At the end of the week, Bulgaria placed on the international financial markets government bonds worth 1.493 billion. These are ten-year government bonds as the money from them is to be used to pay in January next year an old debt of 1.086 billion dollars and will cover the state budget deficit for this year of a little over 750 million euro. The debt issuance and placement of bonds in world financial and capital markets are common financial transactions that almost all governments around the world regularly perform. From this perspective, the realized operation of the Bulgarian government is not particularly interesting and remarkable. Much more commentary and analysis was produced by the surprisingly low price at which Bulgaria gets the credit.
Just two years ago, the Bulgarian state issued bonds to the tune of EUR 950 million and then pay interest on this amount of 4.436%. Now the investors who bought Bulgarian securities will receive only 3.056%. i.e. by more than one percent less. And when we talk about a billion and a half euros, one percent is a lot of money. This very positive result surpassed all expectations of analysts and of the Prime Minister of Bulgaria himself, which incidentally is a university professor and an expert in finance and he expected an interest rate of about 4%. The surprise was even greater after about two weeks ago the international rating agency Standard & Poor's cut by a notch the credit rating of the country to the lowest level that is considered acceptable by investors. The lower rating was attributed to political instability and lack of reforms in the country.
There are two main factors that have played a role in the extremely low price that the Bulgarian government is to pay for the borrowed 1.5 billion euros. First, it is the fact that the level of government debt in Bulgaria is only 18% of the gross domestic product. For comparison, the average level of debt in the euro area is 96%. This small debt level calms investors that the risk for the country to become insolvent is small. The second reason for the low cost of debt achieved by Bulgaria is the generally low level of interest rates in the world and particularly in Europe. The base interest rate of the European Central Bank, for example, fell to a record low of 0.15 percent in early June.
If we add to all this the fact that the interest of investors in Bulgarian bonds was huge, we can conclude that Bulgaria has achieved a worthy on the international financial markets, and that they believe that this country is credible.
