Банкеръ Weekly



Jerald Schiff, IMF Mission Leader for Bulgaria, to the BANKER weekly

Mr. Schiff, when is the IMF Mission expected to arrive in Bulgaria again?- We have not fixed a date yet, but it will surely be before the end of October.

On which issues did you succeed to come to closer postions during the recent talks with Finance Minister Milen Velchev in Washington?- We discussed with Mr. Velchev your Government's reply to the conclusion, presented by the IMF Mission before leaving Bulgaria on September 27.

Did you discuss corporate income taxation?- We are at one with Mr. Velchev that the fiscal policy should be considered in details. The Fund is firm on its previous position that the introduction of a zero rate on reinvested profit would result in a reduction of the budget revenues. I believe we have achieved considerable progress in that respect and the Bulgarian Government is already coming nearer our view on that matter. I'd like to say that even countries where such a measure has already been introduced needed quite a long period of time in order to decide exactly how to administrate the taxe, that is what should be accepted as reinvestment and what not. We intend to apply a scheme that will make possible to collect and discuss ideas for the most efficient implementation of such a taxation policy, so that it would be perfected in each aspect.

Mr. Schiff, you probably know that the Corporate Income Taxation Act includes provisions, stipulating taxation of quite a number of coorporate expenditures. Shouldn't they be revoked?- Expenditures for economic activities should be tax-exempt. Sometimes, however, it is not quite clear if some purchases are really intended for the business or for the businessmsn's private needs. In order to exempt business expenditures from taxes, they should be clearly defined by the law and there purpose should be entirely clear as well.

Did you bring your views on the budget deficit, the current account deficit and the GDP growth closer to those of the Bulgarian Government during the talks with Mr. Velchev?- The IMF has not changed its stance regarding the budget deficit. And we have not disussed the current account in detail. As I have already mentioned before, we expect a delay concerning the GDP growth. It will not drop drastically, but its growth rate will be slower. Our previous forecasts were that the economic growth would exceed 5% of GDP, while now we expect it at between 3.5% and 4% of GDP.

What credits do you think Bulgaria will need from the international financial institutions next year?- We have to further discuss this issue with your Government. It will depend on overall fiscal policy and the deficit in the country's payment balance. The international situation has changed and is still changing. Therefore, all projections need reconsideration and new analyses.

What budget parameters did you fix?- As we said during our last visit to Bulgaria, the budget deficit should be around 0.75 per cent. We also discussed with Mr. Velchev the taxation policy and the revenue side of the budget. We are not at variance with the Bulgarian Government that the continuation of the structural reform is of a crucial importance to the reduction of the expenditure side.

What are your estimates about inflation in 2002?- The IMF believes that a 3.5% annual inflation should be you target and it is completely attainable. However, this will to a large extent depend on petrol prices, which are difficult to anticipate. For example, we expected them to increase and just the reverse happened. Therefore, nobody could say what will happen further. Prices, which are fixed administratively, such as those of electricity, central heating, water, etc., are important as well.

The hike of those prices can, and is in fact already causing social tensions. Do you think it is posible at the present stage to keep them at their current levels?- Yes, this is a very complicated problem because of its social aspect. But these prices should be brought to such levels as to cover the production expenses of electricity, water supply, and central heating companies. The evil practice of subsidizing these producers should be discontinued. Rather, a system for assisting consumers should be introduced.

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