Floods are no excuse, IMF tells Bulgaria

SOFIA – The International Monetary Fund urged Bulgaria yesterday to curb spending and maintain fiscal prudence to avoid economic overheating despite the floods that hit the Balkan state this summer. Bulgaria said flood damage, estimated at 1 billion levs (511 million euros), prompted extra spending, which the IMF fears might further worsen Bulgaria’s wide current account gap – seen at 9.0 percent of gross domestic product at the end of 2005. «A natural calamity, such as a flood, is per se no reason to ease fiscal policy,» head of the IMF mission Hans Flickenschild told reporters at the end of a three-day visit to Bulgaria. The country, set to join the EU in 2007, has vastly overshot its revenue targets and its budget surplus by the end of July was 1.13 billion levs – almost 3 percent of GDP – far over the year-end estimate of 1 percent agreed upon with the IMF. Under its two-year non-funding accord with the Fund signed last August, the country has agreed to save 70 percent of outperformed revenue – a commitment it might breach due to the flood-damage payments. Flickenschild said the EU aspirant state should redirect spending rather than hike it. «In deciding for this additional spending the government will look for savings into the existing budget. Savings that need to be significant enough to accommodate spending needs.» Bulgaria operates under a currency board regime and fiscal policy is one the few tools it has to ensure the financial stability. Flickenschild said any changes of already-agreed-to 2005 targets will be discussed in October, when the Fund will carry out a second review of the 118-million-euro non-funding deal. Finance Minister Plamen Oresharski said Bulgaria has already extended some extra 250 million levs for the most urgent repairs of road and other infrastructure and further payments from the 2005 budget will be marginal. «We have already allocated payments to compensate for the damage. We do not plan to spend much more by the end of the year,» Oresharski told Reuters. He has said he expected the end-2005 surplus in the range of 1 to 2 percent of GDP and has vowed to maintain fiscal prudence.