ECONOMY

Tight 2007 for Sofia

SOFIA – Bulgaria will loosen fiscal policy slightly next year and aim for a 2 percent of GDP budget surplus, Finance Minister Plamen Oresharski was quoted yesterday as saying, but analysts said the goal was too tight and could hamper growth. Oresharski said the Socialist-led government aimed overall to match roughly this year’s surplus which is planned at 3 percent of gross domestic product. That includes surpluses of 2 percent of GDP, as recommended by Bulgaria’s economic mentor, the International Monetary Fund, and 1.2 percent which it will pay into the budget of the European Union, which the country joins next year. «The 2 percent does not include the payment to the EU, which is around 1.2 percent of GDP,» he told the daily Dnevnik in an interview. «If you add the 2 percent that the IMF recommends and the EU payment for analytical purposes, the fiscal result is about the same as this year’s goal.» Bulgaria, which is set to receive up to 11 billion euros in farm and development funds until 2013, will be a net beneficiary from the EU budget. But experts say its slow pace in setting up agencies to administer the funds may mean it loses out on some money in the early stages. Analysts said the budget policy would provide economic stability but could hurt growth when the country should loosen the purse strings to improve infrastructure, boost growth and bring Bulgarian living standards closer to the EU’s. Bulgaria’s currency board regime, imposed at the tail end of a 1996-1997 economic crisis, has forced successive governments to keep one of Europe’s tightest budgetary policies. The regime, which pins the lev to the euro, limits central bank policy tools and leaves fiscal prudence as the only way to counter Bulgaria’s main economic headache, a current account gap expected to balloon to a record 15 percent of GDP this year. More growth needed Although Bulgaria posted economic growth of 6.5 percent in the second quarter, it has got off to a late start improving crumbling infrastructure and attracting foreign investment. Analysts have called for more extensive reform to shift state spending to badly needed road and other projects rather than funding inefficient, bloated government services. They have criticized successive cabinets for intentionally underestimating budget revenues, which led to large unplanned surpluses and took cash away from taxpayers that could go on raising living standards which, with average salaries of 160 euros a month, will be the lowest in the EU. «The 2 percent goal means the state will again take away a large part of people’s income,» said Dimitar Chobanov, an analyst with the Institute for Market Economics. «Such a policy is too cautious and will lead to cutting possibilities for growth.» The government has officially approved a plan for a surplus of 0.8 percent of GDP for 2007, saying it must loosen policy to co-finance billions of euros’ worth of EU infrastructure and development projects upon entry. But the country has a long track record of officially approving one goal and then shooting for a stricter target under the IMF’s recommendations. Last year it surprised markets when Parliament passed a balanced 2006 budget but then Oresharski said minutes later the government would aim for a 3 percent of GDP surplus.