Cause and Effect in European Politics and Law

A drop in the current account deficit of Bulgaria

euinside, January 22, 2010

For 12 months by November 2009 the current account deficit was minus 3.4 bn euro. According to Industry Watch the drop of the deficit from minus 8.9 bn euro a year earlier is perceived by observers as a positive signal because this indicator is used also by rating agencies as a sign of economic stability. According to the economists of Industry Watch though, the drop of the current account deficit could be explained with something else: first, the drop of prices of energy resources which led to contraction of crude oil and natural gas import by about 1.9 bn euro and, second, a contraction of foreign investment which led to a reduction of investment goods import by about 2.3 bn euro.

Before the crisis the current account deficit reached record high over 20% of GDP of Bulgaria and gave reason to many foreign analysts to warn against over-heating of Bulgarian economy, similarly to Latvia and Ireland. A large part of Bulgarian analysts and politicians said then that there was no reason for fear. The current account is the difference between payments to and from the country, excluding the transfer of capital in both directions, the Industry Watch recalls.