Bulgaria expects tourism to rein in inflation and its C/A deficit

SOFIA – The Bulgarian Finance Ministry’s forecasting agency said on Sunday it expected better tourism revenues to slow the expansion of the current account gap and inflation by year-end. The Agency for Economic Analysis and Forecasting said it sees the 2006 current account gap, one of the highest in Europe, easing to 11.3 percent of GDP, from 11.8 percent last year. It was the first time the agency has given an estimate for the country’s problematic current account, after the central bank changed its methodology, shaving around 3 percentage points off the deficit for 2005. «We see the deficit improving by 0.5 percentage points due to expected better revenues from tourism as well as funds from the European Union and money transferred by Bulgarians living abroad,» said Stefan Tsvetkov, a senior official with the agency. The central bank has forecast the current account deficit to fall below 11 percent in 2006, expecting a pickup in exports and a slowdown in imports. Data for the first two months of the year showed that imports continued to surge and outpace exports, bringing the current account deficit to 2.8 percent of GDP from 1.7 percent in the same period of 2005. But Tsvetkov said mushrooming hotels on Bulgaria’s Black Sea coast should start to attract more tourists to the beaches this summer and to pour more cash into the economy. Almost 5 million tourists visited Bulgaria last year, spending 1.9 billion euros. The country has committed to achieving a 3 percent budget surplus this year and is taking steps to boost exports. Bulgaria operates under a currency board regime, which curtails central bank operations, leaving fiscal policy as one of the few tools it has to influence the economy. The International Monetary Fund, Bulgaria’s main economic mentor, has said that along with a tight fiscal stance, the government should push ahead with structural reforms and improve infrastructure to cut the gap, which it sees at 10.2 percent in 2006. The agency also sees the end-year rise in the consumer price index easing to 6.4 percent. Sharp increase in cigarette prices and higher costs of regulated services like utilities and post quickened inflation to 8.7 percent year-on-year in March. Consumer price inflation in 2005 was at 6.5 percent. Bulgaria, which hopes to join the European Union next year, sees inflation as its key challenge to meeting criteria for adopting the euro in 2010. The agency said it sees high consumer prices in the first three months, as well as the wide trade deficit, slowing real economic growth in the first quarter to 4.4 percent annualized, down from 5.9 percent growth in the same period a year earlier. But it kept its forecast for full-year GDP growth at 5.5 percent, flat on 2005, expecting that the economy will rebound in the next three quarters, mainly due to stronger external demand and the low base in the third quarter last year.