Bulgaria must achieve big budget surplus in 2007
SOFIA – Bulgaria has agreed to produce a fiscal surplus of at least 2.3 percent of GDP this year to counter risks from its huge external deficit, Robert Hagemann, IMF head of mission to Bulgaria, said yesterday. In December, Sofia committed to the International Monetary Fund to produce a surplus of 2 percent of GDP but has now raised that target due to the current account gap that ballooned to higher-than-expected 16.3 percent in 2006. «Bulgaria has agreed to target 2.3 percent of GDP surplus this year and committed to aim to overshoot that because of the current account gap,» Hagemann told Reuters in a telephone interview from Washington. Yesterday, the Fund approved its final review of a two-year standby arrangement with Bulgaria that expires at the end of the month. The Balkan country has not drawn funds upon it as it leads one of the tightest fiscal policies in Europe. Bulgaria operates under a currency board regime pegging its lev to the euro, which leaves fiscal policy as one of the few tools it has to protect the economy from external risks. Hagemann said that the current account gap was not a sign of economic overheating, but rather a reflection of Bulgaria’s attractiveness to investors and its European Union entry. «To some extent, this is a healthy imbalance. Bulgaria is converging with the rest of Europe… While the level is high it is not necessarily a reflection of overheating,» he said. «The underlying reasons for it in Bulgaria strike us as being related to the attractiveness of the country as an investment destination.» Still, he urged Sofia to maintain a very prudent fiscal stance by restraining public spending and save all outperforming revenue to keep the external shortfall from spiraling out of control, which IMF estimates at 15.8 percent of GDP for 2007. Hagemann said the Balkan country’s economic growth will likely ease to 6.0 percent this year. The government has said it expected the economy to have accelerated by a real 6.5 percent in 2006. Official data are to be released on April 2. He said the foreign direct investment was likely also to decrease to 3.3 billion euros next year from a record 4.0 billion in 2006. Hagemann said the EU newcomer should move quickly to improve business environment by shoring up its administration and reforming its inefficient labor, education and healthcare sectors to attract more FDI and boost exports. «Bulgaria should not let wage growth get ahead of productivity growth, so that Bulgarian exports remain competitive,» Hagemann said.
