The financial crisis is bad for everyone. However it is definitely worse for some countries than it is for others.
According to the latest figures from Eurostat, Bulgaria has the highest growth rate in the EU and the best unemployment figures. While other countries are in recession and rising unemployment is a problem, the Bulgarian economy is doing relatively well. Unemployment is actually falling – from 6.2% to 5.5% - the biggest drop in the EU. This is according to the official figures published by Eurostat - the EU agency responsible for statistics.
Why is Bulgaria doing so well? Of course the financial crisis is having a negative impact in Bulgaria too, however there are also some positive side effects. This article explores these topics.
Bulgaria is unique in Eastern Europe because it does not have an independent currency. The Bulgarian currency is the “Lev”, and its exchange rate is fixed to the Euro.
Most Eastern European countries have currencies with exchange rates that vary. Due to the financial crisis, the currencies of many of these countries have dropped in value considerably.
This has caused a major problem in Hungary, Poland and the Czech Republic, because a large proportion of the population took mortgage loans in Euro and Swiss Francs. They are now having problems paying back these loans, because their local currency is worth much less.
Let’s take an example of someone in Poland with mortgage payments of 1,000 Euro per month. In August 2008 this cost 3,200 Polish Zloty. Six months later in February this cost 4,500 Polish Zloty, due to the deterioration in the exchange rate. So someone earning 5,000 Zloty per month would only have 500 Zloty left, instead of 1800 Zloty after paying the loan.
In Bulgaria many mortgage loans are in Euro too. However because the local currency – the Lev – is fixed to the Euro, the monthly payments do not change.
The Bulgarian Lev was issued in 1998 and fixed with an exchange rate of 1 Lev = 1 Deutschmark. When Germany joined the Euro, the exchange rate was 1 Euro = 1.95583 Deutschmark. The Lev was fixed at the same rate: 1 Euro = 1.95583 Lev. This was set by the central bank, this exchange rate has never changed. Of course banks and foreign exchange kiosks will give you a lower rate because they have to pay for their costs and make a profit.
The Bulgarian Central Bank has a massive amount of Euro in its reserves, equal to the value of Lev in circulation. If everyone wants to suddenly change their Lev into Euro, the central bank has enough to meet the demand. This makes the Lev very stable.
If investment had continued at the same rate, then undoubtedly there would have been a property bubble in Bulgaria the same as in many other European countries. However the property boom started later in Bulgaria so has had less time to develop.
There is a big reduction in the supply of new property. This is due to the following:
• Shortage of finance. The “credit crunch” has made banks reluctant to lend. The large property developers find it much more difficult to obtain finance for new projects.
• Inflation in Bulgaria is quite high. The cost of construction materials, and the wages of construction workers is increasing every year. Each year property costs more to build.
• Property developers can not sell new property for current prices, otherwise they will make a loss. Therefore they will wait for prices to increase before they start new projects.
Real-estate projects typically take several years to complete, so the only new property currently available is from projects started some time ago.
In some parts of Bulgaria there was a property bubble – specifically the Bankso ski area, and the Sunny Beach area. Although there are very few new projects being started, there are still many unsold properties available in the less attractive locations, at discounted prices. Once the surplus stock of property is sold, then prices are likely to start rising again.
In the rest of Bulgaria, prices are still rising, but at a lower rate. In general good quality property in the best locations is the least affected by the crisis.
Although overall economic growth is lower than it was, the crisis is having some benefits for Bulgaria too:
• Before the crisis, many skilled Bulgarians worked abroad. As they return, they help the economy and reduce the skills-shortage.
• Many new EU infrastructure projects need to be implemented. As construction of new hotels and apartments stops, the construction companies can divert their resources to construction of roads and public infrastructure.
Eurostat website ... »
Read about falling unemployment ... »
The international currency code for the Lev is “BGN”.
The lev is spelt 'Лев' in Bulgarian.
The past few years have seen a big increase in investment in Bulgarian property by foreigners.
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There has been a big increase in tourism, low cost charter flights to Sunny Beach, and nature tourism.