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Sunday, 17 November 2024
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USIA: World Bank Release On $30 Million Loan To Bulgaria (96-08-12)United States Information Agency Directory - Previous Article - Next ArticleFrom: The United States Information Agency (USIA) Gopher at <gopher://gopher.usia.gov>TEXT: WORLD BANK RELEASE ON $30 MILLION LOAN TO BULGARIA(Funds to support restructuring, banking sector reform) (890)Washington -- The World Bank has approved a new $30 million economic rehabilitation loan for Bulgaria.The funds will help finance a social safety net for an estimated 65,000 workers who will be laid off because of the shutdown or restructuring of inefficient state enterprises and banking system reforms. Following is the text of the August 2 World Bank news release announcing the loan: (Begin text)The World Bank yesterday approved a $30 million Economic Rehabilitation Loan to Bulgaria to support the initial phase of the government's new economic stabilization and reform program. This loan will also help the Government cushion the social cost of reforms by assisting workers who will be displaced as a result of enterprise restructuring.In cooperation with the Bank and the International Monetary Fund (IMF), the Government has developed an extensive economic stabilization plan. By restructuring the enterprise and banking sectors and accelerating the privatization process, it will be able to reduce inflation and establish a more solid fiscal position. These measures are also designed to win further public support for the Government's reform efforts. Economic stabilizationThe government aims to reduce the budget deficit from 5.7 percent of Gross Domestic Product (GDP) in 1995 to 3.1 percent in 1997, to limit the borrowing requirements of the consolidated government budget and reduce inflation from a high of 760 percent in June to 100 percent by the end of 1996. So far, it has increased the value added tax rate from 18 to 22 percent and doubled excise taxes on wine and beer and increased taxes on hard liquor and tobacco by 50 percent. The Government has also reduced non- interest real expenditures in 1996 to 26.5 percent of GDP by limiting subsidies to state-owned enterprises while allowing for increases in social spending especially associated with labor retrenchment policies. The Government's future plans include enhancing the efficiency of the tax system and customs administrations.Transformation of the public enterprise sectorBulgaria's economic problems stem from financial losses due to a large state enterprise sector. The sector's reform is crucial to the economy's stabilization and future growth. The government's new enterprise restructuring program includes: closure of the largest loss generating enterprises, technical support to facilitate liquidation and/or restructuring of enterprises and improvement of profitability through enforcement of disciplined financing and responsible accounting.Under the government's program, 64 enterprises, accounting for 25 percent of state economic enterprises' total losses in 1995 will be liquidated. Another 70 enterprises which accounted for 50 percent of the enterprise losses in 1995 will be placed on a financial isolation regime for a period of 24 months. In addition, the government has introduced a mass privatization program which includes 1,000 companies with a total capital of 90,000 million levs in the first wave of auctions scheduled to begin in October. The government is aware of the social cost of an expected 65,000 unemployed workers due to restructuring. To mitigate this impact, the government intends to make greater use of its active labor market programs to retrain and redirect laid-off workers and to provide severance payments to retrench workers who lose their jobs as a result of the reforms. Reforms in the banking sectorOver the past year, Bulgaria has confronted growing problems in its financial sector and foreign exchange markets. Depositors have withdrawn funds, particularly foreign exchange deposits, from the banking system. Foreign exchange deposits declined from $2,300 million in November, 1995, to $1,600 million in June, 1996. Foreign exchange reserves reached a critical low level with authorities withdrawing from foreign exchange markets. As a result, monthly inflation, which had declined to 22 percent on an annual basis by March of 1996, rose sharply to 311 percent in May and 769 percent in June.Since June, the government has moved rapidly to lay foundations for restructuring the banking system. It has closed two large banks and introduced an explicit partial deposit guarantee scheme. In addition, the government is introducing a program of limited capitalization and possible privatization, restricted unsecured financing on the part of the Central Bank, a series of work-out arrangements to improve capital adequacy and improved supervision and accounting practices to conform to international standards starting in January, 1997. World Bank supportThe financing provided by the loan is a key part of the government's program of economic reforms. The loan will assist the government to:
The loan will be repayable over a period of 20 years including five years of grace at the Bank's single currency LIBOR-based floating interest rate in U.S. dollars. To date, Bank commitments total $869 million to support transition projects in Bulgaria. (End text)From the United States Information Agency (USIA) Gopher at gopher://gopher.usia.govUnited States Information Agency Directory - Previous Article - Next Article |
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