Non-Government Debt and Economic Activity

It is almost a tradition for analytical papers to state that the high extent of corporate indebtedness (intercompany including) might hinder investments and growth. The thorough review of the existing research, however, does not reveal a reliable and definite proof that the gross non-government debt contracted might put economic performance in danger. Assuming new debt as a rule represents an incentive for economic growth but to a varying extent. Given a low level of indebtedness both developments go in parallel – the rates of indebtedness’ growth (in the way of credits), on the one hand, and the rates of economic growth on the other. Provided a higher (much higher) speed of indebtedness, linked with the self-induced euphoria for accumulating relatively easy profits, economic development lags behind and the convergence of both curves is broken. The contribution of new lending for intensifying economic operations gradually declines until it reaches a point since which any further increase in lending starts hindering economic growth. The author’s position is that non-government indebtedness in Bulgaria has not reached its break-even point, since which it turns into a brake to economic development. Insufficient indebtedness rather is what impedes economic growth. The question is why households and companies refrain from taking on new liabilities which would have stimulated investment and economic development. The investment and consumer restraint of economic players is much more the outcome of an assessment of the conjuncture in the future. The base period presumes a recovery of the economic development, the more so that there is a long way to go to reach the average European level. Despite that investments are slack. There is obviously a need for adopting a much more different style of social and economic management rather than the change in one or another parameter of economic management. It is obligatory to realize the decisive function of macroeconomic institutions. This process of awareness involves a much better quality of education and the growing up of all the population.