two-speed Europe.

Investments in roads, highways, sewage plants are key to Bulgaria, according to the finance ministry.

The country will also demand more funds to increase the control of external borders and illegal migration.

Banks

Alpha Bank, Eurobank EFG Merger Creates Biggest Bank in Greece, 3rd Biggest in Bulgaria

Two of Greece's major banks – Alpha Bank and Eurobank EFG – formally announced at the end of August their merger, which created the largest bank in Greece, and the third largest bank in Bulgaria.

The two banks said in a statement that the new financial institution will have "leading positions" across all major banking segments in Greece, and will enjoy "an outstanding presence" in Southeastern Europe, with an aggregate network of more than 1 300 branches across 8 countries and top 3 market positions in Bulgaria, Cyprus, Romania and Serbia.

In addition to Greece, the new group is claiming leading position in its core international markets with gross loans of EUR 6.9 B in Romania; EUR 5.3 B in Cyprus; EUR 3.9 B in Bulgaria and EUR 2.2 B in Serbia.

Eurobank EFG and Alpha Bank are among the five Greek banks with a combined share of 30% of the Bulgarian banking services market. Eurobank EFT owns Postbank Bulgaria, while Alpha Bank has its subsidiary Alpha Bank Bulgaria.

The Eurobank EFG-Alpha Bank merger will create the third largest bank in Bulgaria with assets totaling BGN 7.9 B (EUR 4 B). As of end-June 2011, Eurobank EFG's Postbank has total assets amounting of BGN 5.85 B, while Alpha Bank Bulgaria's assets come to BGN 2.08 B.

Greek Banks to Sell Bulgarian Units as Last-Ditch Measure - Analyst

Greek banks will do everything they can to shun the sale of their subsidiaries in Bulgaria – they value the local market potential and do not want to lose it.

This is the opinion of Georgi Angelov, senior economist with the Open Society Institute Sofia, who spoke in an interview for Novinite.com.

Angelov was approached to comment on the euro zone debt crisis and fears that the new rules on bank recapitalisation will allow regional subsidiaries to be drained of money and put its economy at risk.

He conceded that it is possible that Greek banks are forced to shed their assets here, but even in that case there will be other investors happy to buy them.

"Most Western banks are happy to have offices in Eastern Europe because of the region's economic potential, its stable and even profitable banking systems. Nobody wants to be deprived of this potential and will do so only in extreme cases."

According to Angelov it is important that the Bulgarian banks do not need support from abroad and are doing fairly well on their own.

"With high capital and profit levels in the banking system, there is little risk of a systemic problem," he said.

The Bulgarian banking system is concentrated, with most of the assets owned by large financial institutions from the eurozone.

The five biggest banks in Bulgaria are UniCredit Bulbank; DSK Bank, a unit of OTP Bank Nyrt., Hungary's largest bank; United Bulgarian Bank, owned by the National Bank of Greece SA; Raiffeisenbank Bulgaria and Eurobank EFG Bulgaria.

Greek banks control about 28% of banks' total assets in Bulgaria.

Austria's Banks Tighten Lending in CEE

Austria's banks will have to tighten the rules on ending and capital quotas in Central, Eastern and south-eastern Europe under rules imposed by Austrian authorities in a bid to protect the country's AAA credit rating.

Erste Group Bank AG (EBS), Raiffeisen Bank International AG (RBI) and UniCredit SpA (UCG)'s Bank Austria AG will be prevented from loaning significantly more than they raise in local deposits in countries such as Hungary, Romania and Ukraine starting next year, the Austrian central bank said in a statement at the end of November. That would limit their ability to fund credit growth with loans from the parent company.

The move is expected to affect the availability of credit and put pressure on countries like Hungary, Romania, Ukraine or Bulgaria, according to foreign analysts.

Local bankers however say that it has been long ago since the banks in Eastern Europe stopped being directly linked to the well-being of mother companies.

Bulgarian banks do not need support from abroad and are doing fairly well on their own, they say. According to them with high capital and profit levels in the banking system, there is little risk of a systemic problem.

Austria's Raiffeisenbank Vows No Quitting Bulgarian Market

The Bulgarian market is a priority for Raiffeisenbank, according to CEO of Raiffeisenbank Bulgaria Momchil Andreev, after at the end of November the Austrian banking group CEO Herbert Stepic suggested it might be quitting some Eastern European markets.

"Raiffeisenbank Bulgaria is the first fully foreign-owned investment in the Bulgarian banking sector and is one of the most profitable banks on the Bulgarian market. We are working actively to keep expanding our customer base," Andreev.

"The business model of the bank is successful as only in the past 2.5 years our clients increased by over 100 000, and as of September 30, 2011, our profit for the first nine months amounted to BGN 58.4 M. Raiffeisenbank Bulgaria is very well balanced, and its credit portfolio has been funded with local deposits and long term credit lines from international financial institutions," Andreev explained further.

Earlier Chief Executive Herbert Stepic said that while Austrian bank Raiffeisen Bank International AG (RBI.VI) could withdraw from one or more of its markets, it will maintain its presence in Hungary.

Stepic did not specify what particular CEE markets the bank might eventually pull out of.

Bulgaria PM Girlfriend Gains Control in Bulgarian-American Credit Bank

An investment firm led by Tsvetelina Borislavova acquired at the end of October a majority stake in Bulgarian-American Credit Bank (BACB) following the public offering of its shares.

The businesswoman's Clever Synergies Investment Fund (CSIF) now owns 56.3% in the bank, a check in the trade registry shows.

Borislavova, known also as the girlfriend of the Balkan country's prime minister, Boyko Borisov, has subscribed 7.6 million shares tagged at BGN 30.43 M.

The issue price of the subscribed new shares has been paid in full and the sum credited to the escrow account of BACB  with the depository bank, Unicredit Bulbank AD, amounts to BGN 48,26 M.

Bulgaria's central bank gave the green light for the sale of 49.9% stake in the Bulgarian-American Credit Bank by Allied Irish Banks to Bulgarian private equity fund CSIF in the middle of June.

The price of the deal was EUR 100,000. CSIF also have to pay back a loan worth EUR 25 M.

Allied Irish Banks announced a month earlier that it has signed an agreement to sell its 49.99% shareholding in Bulgarian-American Credit Bank AD to Clever Synergies Investment Fund (CSIF).

The deal brought back into the banking sector Bulgarian tycoon Tsvetelina Borislavova, more publicly known as the woman with whom Prime Minister Boyko Borisov formerly lived out of wedlock. The sizable purchased was acquired through her company Clever Synergies Investment Fund (CSIF).

BACB is a publicly listed bank based in Sofia, Bulgaria, focused on small to medium sized enterprises. As at 31 December 2010, BACB reported consolidated total assets of EUR 375.9 M and shareholders' equity of EUR 96.6 M.

CSIF is a private investment company founded in 2005; its shareholders are Tsvetelina Borislavova and her foundation Credo Bonum.

In December 2010, Tsvetelina Borislavova, believed to be one of the richest Bulgarians, and described in various rankings as one of the most powerful Bulgarian women, formally left the banking sector as the Belgian banking group KBC acquired full control over its subsidiary in Bulgaria CIBank.

The name of the Bulgarian-American Credit Bank recently was in the center of scandalous allegations after German investigative journalist Jurgen Roth alleged that BNB Governor Ivan Iskrov put pressure on the Irish bank, Allied Irish Bank (AIB), owner of the Bulgarian-American Credit Bank (BACB) in Sofia, to sell a 50% stake to Central Cooperative Bank at the price of BGN 1, the equivalent of EUR 0.5. Subsequently, Roth renounced his accusations.

In Figures

Bulgaria's recovery stalled in the last months of 2011 after returning to growth a year ago. The economic growth slowed to 1.6%  in the third quarter on an annual basis from 2% in April-June on the back of weakening exports and a fall in investments.

From July till September exports increased by 2% in real terms on the year, down from 12.2 percent in the previous three months. They grew 1.7% on a quarterly basis.

Investments contracted to -2.8% on an annual basis, down from an increase of 8.4%. On a quarterly basis investments shrank by 13.5%, while during the previous quarter they marked a 3% increase.

Forecasts

UniCredit Slashes Bulgaria's 2012 Growth Forecast

The largest Italian bank UniCredit SpA cut in the middle of December almost in half Bulgaria's growth forecast for 2012 in its Q4 2011 economic forecast.

Thus, UniCredit expects that Bulgaria's GDP will expand by 1.5% in 2012, down from a previous forecast of 2.6%.

UniCredit, which is a leader on the Bulgarian banking services market, also predicts a final 2011 GDP growth figure for Bulgaria of 2%, down from the estimate of 2.6% the bank made in March.

UniCredit has emphasized the decline in Bulgaria's FDI to EUR 159 M in the third quarter as one of the reason for the forecast downgrade.

"The challenges facing Bulgaria's economic recovery include contraction of external demand combined with a gradual decrease of corporate-sector debt and a slow recovery in the real estate and labor markets," UniCredit said.

"Bulgaria will avoid a second recession because the public-sector balance and the household sector remain strong," the bank added.

IMF Downgrades Bulgaria's 2011, 2012 Growth Forecast

The International Monetary Fund cut at the beginning of December Bulgaria's growth forecasts for this and next year, saying the crisis in Europe has weakened its economic recovery.

"In spite of good policies, the recovery in Bulgaria has been hurt by the economic slowdown and ongoing uncertainty in Europe," the fund said in a statement after the end of its regular visit to Sofia. "The way forward is to maintain prudent fiscal policies, enhance fiscal buffers to help weather any deterioration in conditions."

The IMF now projects real GDP growth at 1.9% in 2011 after setting it at 2.5% in September. For next year the lender expects Bulgaria's economy to expand by a mere 1.3% - down from a 3% estimate in September - despite increased absorption of EU funds that is helping cushion the external headwinds.

Inflation is expected to fall below 3% in 2012, the fund said. It projects a small current account surplus for 2011, which will move to balance in 2012.

"Fiscal policy remains on track to exit speedily the EU's Excessive Deficit Procedure," the fund said.

"In 2011, the budget is likely to meet the 2.5% of GDP fiscal deficit target, reflecting tight control over expenditures as well as some gains from improved revenue collection. This and the low public debt burden have helped insulate Bulgaria from the escalating euro area turbulence."

IMF has described the 2012 budget deficit target of 1.3% of GDP as "very prudent".

IIF Dashes Bulgaria's Government GDP Growth Estimates

Bulgaria's economic growth until 2014 will be below the government's estimates due to the slow-down in the euro area and the weakened demand for exports from the country, the Washington D.C.-based Institute of International Finance said in the middle of October.

Bulgaria's gross domestic product (GDP) will slow down to 1.9% in 2011, 2.2% in 2012, 2.5% in 2013 and 3% in 2014, the institute said in a report.

"Assuming the sovereign-debt crisis in the Eurozone is resolved in an orderly manner, real GDP should increase roughly 2 percent both this year and next," according to the report. "A poor global growth outlook and increased risk aversion have greatly increased uncertainty. Even so, Bulgaria appears more resilient than many in the region."

"While the heavily export-dependent economy would undoubtedly be strongly affected by sustained output weakness in Europe, it appears much less vulnerable to shifts in market sentiment given its small government deficit and debt, current- account surpluses and the absence of large refinancing needs until 2013, when a billion Eurobond falls due," the IIF said.

EBRD: CEE 2012 Growth Hit by Protracted Euro Crisis

The economies of Central and Eastern Europe (CEE) are expected to slow next year "substantially" as a "protracted" euro-area debt crisis infects the region, the European Bank for Reconstruction and Development said in the middle of October.

"Lack of a resolution of the eurozone turmoil and a US recession would pose additional risks to growth across the region and increased risks to cross border banking relationships in emerging European countries," an EBRD report said in the middle of October.

The EBRD predicts growth in the CEE's economy will slow to 3.2 per cent next year from 4.5 per cent in 2011. This compared with the 4.8% and 4.4% growth rates the bank predicted for 2011 and 2012 respectively in its last projections published in July.

The region's economy grew by 4.6% in 2010 after it rebounded from the 2009 recession, when the economy shrank by a dramatic 5.9%.

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