Prepared by Alexander Pitt.
The latter requirement captures the notion that the social and political willingness to service debt has limits.
See “Debt-Related Vulnerabilities and Financial Crises—An Application of the Balance Sheet Approach to Emerging Market Countries” (forthcoming).
There are limitations to balance sheet analysis. The division of the economy in only three sectors (public sector, financial private sector, and nonfinancial private sector) implies a high level of aggregation, which could obscure within-sector vulnerabilities. Furthermore, data limitations generally limit the reliability of analysis. In Bulgaria, data availability and quality are broadly sufficient for the purpose of this exercise.
Part of this increase may be due to efforts at improving customs control.
However, the method used by the authorities to compile tourism revenue—based on an estimated amount of nominal euro receipts per traveler (unchanged since 1999)—risks increasing underreporting over time, as this implies assumed zero inflation for this type of expenditure at a time when inflation both in Bulgaria and the Eurozone—where most travelers originate—was positive. Yet, there are also downward pressures on revenues per tourist: (i) strong competition in the travel business is likely to have compressed price increases, and (ii) Bulgaria is a relatively cheap destination and may be selected especially by price-conscious holidaymakers. Furthermore, the same methodology is applied on the debit side, which partly counteracts this effect, even though inflows are more than twice as high as outflows.
Based on the assumption that key variables, including nominal GDP growth, non-debt creating inflows (in percent of GDP), and interest rates remain constant at their 2003 levels.
Higher oil prices are also a source of risks. An oil price higher by US$1 implies a deterioration of the current account by 0.2 percentage points of GDP.
In 47 percent of sovereign defaults over the past 30 years, the external debt was below 60 percent of GNP, but in only 17 percent of defaults below 40 percent (Reinhart, Rogoff and Savastano, “Debt Intolerance,” in Brookings Papers on Economic Activity: 1, Brookings Institution 2003, pp. 1-62).
The amortization of medium- and long-term external debt falling due in 2004 is €241 million (1.4 percent of GDP).