IMF warning to Bulgaria

SOFIA (Reuters) – The International Monetary Fund warned the government yesterday against spending its ample fiscal reserve on anything other than foreign debt payments. The two-year-old government of ex-king Simeon Saxe-Coburg has been under mounting pressure from its junior coalition partner, trade unions and opposition parties to use fiscal reserves to raise incomes and invest in infrastructure projects. The IMF, which has a $300 million deal with Sofia that expires in February, requires Bulgaria to maintain fiscal reserves to guarantee annual foreign debt payments of some $1 billion. The reserve now exceeds $2 billion. «We don’t see the fiscal reserve as something sitting there ready to be spent,» said James Roaf, the IMF’s newly appointed resident representative in Sofia. The Finance Ministry, which keeps the reserve on deposits with the central bank and several private local banks, has so far rejected calls for alternative usage of the fiscal reserve. Ruling coalition members have urged the government to increase spending before local elections in October. The government has been losing popularity as it has failed to deliver on a 2001 election pledge to bring quick affluence. Finance Minister Milen Velchev has said the government might use fiscal reserve funds for a Brady bond buyback through a warrant option as part of its strategy to reduce the debt burden. Velchev has said that exercising the warrant option might happen within two years. An IMF mission arrives in Sofia today to check the state of the economy and discuss next year’s budget.

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