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Bulgarian Capital Account Deteriorates

Published: January 14, 2013; 11:39 · (Vindobona)

In Q3 2012 the trade balance deteriorated by € 203.5m compared to the same period of 2011, which was entirely due to the increase of the export of investment goods following the recovery of investment activity in the country.

Bulgarian Capital Account Deteriorates / Picture: © Vindobona.org

In October, the capital account was negative and amounted to € 82.1m, mainly due a return of a capital transfer from the government sector back to the EU. The financial account balance also posted a negative balance (€ -22.5m), declining by € 462.4m compared to a year earlier.

The decrease of the financial account’s balance compared to October 2011 was due to the dynamics of the foreign direct investment. Despite the financial inflow of equity (€ 140.8m), during the month net FDI was negative (€ -57.0m) due to repayment of debt to direct investors. The monthly value of net FDI was unusually small on the background of the strong seasonal flows during the last months of each year. For comparison, in October 2011 net FDI amounted to € 368.9m. However, it should be taken into account that the value of the indicator for October 2012 is preliminary and can undergo a significant positive revision.

In the third quarter of 2012 foreign direct investments in Bulgaria amounted to € 425.6m, without posting a significant change on an annual basis. Similarly to the third quarter of 2011, the largest investment flow was directed to the transport, storage and communications sector (€ 146.6m). At almost the same size was FDI in trade, repair and maintenance (€ 144.0m), in contrast to a year earlier, when the sector repaid liabilities at a higher value than the newly attracted FDI.

Cumulatively from the beginning of the year, FDI inflow has been developing favourably and, in general, in accordance with our expectations. For the first nine months of the year, their net value reached € 1.3 bn, increasing by almost € 700m compared to the same period of 2011. On the one hand, this development encourages capital formation in the country and hence the overall economic activity. On the other hand, it is factor for the deterioration of the current account, because of increased import.

The balance of portfolio investment in October was also negative: € -70.3m, as a result of a purchase of foreign bonds by the private sector. Among the major components of the financial account only other investment recorded a net financial inflow (€ 112.8m), whose trend of improvement on an annual basis continued. Cumulatively for the period January-October the balance of other investment reached € 152.8m, expanding by almost € 2.0 bn compared to the same period of 2011, when a large financial outflow was recorded. During the month, as well as cumulatively from the beginning of the year, the increase in the balance of other investment was mainly driven by the banking sector on the account of currency and deposits.

In October, the balance of the current, capital and financial account amounted to € -218.3m. Considering errors and omissions the overall balance of payment totalled € -336.3m, resulting in a decrease by the same amount of BNB’s FX reserves.

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