New Borrowing Is Inevitable without Govt Surplus – Chair of Parliamentary Budget Committee

Finance | February 16, 2015, Monday // 12:27|  views

Menda Stoyanova, Chair of Bulgaria's parliamentary budget committee, photo by BGNES

Menda Stoyanova, Chair of the parliamentary budget committee, has suggested that there is no cause for concern over the medium-term bond program by 2017 worth BGN 16 B, stressing that it is a financing program using external debt.

On February 10, Bulgaria’s government informed that it had chosen four banks to manage its EUR 8 B bond program over the next three years - Citigroup Global Markets Ltd., HSBC Plc., Societe Generale, Unicredit Bank AG. Under a bill drafted by the government, the maximum maturity of the bonds was set at up to 30 years and the maximum interest rate was fixed at up to 10%.

In a Monday interview for the 24 Hours daily, Stoyanova explains that the scheme provides the government with the opportunity to state the amount of debt that it will take over the next three years, as well as the terms of the deals and the purposes for which the money will be used.

She condemns the manipulation of such sensitive topics for political gains, insisting that the topic requires discussion on an expert level.

Stoyanova argues that the deficit financing program is not compiled on the basis of expectations but expert forecasts that are used to make annual budgets.

She attributes the inexpert talk on the topic to the fact that the instrument is used in Bulgaria for the first time, despite the fact that it is commonly used in other European countries.

Stoyanova specifies that the ratification package includes three documents, among which a Dealer Agreement with the four banks (Citigroup Global Markets Limited, HSBC Bank Plc, Societe Generale and UniCredit Bank AG), an Agency Agreement with the four banks, and an act of commitment, stressing that the “act” is not a “contract” but a document telling future creditors, banks and agencies that that the country intends to place bonds worth up to EUR 8 B on international markets over the next three years, with the maximum interest rate being 10% and the maximum maturity 30 years.

The Chair of the parliamentary budget committee underscores that the amount of new borrowing does not need to be EUR 8 B, as stated in the package of documents pending ratification, adding that the ceiling on new debt is determined on an annual basis in the state budget.

She adds that the interest rate may not be 10% as the number is just a benchmark which is used to send a certain type of signals to investors and creditors.

Stoyanova insists that the 170 pages of documents concerning the medium-term bond program by 2017 have not been rushed through Parliament and there has been no extraordinary ratification procedure over the matter.

She rejects allegations that Bulgaria will have to pay back BGN 48 B in 2017 to cover the new borrowing of BGN 16 B it is taking now, stressing that the calculations are probably based on a 10% interest rate, which is a highly unlikely scenario.

Stoyanova informs that EUR 6 B out of the total of EUR 8 B will go to the repayment of old debts.

She says that old debts can only be repaid in the case of a surplus in the state budget.

“When there is a government surplus, the interest or principal payments on domestic and external debt can be covered. However, it has not happened in Bulgaria since the term in office of the three-way coalition government,” she explains, adding that any talk of a debt spiral is mere political drivel.

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Tags: bond programme, new debt, parliamentary budget committee, Menda Stoyanova, budget deficit


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