Last March Bulgaria captured the markets attention with the largest ever euro-denominated bond from an emerging market sovereign. The deal was helped by its timeliness, given the backdrop of the ECBs quantitative easing. A year ago, the Bulgarian DMO had already seen strong appetite for their first Eurobond issue in two years. Looking at fundamentals, in 2014 Bulgarias real GDP grew faster than anticipated, reaching 1.7% y/y on the back of strong domestic demand and weaker external demand. As expected, domestic demand was driven by household consumption which grew faster than projected (+2.4% y/y). Bulgaria has been racked by political instability since early 2013, but GERBs Borisov is the first Prime Minister to be elected twice in Bulgarias recent history.
Damyan Staykov, Head of Issuаnce Division, Government Debt and Financial Markets Directorate, Ministry of Finance, Government of Bulgaria discusses the renewed attention for Bulgarian bonds with Euromoneys Giada Vercelli.
EC: Are improved fundamentals and political stability the reasons behind the markets interest in your bonds?
DS: Our economic growth for last year indeed surpassed most forecasts. In 2014 Bulgarian GDP growth accelerated to 1.7% compared to 1.1% in 2013. Changes in the main components contributing to GDP dynamics were registered during the year. While in 2013 exports had a positive contribution, in 2014 domestic demand was the main growth driver. Final consumption increased by 2.4% compared to a 1.3% decline in 2013. Its growth included the increase, in real terms, in household expenditure by 2% and of public consumption by 3.8%. The key factors contributing to the dynamics of consumer expenditure were the increase in real disposable income of households, the higher number of people employed, and the higher consumer confidence at the beginning of the year.
EC: Given that the Bulgarian economy seems to be on the path to recovery, is your borrowing programme on track? Has 2015 been a good year for the DMO so far?
DS: Bulgarias borrowing programme is on track and is being implemented according to the limits set in our 2015 State Budget Act. In the beginning of the year we established our inaugural GMTN Programme which gives Bulgaria as a sovereign issuer the necessary flexibility to use the arising windows of opportunity in international capital markets.
EC: How do you explain this attention? Is this due exclusively to good timing in sync with the ECBs QE programme?
DS: In March 2015 Bulgaria issued the first triple-tranche transaction on the EUR market by a Central Eastern Europe, Middle East and Africa sovereign. The 2% and 2.625% coupons for the 7-year and 12-year benchmarks are the lowest coupon levels ever achieved by Bulgaria on the international debt capital markets, while the 12-year and 20-year maturities represent the longest tenors on these markets.
EC: The lack of inflation and the ECBs expansive monetary policy have opened up some leeway for some central banks in Eastern Europe to cut interest rates, while elsewhere rates are on the way up. What will be the impact on these choices of diverging monetary policies?
DS: Bulgaria has been in a currency board since 1997 and our currency is pegged to the Euro. In theory the divergence between the Fed and ECB rates could cause capital outflows from emerging markets with a low yield environment. However since Bulgarias return in 2012 to the international capital markets, all transactions were in Euro and in Reg. S. only format with the majority of the investor base from Europe. We have not witnessed any significant shifts in our investor base.
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