ECONOMY

IMF seeks tighter budget

SOFIA – The International Monetary Fund will try to push Bulgaria’s new Socialist-led government toward a substantial budget surplus in 2006 rather than the balanced budget it has planned, an IMF official said yesterday. Last week the Balkan state’s three-party grand coalition agreed to aim for a zero deficit, keeping one of Europe’s tightest fiscal policies with a balanced budget next year. But James Roaf, IMF representative to Sofia, said a ballooning current account deficit and rising inflation demanded no wavering from the huge fiscal surpluses achieved by governments in recent years. «Our position is that they ran a substantial surplus in 2004 and we’re looking at a substantial surplus in 2005,» Roaf told Reuters in an interview. «Moving to a balanced budget would imply a significant fiscal relaxation in 2006, and given what’s happening on the current account, we don’t see that as appropriate.» Under the Cabinet of former centrist Prime Minister Simeon Saxe-Coburg, Bulgaria significantly underestimated budget revenues and ended 2003 and 2004 with huge excess income. Despite devastating floods this year that cost the state 200-300 million leva (up to 100 million euros) in emergency funds and will demand around double that next year, the Finance Ministry expects a surplus of 1 to 2 percent of gross domestic product (GDP) for 2005. The IMF hopes to hammer out exact levels for budget performance for this year and next at a two-week mission to review its non-funding agreement with Bulgaria on Thursday. Not tight enough The Cabinet-leading Socialists alarmed analysts before June’s elections with pledges to hike public wages and spending in crumbling education and healthcare. Many feared a repeat of 1997, when the party led Bulgaria into an economic meltdown. But after winning the elections, the Socialists formed a grand coalition with Saxe-Coburg’s economically liberal centrists and have promised to adhere to strict fiscal prudence. A proposal for a 20 percent hike in public salaries has been cut to around 5-10 percent and the government has pledged to cap spending at 40 percent of GDP, moves more or less welcomed by the IMF. It is also preparing to cut social security taxes and raise the minimum non-taxable income and excise duties. Roaf said the IMF had no major objections to the shift to more indirect taxes, which could help boost employment, cut down on the gray economy and raise living standards among the poor. But he warned the plans for a balanced 2006 budget would go too far, as the current account gap is expected to exceed 10 percent of GDP this year and rising inflation could lead to economic overheating. »It’s been disappointing so far this year. The program expects a current account deficit of 7.6 percent of GDP, and it’s clearly going to be much more than that,» he said. «The macro implications of that is that you would need a tightening of fiscal policy.»