Банкеръ Weekly



The long-expected boom of crediting, reported by Bulgarian banks in 2003, was not to the liking of the IMF Mission Leader for in the end of his one0week stay in Bulgaria he ercommended the Government to maintain the growth of loans at a more stable level. The IMF is anxious about the drastic increase of credits could result in problems to the local bank system. According to BNB's most recent data, by June 30, 2003, banks had releeased loans worth a total of BGN7.6BN, up 60% from the BGN4.8BN in end-June 2002. I do not share IMF's uneasiness regarding the growth of credits. We have expected this for a long time and we are not at all worried about the collectibility of loans, BNB's Governor Svetoslav Gavrijsky said. We have agreed with the fund to clsoely monitor this process, because an increase in crediting in the medium term could create problems, but we do not have reasons for such fears at present, Mr. Gavrijsky was adamanr. His words forced Mr. Schiff to specify that he trusted BNB's supervision activity and the solidity of our bank system. We are concerned by the outside pressure on the system, but this is just anxiety, not fear, Mr. Schiff explained. The anxiety is connected with the worsening of the country's payment balance, and the allocated credits increase internal demand and consequently - import.Yet, the IMF recommended not to increase tge Government's deposits in banks, and even draw out the existing ones after their maturity. This concerns the BGN200MN of the fiscal reserve, deposited on May 23, 2003 in six Bulgarian banks, which was widely discussed. If the deposits' maturity was coming near we'd keep them, but there is more than a year till then and it's not known what the macroeconomic situation will be then, Finance Minister Milen Velchev commented. Many things could change within a year. Therefore, we accept the fund's recommendations, he added.
However, IMF's Mission and the Finance Ministry cannot boast of such unanimity on any of the main issues, regarding the budget's fulfillment in 2003 and its parameters for 2004. As last year, arguments are going on about the size of the 2004 budget deficit. The Finance Ministry projects it at 0.7%, while teh fund's stance is that it should not exceed 0.5 per cent. However, Mr. Velchev explained that even that 0.5% is not the fund's conslusive proposal and the IMF will be insisting for a lower amount. The exact size will become clear after the data about the budget's fulfillment for the first ten months of 2003 become known. The Finance Minister added that the talks with the fund will continue during the annual summit of the World Bank in Dubai and with the IMF's new Resident Representative for Bulgaria James Rolf. According to Mr. Velchev, an agreement should be reached by October 31, which is the deadline for moving the 2004 draft budget into Parliament, but the talks could continue afterwards during the Mission's visit to Bulgaria in November. But even if there are differences in the psoitions then, it won't be a great problem. Mr. Velchev recalled the situation in 2002 when the agreement of the major parameters dragged on until the budget's approval at second hearing in Parliament. A considerable overfulfillment of the revenue side of the budget is expected in 2003. However, the forecasts of the Finanace Ministry and of the IMF are quite different. The fund's expectations are more optimistic than thos of the Finance Ministry. According to Mr. Velchev's experts, the revenues for 2003 will be overfulfilled by BGN230MN, while Mr. Schiff expected twice more - BGN427MN. IMF's anxiety regarding teh budget is due to the quickly incerasing current account deficit, which is expecetd to erach 7% of the gross domestic product (GDP). According to Mr. Schiff, this could be avoded by limiting the budget expenditures by the year-end.The other controversial issue is the Government's desire to spend some of the money in the fiscal reserve on infrastructural projects. The proposal has been moved by the NMSII's coalition partner MRF. According to the Finance Minister, the IMF Mission has approved the package of taxation laws, but exlpained that the amendments would be announced when they are moved to the Cabinet.

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