International Investment In Bulgaria Still Strong

International investment in Bulgaria is still strong despite the latest Eurozone crisis. The growth in international direct investment (IDI) has increased to 23% this year, the National Statistical Institute (NSI) revealed on Wednesday. Still, foreign investments have fallen due to decreased demand and a weak EU economy. The total IDI has hit BGN 5 billion over the first nine months of 2016, which is a ton more than last year's BGN 3.7 billion between January and September of 2015. "The growth in 2016 is due to a very significant increase in the number of investors and the volume of investments," said Jan Neubert, manager at the Foreign Investment Agency (FIA), on Wednesday. In late July, in different announcements, the European Commission announced that Bulgaria has used its fiscal space to become a net creditor even after taking into account disbursements under the EU's structural funds; and that Bulgaria will remain a net-creditor until 2017.

The Bulgarian Central Bank (CNB) has agreed to extend as much as three months the current negative interest rate for deposits held with Bulgarian banks by Russian depositors, pending an effective solution to problems related to the rouble crisis. The ban on currency outflows is to remain in place until January 23, 2017, the Central Bank said in an announcement on Wednesday evening. The decision was made after consultations with the Russian side due to the problems arising from restrictions imposed by Russia on capital flows into and out of its economy. Entities primarily dealing with payments for the goods and services provided by companies usually have accounts held at Bulgarian banks, and they are banned from depositing more than BGN 20,000 monthly. The ban was introduced in October to stave off the outflows and the rouble's decline since July. Before Wednesday, those depositing more than BGN 20,000 per month had to pay a penalty of 0.75% on their deposits for the first six months after they entered a Bulgarian bank. Following the decision to ban Russian depositors, only those who had withdrawn deposits or wanted to buy foreign currency for over 1% that were now held in a bank account were affected.

The Bulgarian National Bank (BNB) proposed on Wednesday to amend law so that current account holders with less than BGN 20,000 will not be subject to restrictions as from January 23 next year. "Considering the amendments to the Law on Foreign Exchange, which are expected to be approved by Parliament, from January 23 next year it is considered that banks will not face liquidity problems when maintaining current accounts for natural persons having up to BGN 20,000," the BNB said in a statement.

During a visit of Finance Minister Vladislav Goranov to Rome at the end of last week, Italy's Prime Minister Matteo Renzi announced that his country supports Bulgaria's bid for EU Council Presidency in 2018.

"It is clear that I don't have to give any explanations on the importance of the Bulgarian presidency, because the European Commission has already said that Bulgaria has made an excellent choice," Renzi said at a joint press conference with Goranov. According to him, in its next term Bulgaria will be able to propose a new look at Europe's future. "Setting priorities means investing in Europe's future and this is what I would like you [Goranov] and your Commissioner [Margaritis Schinas] to do," Renzi said.

Bulgarian President Rosen Plevneliev has sent official letters of congratulation for the 25th anniversary of independence of Montenegro. In its response, the Montenegrin President, Milo Djukanovic called upon Bulgaria to play an active role in supporting and contributing to the development of Montenegro. He underlined that the decision to join NATO was a key milestone in the identity and development of Montenegro's integration process.

The Bulgarian government will introduce limits on foreign investments in certain sensitive sectors, Deputy Prime Minister Meglena Kuneva announced on Wednesday at a round table on foreign investment. She said that this regulation will be introduced by mid-2017 at the latest. Kuneva declared that certain companies will be prohibited to invest more than BGN 20 million per year in one single company. This will affect sectors such as security, culture, media, environment and natural resources, in which foreign investors can currently invest BGN 50 million per year.

Bulgaria's current account deficit is set to remain at more than 2.5% of GDP in 2016 as the government's deficit target for this year was revised down from 0.6% to 0.5%, Finance Minister Vladislav Goranov said on Wednesday. The figure also reflects a forecast that the goods trade deficit will shrink to a new record low of BGN 2 billion this year from BGN 3.6 billion in 2015. "This is a very good development," the minister said. He added that Bulgaria had managed to reduce the deficit target for 2016 from the previous minus 1.2% to 0.5%.

Prime Minister Boyko Borissov announced on Wednesday that his government will become a shareholder in Pravetz Holding, which has been established to take part in construction of a new power plant and an urban rail line, Bulgarian National Radio (BNR) reported. Borissov said that the government's share in the holding will be over 50%, while Pravetz Holding will hold a minority position. The government is being involved in Pravetz Holding through the National Development Fund (NDFP). In return, it will guarantee a long-term loan to Pravetz Holding.

Despite liberalisation of EU regulations for some sectors, banks are still reluctant to lend, and there is hardly any new credit in Bulgaria as compared with other countries, Bank of America Merrill Lynch (BAML) analysts have said. The analysts noted that by next year Bulgaria's access to ECB funding could become easier since there is a possibility that the central bank might cut its refinancing operations for now too low. "We have argued in the past that a reduction in refi rates and increase in LTROs would be sufficient to boost lending and revive growth. However, the increased access to ECB funding will only be possible once Bulgaria is upgraded by S&P," they said. According to BAML, given that the Bulgarian economy is relatively small, which makes it difficult for banks to reduce their risk weighting of government bonds below 20% on their balance sheets, this could take some time. Moreover, banks are reluctant to invest in SMEs.

Unemployment fell slightly to 9.7% in November from 9.

Conclusion:

The ten-year government bond yield fell to 6.48% by the end of Wednesday's trading session as the BNB HICP inflation measure was released and showed deflation. The Bulgarian Bond Price Index rose to 110.85 points in late Wednesday trading after the release of the HICP data, but then fell again to 111.00 points, although it still remained above its 10-day moving average of 109.97 points and its 50-day moving average of 110.99 points.