Bi-Weekly Report 12-25 February 2019


A temporary improvement in the fiscal balance in January (by 0.1 pp of GDP y-o-y), due to early profit distribution by the CBRT (0.8% of GDP)

The FY:19 fiscal deficit target of 1.8% of GDP is out of reach

The current account deficit eased to a 9-year low of 3.6% of GDP in FY:18



The FY:18 budget deficit was kept within target, widening marginally to 2.9% of GDP

Tensions heighten between the President and the Government regarding the FY:19 budget

The FY:19 budget deficit could reach excessive levels



Both current spending and public investment pushed down the consolidated budget surplus to 0.1% of GDP in FY:18 from 0.8% in FY:17

Fiscal policy is set to remain expansionary in FY:19

Bulgaria's already low gross public debt is set to decline further in FY:19



FX-adjusted customer deposit growth reached a 9-year high of 15.2% y-o-y in December, on the back of a rebound in economic activity and improved confidence in the domestic economy

Credit growth (adjusted for FX movements) accelerated to an 8-year high in 2018, despite continued large write-offs


North Macedonia

The Central Bank is likely to maintain its key rate (28-day CB bill rate) on hold at a record low of 2.5% throughout the rest of the year

Tourist arrival growth slowed sharply to a still strong 12.2% in FY:18, mainly due to a decline in the number of visitors from Turkey -- the main source country -- and unfavourable base effects



Customer deposits (FX-adjusted) strengthened in 2018, underpinned by the rebound in economic activity

Credit growth, adjusted for large write-offs and FX variations, is estimated to have reached a 7-year high of c. 4.3% in 2018



Cyprus issued its first ever 15-year Eurobond, worth EUR 1.0bn (4.7% of GDP), at a yield of 2.75% (241 bps over the German benchmark and 175 bps over mid-swaps)

Banking sector stock of non-performing loans (NPLs) almost halved in the first 10 months of 2018, pushing down the NPL ratio to a low of 23.7%



The CBE cut its key policy rates by 100 bps; additional cuts in sight by end-year

Weaker support from Suez Canal receipts to Budget revenue and current account in sight this fiscal year (ending in June)


Appendix: Financial Markets

Bi-Weekly Report 12-25 February 2019