Monbat
AD
Separate
financial statements
31
December 2021
24
CURRENCY
RISK
The
currency risk exposure is the dependence on and the effects of the
currency
exchange
rates changes. The systematic currency risk is the probability of
possible
change
in the currency regime of the Country (Currency Board), which would
result
either
in devaluation of the Bulgarian lev (BGN) or in appreciation of the
BGN against
foreign
currencies.
Currency
risk will have impact on companies with market shares, which are
completed
in
a currency other than BGN and EUR. Due to the laws in force in the
country, the
Bulgarian
lev is fixed to the Euro at an exchange rate of EUR 1 = BGN 1.95583,
and
the
Bulgarian National Bank has to maintain a level of Bulgarian leva in
turnover equal
to
the currency reserves of the bank, the risk of devaluation of the
BGN compared to
the
European currency is minimum, and for the most part consists in a
possible
elimination
of the currency board in the country. At this stage, this appears to
be very
unlikely
because the Currency Board is expected to be removed at the time of
accepting
the
Euro as official legal tender in Bulgaria.
At
its meeting on June 30, 2021, the Coordination Council for
preparation of the
Republic
of Bulgaria for euro area membership adopted a draft National Plan
for the
introduction
of the euro in the Republic of Bulgaria. Bulgaria's commitment to
adopt
the
single European currency is reaffirmed in the Treaty on the
Accession of the
Republic
of Bulgaria and Romania to the European Union, after it was
initially stated at
the
start of our country's EU membership negotiations. Preparations for
Bulgaria's
accession
to the euro area are scheduled for January 1, 2024. The introduction
of the
euro
is planned without a transitional period as the date of adoption of
the euro will
coincide
with its introduction as the official unit of payment. The
conversion will be
done
by applying the irrevocably fixed exchange rate between the euro and
the lev.
And
after the introduction of the euro within a month, the lev and the
euro will be legal
tender
at the same time. The National Plan for the Introduction of the Euro
in Bulgaria
is
the strategic document based on which the operational work for the
replacement of
the
lev with the euro will be implemented. The document has been
prepared and
adopted
within the deadline of 30 June 2021, set in Decree № 103 of the
Council of
Ministers
of 25 March 2021 amending and supplementing Decree № 168 of the
Council
of
Ministers of 2015 on the establishment of a Coordination Council for
the preparation
of
Republic of Bulgaria for euroarea membership (SG, issue 52 of 2015).
The
National Plan for the Introduction of the Euro in Bulgaria describes
the principles,
the
institutional and legal-regulatory framework for the adoption of the
euro, as well
as
the main activities for the successful introduction of the euro from
January 1, 2024.
The
document addresses all the important operational activities and
measures that
participants
in preparation for the introduction of the euro - the private,
public sector
and
citizens - should carry out as part of the process of adopting the
euro.
Gross
Foreign Debt at a given time represents the amount of the current
and
unconditional
obligations, requiring payment(s) of the principal and/or interest
by the
debtor
in a given time in the future, which are due by non-residents to
residents in a
certain
economy. High gross foreign debt is a prerequisite for potential
problems with
repayment
of the debts, especially in case when a significant degree of
currency risk
exists.
According
to BNB data as of December 31, 2021, gross foreign debt at the end
of
December
2021 amounted to EUR 41 529.1 million
(61.8% of GDP), which is EUR
1902
million (4.8%) more than at the end of December 2020 (EUR 39 627.1
million,
64.6%
of GDP). At the end of December 2021, short-term liabilities
amounted to EUR
6716.3
million (16.2% of gross debt, 10% of GDP) and increased by EUR 641.5
million
(10.6%)
compared to the end of December 2020 (EUR 6074.7 million, 15.3% of
debt,
9.9%
of GDP). Long-term liabilities amounted to EUR 34 812.8 million
(83.8% of gross
debt,
51.8% of GDP), increasing by EUR 1260.4 million (3.8%) compared to
the end
of
December 2020 (EUR 33 552.4 million, 84.7 % of debt, 54,7% of GDP).
Preservation
of the current taxation regime is of defining importance for the
financial
result
of the companies. There is no guarantee that the tax laws, which are
of direct
consequence
for the operation of the company, would not be changed in a
direction
which
would result in a significant overhead expense, and respectively
would have an
adverse
effect on the profit of the company. The taxation system in Bulgaria
is still
undergoing
the process of development and consequently the existence of
contradictory
tax practices is a possibility.
TAX
RISK
