ECONOMY

Bulgaria and IMF fail to agree on deficit target for next year

SOFIA – Bulgaria and its main economic mentor, the IMF, said yesterday they had failed to agree on a budget deficit target for next year but indicated differences could be bridged in coming months. The Bulgarian government, which has a $300 million loan deal with the International Monetary Fund, plans to raise the budget deficit to 0.7 percent of gross domestic product next year, from an initially agreed target of 0.5 percent, to spur growth. But the IMF said Bulgaria should aim for a lower budget deficit at a time of a sharply widening current account gap. «The emerging external risks and the expectations of a robust growth point to the need for a tight fiscal stance next year as well,» the IMF said at the end of a one-week mission visit to Sofia. «In this regard, (the IMF) staff does not view the current draft budget deficit as sufficiently ambitious,» said the IMF, which has had a strong say in Sofia’s economic decision making since communism collapsed in 1989. The Fund expects Bulgaria’s rapidly growing imports and credit to the private sector to boost the current account deficit to 7.0 percent of GDP this year, from a government forecast of 4.4 percent. The European Union aspirant’s current account gap stood at 5.2 percent in the first half of this year. The IMF’s mission chief for Bulgaria, Jarald Schiff, told a news conference that tight fiscal policy was the main tool of the government to address external risks because most monetary tools are severely restricted by the country’s currency board system. The IMF also urged the government to dedicate some of its extra budget revenues this year and savings from lower interest rate payments to a smaller or balanced 2003 deficit to cushion the effect of the rising current account gap. Bulgaria is currently running a budget surplus, compared to a 2003 deficit target of 0.7 percent of GDP. Finance Minister Milen Velchev told the same news conference that the government was also concerned about the widening current account gap and indicated it might bow to IMF demands for a lower 2004 budget deficit. Velchev, a leading reformer in the two-year-old government of ex-king Simeon Saxe-Coburg, last month withdrew his resignation after winning a new commitment from the factious ruling coalition to belt-tightening budget policies. Velchev has been under mounting pressure from lobbies within the ruling National Movement for Simeon II (NMS) and its junior coalition partner, the ethnic Turkish MRF party, to increase spending next year and ahead of next month’s local elections. Saxe-Coburg’s NMS – a motley group with rival lobbies promoting conflicting policies – has been hit by damaging walkouts and plummeting popularity for failing to deliver on a main 2001 election pledge to bring quick affluence. Velchev has said he raised the 2004 budget deficit target not because of political pressure but to spur growth, which was unable to reach its full potential due to slower-than-expected recovery in the EU, Bulgaria’s main trading partner. The government expects a GDP rise of 5.3 percent next year, up from this year’s forecast of 5 percent growth. Both Schiff and Velchev said they believed they would reach an agreement on the 2004 budget as they would continue discussions in coming weeks and months.