ECONOMY

Bulgaria approves balanced budget, vies for 2 pct surplus

SOFIA (Reuters) – Bulgaria approved a balanced 2006 state budget yesterday, but the finance minister promised to aim for a fiscal surplus of 2 percent of GDP to counter risks tied to the Black Sea country’s large current account gap. The budget fell short of demands from the International Monetary Fund for a 3 percent surplus. But analysts welcomed the minister’s pledge, based on improved tax collection, saying it eased fears that excess spending could overheat the Balkan country’s economy. «For Bulgaria, it is particularly important that there be policy adjustments that could address the current account gap problem,» said Agata Urbanska, economic analyst at ING Bank in London. Bulgaria’s Socialist-led government sees the current account deficit swelling to a record-high 13.5 percent of GDP this year, fueled by strong consumption, and narrowing slightly to 12 percent next year. Bulgaria has maintained one of Europe’s tightest monetary policies due to its currency board regime that leaves fiscal policy as one of the few tools it has to control external risks. Analysts say the Socialists, who won June elections on pledges to boost wages and spending on education and healthcare, are unwilling to commit themselves officially to even tighter policy. The Socialist-led government argues that a balanced budget, along with plans to cap government spending at 40 percent of GDP – near this year’s projected levels – will protect its emerging economy from overheating. «The main aim of this budget is to keep macroeconomic stability, create conditions for sustainable growth and prepare successfully for EU entry,» Finance Minister Plamen Oresharski said after Parliament approved the budget draft. The consolidated budget sets both revenues and spending at 18.258 billion levs next year, up from initial 2005 targets by around 12 percent in nominal terms. It sees economic growth at 5.5 percent and end-year annual inflation of 4.9 percent next year.