Sofia heeds IMF
SOFIA (Reuters) – Bulgaria has agreed to aim for a large 2006 budget surplus, its finance minister said yesterday, giving in to demands from the IMF to tighten fiscal policy in the face of a ballooning current account gap. Bulgaria officially plans a balanced 2006 budget but has admitted to underestimating revenues – a practice it commonly follows in its restrictive currency board regime – and had been aiming for a surplus of 2 percent of GDP. But the IMF demanded it vacuum even more cash out of the economy to counterbalance the country’s biggest economic headache, a swelling external balance fueled by runaway demand and a boom in consumer lending. «We have agreed to aim for a surplus of 3 percent of GDP, but we also have an option, depending on the situation on the current account gap, that this goal could be corrected,» Finance Minister Plamen Oresharski said after a weeklong visit by the Fund. «We can only hope that the current account gap will decrease this year.» Oresharski said the government and the Fund could reconsider the target if the shortfall shrank to below 12 percent of GDP. The central bank also agreed to several recommendations from the fund to further limit credit growth to 17.5 percent this year, from 32.5 percent at the end of 2005 and over 50 percent a year earlier. The agreements mean the two sides can cordially end their two-year non-funding agreement that expires in September. The Finance Ministry says it prefers to have wide room to maneuver as it tinkers with the tax system, but analysts say political pressure means they officially shoot for looser policy knowing full well they will exceed revenue targets. As the currency board severely limits the central bank’s effect on the economy, the IMF sees fiscal policy as the main way to dampen demand and prevent Bulgaria’s overheating external imbalance from burning up. «This requires a twofold response: fiscal restraint, a prudent income policy and credit measures to hold back growth of demand in the economy, and structural reforms to encourage supply and export growth,» the IMF said in a statement. The 2005 current account gap is expected to have doubled over the previous year to a record 15 percent of GDP and is seen at above 12 percent this year. Oresharski said preliminary data showed the 2005 budget surplus was 2.33 percent of GDP, above original targets and in line with targets agreed with the fund last year.
