Банкеръ Weekly

Briefs

IMF AND THE GOVERNMENT WILL SEEK TO STRIKE A HAPPY MEDIUM

FUND'S MISSION WILL INSIST THAT WE SATISFY ADDITIONAL CRITERIA FOR FINANCIAL DISCIPLINESuprisingly for many people, on the eve of Chrismas when everybody around the world gets ready for the holidays, IMF's Mission, headed by Jerald Schiff, decided to arrive in Bulgaria on December 16. Unlike the other times when such visits signaled danger and problems in the Bulgarian economy, the forthcoming unexpected arrival of IMF's experts gives reasons to hope that the Government will succeed to reach an agreement with Mr. Schiff on the 2003 budget, and in January at the latest will receive the successive tranche under the effective 2-year stand-by agreement.Of course, the problem is not in the money - about USD60MN. Currently, Bulgaria has a big fiscal reserve - more than USD1.9BN, which allows it to serve its foreign debt without needing external financiang. It is more importatnt that the agreement with the Fund increases investors' trust in any country in transition. And what Bulgaria needs dramatically now is an inflow of big foreign capitals.In October, when the IMF Mission paid its regular visit to Bulgaria to inspect the preparation of the 2003 budget, its experts failed to reach an agreement with the Cabinet. More precisely, the flatly rejected the draft budget, presenetd to them by the Government. Mr. Schiff and IMF's Resident Representative in Bulgaria Piritta Sorsa unambiguously underlined that according to them the projected revenues into the Treasury from VAT and social insurance contributionswere unrealistically high and would hardly be collected. As these two items account for about 50% of the entire revenue side of the budget and if there is any problem with them it reflects on the fulfillment of the budget as a whole.Finance Ministry officials, on their part, tried to convince IMF's representatives that sufficient reserves - some BGN500MN - have been projected in the budget and that would allow them to react adequately in any unexpected situation. However, Mr. Schiff adamantly refuted all arguments of the Government. On his departure from Bulgaria he categorically states: I do not recommend the Government to approve the 2003 budget in its present version.Regardless the obvious contradictions between the Cabinet of Simeon Saxe Coburg-Gotha and IMF experts at IMF Mission's departure in October, both sides stated they would seek future agreement. Jerald Schiff said that the Fund will keep sharing information and opinions with the government, but added that he had no idea when the Fund would be back in Bulgaria. Everything depended on the speed at which our government and IMF would come to see eye to eye.According to participants in the talks between the IMF and the Cabinet in November, the Ministry of Finance had offered a plan which guaranteed that the budgetary expenses would be directly related to the level of collectability of tax revenues. To this end the Ministry offered to Fund to work out special criteria for execution of the budgetary revenues and expenses which to be obligatory for Bulgaria and to be revised by the Fund in every three months. In case Jerald Schiff and his experts reach an agreement with the Government, then by the end of the year a new memorandum will be prepared with the newly agreed criteria and in January, 2003, the IMF will launch the next tranche under the 2-year stand-by agreement.Insiders claim that now we stand much greater chances to reach and agreement with IMF than in October. The reason is that it has already become clear that Bulgartabac and Bthe TC won't be sold by end of 2002 and the profit from their sale will enter te e2003 budget as divident. Moreover, additional analyses of the expense part of the budget have proved that Fund's experts have made double accounting of the money which should be spent on healthcare in 2003. After taking in acount all these new circumstances, the Fund has reached a decision that the gap in the 2003 budget is not BGN150MN (as calculated in October), but BGN110MN. And exactly for not allowing such gap to appear, IMF will ask the Cabinet to stick to special criteria which will be discussed this week. Yet the application of these criteria will mean that if budgetary revenues are less than the planned social programmmes of Deputy Premier and Minister of Labour and Social Policy Lydia Shouleva, then the programmes will be freezed.

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