EXPENSIVE DOLLAR, CHEAP LEV, OPPORTUNITIES MISSED
The Bulgarian lev has a fixed exchange rate to the euro – that means that when the European currency is going down, so is the Bulgarian lev and vice versa. Unfortunately (or fortunately for some) the euro has been plummeting against the most powerful and dominant currency in the world - the US dollar. There are many reasons why this is so and this is neither the place nor the time to analyze them. What is more important to Bulgaria and its open, i.e. extremely dependent on imports and exports economy are the practical conclusions and specific results of this tendency, which will continue until September next year, and maybe even longer, according to the European Central Bank plans.
Payments in Bulgaria are usually in the local currency, yet a great many of the goods on the market are import commodities, i.e. their price is dependent on the current exchange rate. The same holds true of a large portion of the industry which is export-oriented – in this case the currency rates are vital as the exporters’ revenues depend on them.
Being a member of the EU, more than 60 percent of the country’s foreign trade takes place within the Union and with business partners from the member countries. In this case payments are in euro and there are no problems with the currency exchange rates as the Bulgarian lev is pegged to the euro. But there is that 40 percent of Bulgaria’s foreign trade that is with what are known as third countries. In this case payments are mostly in the expensive US dollars. In theory this means that the prices in dollars of the Bulgarian commodities earmarked for export are going down which should boost demand, with exporters profiting from bigger sales. Yet data are not corroborating this theory, on the contrary, figures show that in January Bulgarian exports marked a 2.5 percent drop compared to the same period of last year. This means Bulgarian exporters have not been able to gain any profit from the competitive advantage of the cheap euro (lev).
On the other hand, demand for the expensive dollar commodities by Bulgarian businesses should, in theory be down because of their apprehension that they may not be able to sell them on the highly sensitive domestic market because of their higher prices. Logically, in light of this, Bulgarian imports from third countries should be dropping. And official statistics confirm there is such a trend – with a 10 percent drop in January compared to a year earlier.
But there are commodities, imported from third countries and most of all Russia, whose import is more or less invariable – oil and gas. Bulgaria obtains almost 100 percent of these energy sources from Russia and pays for them in dollars. A lot of dollars – more than USD 4 billion a year. But the price of oil has been plummeting and this is something that has been noticeable at petrol stations even. But that was before the crash of the euro and the soaring of the dollar. Now, even if oil were to continue its downward trend in the world, drivers will no longer have cheap petrol because of the expensive dollar. And that is something we are already seeing – the prices of fuels in Bulgaria are again going up. This tendency is now making inroads into the white and brown goods market which mostly come from the Asian countries, which also trade mostly in dollars.
The conclusion is that at this time, Bulgarian businesses are having a bad time with the plummeting of the local currency to the US dollar and are unable to turn the exchange rates to their advantage. Ultimately, to consumers the expensive dollar means a rise in the prices of many commodities. For Bulgarians, whose purchasing capacity is poor, this is a burden that is difficult to bear.
