IMF Mission Sees Bulgaria's Real GDP Rising by 0.2% in 2010

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IMF Mission Sees Bulgaria's Real GDP Rising by 0.2% in 2010

Bulgaria's real GDP is to increase by 0.2 per cent in 2010, IMF Mission Leader for Bulgaria Bas Bakker told a news conference Monday. Additional decline of domestic demand is expected as the reverse reaction after the investment boom is continuing and consumption is weak because of the declining employment.

The current account deficit will shrink from 8.5 per cent of GDP for 2009 to 5.5 per cent of GDP for 2010, while inflation is expected to remain at the level of about 2.2, according to the IMF.

Achieving the objective of 0.7 per cent of GDP budget deficit for 2010n will be a real challenge, Bakker said. The forecasts for revenues seem optimistic, particularly in view of their low fulfilment in the second half of 2009.

The raising of the excise duties, the series of reforms aiming better abidance by tax laws are important for preventing additional deterioration of tax revenue, but they may be insufficient to compensate the worse revenue in the budget, in the opinion of the IMF.

The mission forecast 1.8 per cent cash deficit for 2010.

To avoid the risk of even greater budget deficit, it is of key importance to abide strictly by the cost limits set down in the budget, while fiscal discipline will remain an important support of macroeconomic stability, Bakker said.

For 2011 and after that, achievement of real growth of expenditure, aligned with the potential growth of GDP, would make public finances more predictable.

The mission does not recommend a reduction of VAT rates under the existing circumstances, taking into account the fact that although they contribute to increasing competitiveness, lower social security contributions increase financial imbalance in the social security system and require larger transfers from the budget.

With Bulgaria's coming out of the crisis and the increase of exports fiscal policies can be retuned, the mission said. The rationalization of public administration and boosting its efficiency, including the absorption of European funds, would provide the opportunity to channel funds towards the development of infrastructure. Restraining the growth of salaries in the public sector will lead to a restriction of costs and to restriction of the growth of salaries in the entire economy, which will increase competitiveness, in the opinion of the IMF.

Speaking to the press after the IMF Mission announced the results of its visit here, Finance Minister Simeon Djankov described the IMF analysis as huge success. It provides Bulgaria with additional advantage in its aspiration to accede to ERM 2, Djankov said. Bulgaria is to seek ERM 2 entry by end-June 2010.

The best news of the analysis is that Bulgaria does not have problems with the foreign trade balance any longer, Djankov said. The latter was the stepping stone due to which this country was denied accession to ERM2 in 2007, he recalled.

Djankov believes that the country is already beginning to "bottom out" as of this month.

He also said he was happy that the IMF experts largely confirm the government's economic forecasts. "We have a growth forecast of 0.3 per cent and IMF's is of 0.2 per cent of GDP. [Е] The inflation forecasts also converge at 2.2 per cent for 2010."

He also said that the Prime Minister had told him to ask the IMF what would be a budget deficit level that Bulgaria could afford to have without putting to jeopardy the currency board arrangement. "And the answer was 1.8 per cent - this is a kind of deficit that we can afford."

Prime Minister Boyko Borissov confirmed that the deficit should be up to 1.8 per cent or slightly above this figure. The incumbent government would not be tempted to spend irresponsibly without thinking about the future generations, he added.

The Prime Minister said further that the incumbents are not boasting of the evaluations given by the IMF, the World Bank and the European Commission. "We are making reference to it so that our opponents could get familiarized with the clear and precise conclusions, drawn by the most objective and impartial institutions," he added.

"Our accession to ERM 2 is not a goal in itself. This is a goal of Bulgaria because this accession implies stability, prestige and discipline," he added.

Wage and pension rise unlikely this year

The year 2010 is risky and there may not be an increase of pensions and salaries, Finance Minister Djankov also said. This is envisaged in the 2010 budget and the Convergence Programme, he added. "If in the second half of 2010 we see that the economy is performing better than predicted by IMF and ourselves then salaries and pensions could possibly be increased," he added.

The IMF, the World Bank, the European Commission and the European Central Bank commend the government's efforts to reform health care, said also the Finance Minister. He added that health services had been unchanged for the past few years "and this is not a fiscal reform but a reform for the health of Bulgarian citizens".

Source: BTA

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