Bulgarian gov’t unveils expansive pre-election budget

SOFIA – Bulgarian deputies passed the 2005 state budget yesterday, backing a government plan to ease fiscal policy and raise minimum wages in an election year despite protests from the EU candidate’s economic mentor, the IMF. By cutting taxes and raising spending on health, education and social programs, former king Simeon Saxe-Coburg’s government has made a clear move to boost flagging popularity ahead of parliamentary polls next summer, analysts said. His minority two-party coalition teamed up with independents to pass the law, which targets a total fiscal gap of 0.5 percent of gross domestic product and sees economic growth of 5.0-5.6 percent next year. «The budget fully meets the state’s main priorities – faster growth, direct tax cuts, an increase in revenue, and effective spending in the budget sphere,» Finance Minister Milen Velchev told deputies after the budget passed. The 2005 budget will be one of Europe’s tightest, but the planned deficit represents broad easing over this year’s surplus, seen at up to 1.1 percent of GDP, depending on the government’s final spending plans. The Finance Ministry’s initially planned 0.7 percent deficit for 2004 has been eclipsed by a surplus that reached $810 million at the end of October. The government’s plans to spend most of the windfall and continue the relative largesse next year have alarmed the International Monetary Fund, which fears pressure on Bulgaria’s already wide current account gap and its currency board regime. The poor Balkan state, which got a green light on Friday to join the European Union in 2007, must maintain high fiscal discipline because of the currency board’s straitjacket which does not allow interest rates to cool off the economy. The spending plans are threatening to disrupt a $146 million precautionary agreement Sofia has signed with the Fund. But analysts were unfazed, saying a solid track record had earned the government the right for a small spending spree, and expect the IMF to give it leeway with that in mind. «The government has been making a very strong case that this is what they need to do, given their very low support,» said Dresdner Kleinwort Wasserstein analyst Ivailo Vesselinov. «People are not overly worried about this. They see it as more of a one-off spending spree, and not the start of an ongoing deterioration of fiscal policy.» Saxe-Coburg’s National Movement for Simeon II (NMS) won 43 percent of the popular vote in 2001, but its support nosedived when a promised improvement in living standards proved elusive. Despite winning an invitation to join the EU, a seat in NATO and presiding over booming growth, the ruling party trails the opposition Socialists in polls. The opposition accuses the government of deliberately creating this year’s surplus to have more to spend ahead of elections.