Банкеръ Weekly



The Bulgarian Government stands all chances to successfully conclude the two-year stand-by agreement with the International Monetary Fund (IMF), closed in September 2004. The fund's Mission, lead for the last time by Mr. Hans Flickenschild, will arrive in Bulgaria on January 17 in order to negotiate conclusive details with regard to the country's report about the State's financial results and the parameters on which the Cabinet of PM Sergey Stanishev will undertake commitments for 2006.
Despite the unsuccessful end of IMF's previous mission when no agreement between the fund's experts and the Government was reached, all controversies have been completely eliminated now. Mr. Flickenschild is satisfied with the fact that the National Revenue Agency has already begun operations despite all hindrances. The Cabinet has also succeeded to cope with one more requirement of the international financial institution - to report in end-2005 a budget surplus of at least 2% of GDP, or not less than BGN833MN.
The Government and IMF have agreed that the budget surplus for 2006 should be 3% of GDP, or almost BGN1.37BN. In fact, it was this specific issue that caused contradictions between the Cabinet and Mr. Flickenschild's team in December 2005. IMF's Mission Leader was insisting that the 2006 Budget Act should expressly contain the provision that the budget surplus in the year-end would be 3% of GDP. The Government on its part was vindicating in the National Assembly the stance that a balanced budget should be voted (without a deficit or a surplus) and the Cabinet should be managing the revenues and expenditures in such a way as to result in a 3% of GDP budget surplus in end-2006. That was the formula, agreed between IMF and all governments after the year 2000, and it was a successful one. During the negotiations for drafting the 2006 budget, however, Mr. Flickenschild insisted for expressly entering the agreed budget surplus in the bill in order to prevent any attempts at its unregulated spending. According to the fund, that is the only efficient measure against the alarming increase in the current account deficit of the payment balance, which was close to 15% of GDP in end-2005, or about EUR3.2BN. The Cabinet, however, was flatly opposing that as it had good reasons to fear that would increase the appetites of individual ministries towards raising the expenditures and the tension when discussing and voting the 2006 Budget Act in Parliament. Finally, in the name of the successful conclusion of the two-year stand-by agreement with the IMF, the Mission honoured the Government's arguments and agreed on projecting a zero deficit in the 2006 Budget Act, and the Cabinet to pursue a 3% surplus of GDP.
The mission arriving on January 17 will have the task to specify the concrete measures which the Government will commit to in order to achieve the above-mentioned budget surplus. According to the fund's experts, the revenues in 2006 might well be some 2% higher than the projected BGN18.26BN. Concrete commitments will be specified too, both regarding the level of quarterly revenues to the Treasury and for reducing the total amount of unpaid taxes and excise duties. Moreover, the Cabinet's commitment was confirmed not to pay more than 93% - up to BGN16.98BN of the projected budget expenditures - if the current account deficit cannot go down below 12% of GDP, or EUR2.8BN.
That will become clear only in September. If the current account deficit is higher the restrictive measure will result in savings of almost BGN1.24BN. All these indicators, however, will be followed not by Hans Flickenschild, but by his successor Robert Hageman, who will arrive in Bulgaria on January 20 in order to be introduced to his new work by his predecessor. The IMF new Mission Leader for Bulgaria is expected on his first independent visit to this country in March. The personal replacement, however, won't lead to any softening of the requirements which the IMF will continue to put to the Bulgarian Government during the negotiations in future. Independent of who the fund' mission leader will be, the IMF will be insisting on a sizable budget surplus as long as the current account deficit of Bulgaria's payment balance is big.

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