Foreign direct investment (FDI) in Bulgaria collapsed 20-fold to EUR 28 million over January and February 2010 compared to the same months of the previous year, according to preliminary figures.

The figure compares with EUR 555 million for the first two months of 2009.

FDI covers 18% of Bulgaria’s current account deficit compared with 64.2% for the corresponding period of 2009 before bridging it up completely in the following months.

But for January and February 2010, the current account gap shrank fourfold to EUR 155.3 million from EUR 864.9 million a year earlier. The main drags were external trade, where the shortfall contracted by 55% to EUR 310 million from EUR 693 million for the first two months of last year.

The smaller current account deficit is another indication that pressure on Bulgaria’s balance of payments is easing off. At the same time, Bulgaria is facing the new challenge of slumping investment as consumer spending is also heading south. This, in turn, spells trouble in tax collection in a country where indirect taxes such as value-added tax (VAT) and excise duties generate the bulk of the revenue.

In February, soft consumer spending coupled with transfers from European funds bred a EUR 87.9 million current account surplus. Tourism revenue did the same in the summer months of last year.

Bulgaria’s financial account deficit widened to EUR 980 million by end-February 2010 from EUR 462 million for the first two months of last year thanks to sliding deposits by non residents and commercial credits.