The total indebtedness of the companies from the non-financial sector amounted to nearly EUR 86 billion in 2013, or EUR 1.5 billion more as compared to the previous year, the Bulgarian Industrial Association announced. In other words, the country’s economy has slowed down.

The growth of the corporate debt is commensurate with the increase of the country’s gross domestic product, Deputy Chairman of the Bulgarian Industrial Association Kamen Kolev told Radio Bulgaria and added:

“The average annual growth of the country’s GDP over the past 4 or 5 years was to the tune of 1.1% and the corporate indebtedness marked a 2% growth year on year, while in the previous 5 years the average annual increase of the companies’ debts exceeded 30% and the national gross domestic product was growing by nearly 6% on an annual basis. In other words, the debts of the companies were growing five times quicker as compared to the increase of the GDP. Now we are witnessing a balance between these two indicators.”

В In the years preceding the economic crisis the main concerns of the Bulgarian authorities were linked with the constantly increasing indebtedness between the companies. Although things look much better now and the level of the corporate indebtedness against the country’s GDP is comparatively low, there are still some reasons for concern. It all depends on the ability of the local companies to pay off their debts in time, which is tied to their business revenues and their capital adequacy. In Kamen Kolev’s view, the companies are de-capitalized, because their debts exceed their equities.

The indebtedness of the companies may be further boosted by chain bankruptcies: companies from a given sector may fail to pay their debts to suppliers, subcontractors and creditors due to revenue slumps or weaker sales. Therefore, the contractors of such companies are affected by their insolvency. The picture looks different in different sectors of the economy, but most of the construction firms are unable to collect their money owed for public procurement orders that have already been completed.

The Bulgarian municipalities owe the construction sector some EUR 80 million. The state authorities still owe the construction sector and the medicine suppliers some EUR 50 million for work done under various public procurement orders. However, despite the delay, the companies will receive the full amount of their money by the state and the municipalities.

The corporate debt, however, amounts to nearly EUR 58 billion. Nearly one-third of the debt (EUR 15 billion) is overdue, which inevitably hampers the companies’ economic growth. The companies owe some EUR 27 billion to banks, leasing companies, employees, the state budget, etc. Data of the Bulgarian Industrial Chamber show that 25%-26% of all bank loans are overdue. More from Kamen Kolev:

“The companies have difficulties paying off one out of every four loans borrowed by the financial institutions, which actually shows their financial position. Their access to working capital and money needed for investments is hard. The problem is that there are no risk capital funds or other non-banking institutions which provide money for innovations for instance. Currently the main source of such financing is the Competitiveness Operational Programme where some financial instruments facilitate the access of the companies to non-banking financial resource."

When a given company violates the rules set in the contract, the affected party can refer the issue to arbitration, if the terms of their contracts allow them to do so, or look for the services of a mediator or a court, although most proceedings are long and the claims of the creditor are not always satisfied.

English version: Kostadin Atanasov