IMF scolding Bulgaria

SOFIA (Reuters) – Bulgaria should keep a tight fiscal policy next year but make sure its budget surplus targets are approved by parliament, the International Monetary Fund said. The Balkan country, due to join the European Union on January 1, has intentionally underestimated budget revenues over the last three years to achieve significant fiscal surpluses, winning mixed praise and criticism from the IMF. Analysts say ambiguous policy and large surpluses have given politicians more room for maneuver and left ample funds for the government to spend without parliament’s supervision. Last year, just minutes after parliament approved a balanced 2006 budget, Finance Minister Plamen Oresharski set a target for a surplus of 2 percent of gross domestic product (GDP). That later grew to 3 percent. IMF Head of Mission Robert Hagemann said that when the Fund’s pact with Bulgaria ends next year, Sofia will have to start following a more disciplined procedure. «What we want to avoid this time is a budget that has one surplus target and another one that is different with the IMF,» he told Reuters at the start of a weeklong visit to Sofia. «Because the arrangement with the IMF comes to a conclusion at the end of March, all of our conditionalities end at the end of this year, and it then becomes important for the country itself to have… a budget with legislative legitimacy.» Hagemann repeated the Fund’s stance that Bulgaria must shoot for a budget surplus of at least 2 percent of GDP next year to counter risks arising from its huge current account gap, expected to expand up to 15 percent of GDP this year. The Socialist-led government has officially approved a plan for a surplus of 0.8 percent of GDP, saying it must loosen policy to co-finance billions of euros’ worth of EU development projects when Bulgaria joins the bloc in January. But last week Finance Minister Plamen Oresharski said he would follow the IMF’s position by aiming for around the same surplus it expects to achieve this year – 3 percent of GDP. That would include the IMF’s recommended 2 percent surplus and another 1.2 percent in dues to the EU budget, he said. A draft budget bill should be presented in parliament for discussion by the end of October and the bill should be approved by year end. Following Oresharski’s statements, Hagemann said he was cautiously optimistic the two sides could agree on a fiscal target but insisted the 2 percent goal be drafted into law. «A surplus of at least 2 percent of GDP next year is what we would see as desirable,» he said. «What is important this time, more than previous times, is to see a budget balance that is transparent and understandable.»