ECONOMY

Bulgaria plans budget surpluses through 2009 for its protection

SOFIA – Bulgaria plans to maintain one of the tightest fiscal policies in the European Union and run budget surpluses through 2009 to protect its emerging economy from external risks, a government report showed yesterday. Bulgaria, which joined the bloc on January 1, said in a three-year convergence program it plans to run budget surpluses of between 0.8 and 2 percent of gross domestic product through 2009 to counter risks arising from its huge current account deficit. The program is being sent to Brussels as part of Bulgaria’s preparation to adopt the single European currency in around 2010. «The government’s fiscal policy ensures the possibility for a timely reaction on external and internal risks, including on the high level of the current account deficit,» it said. The 2007 budget law envisages a budget surplus of 0.8 percent of GDP, but the Socialist-led government has said it will shoot for at least 2 percent due to the current account gap, which is expected to have swelled to a record 15 percent of GDP last year. The Finance Ministry has said it expects a 2006 budget surplus of between 3.5 and 3.7 percent of GDP and will slightly ease its fiscal stance this year in order to co-finance EU-backed projects estimated at hundreds of millions of euros. The Balkan country is also planning to use the surpluses to repay loans early and restructure its sovereign debt, which is expected to have dropped to -6.3 billion in 2006, or 26.4 percent of GDP from -6.4 billion, or 29.8 percent in 2005. The new loans the government plans to take out to co-finance EU-backed infrastructure projects will not increase the net amount of the debt, the document said. The program sees robust real economic growth in the following three years at around 6 percent, backed by strong inflows of foreign direct investment. It forecasts inflation should drop to 3.4 percent at the end of this year and 2.9 to 3.0 percent for end-2008 and end-2009 respectively. Sofia also reiterated its plans to join the ERM-2, the European exchange rate mechanism, as early as possible following its January 1 EU accession, keeping the lev pegged to the euro at the same rate under Bulgaria’s currency board regime until switching it for the single unit in 2010 at the earliest. Bringing inflation down to Maastricht level criteria will be the key challenge for the country, but analysts have said Sofia is on track and could be ready to join the eurozone by then.