Bulgaria is defending its failure to notify the European Commission of budget revisions and says the delay is linked to the country’s legislative process.
“For 2010, the question was why we haven’t notified yet, and the answer is because the measures haven’t passed through parliament yet,” Finance Minister Simeon Djankov said in a telephone interview from the capital Sofia yesterday. For 2009, the EU “already approved the methodology, there are no surprises there.”
The European Commission on June 9 said it will send a mission to investigate Bulgaria’s public finances because it isn’t in a position to assess the 2010 budget without more details. Five-year credit-default swaps soared to the highest since July 2009 after Economic and Monetary Commission Olli Rehn on July 8 said the commission had “some concerns” about Bulgaria’s fiscal-account methodology.
Bulgaria has revised this year’s deficit to 3.8 percent of gross domestic product, compared with a forecast of 2 percent at the beginning of the year, Djankov said. The commission in May said the deficit would reach 2.8 percent this year, compared with 3.9 percent in 2009.
In the 27-member EU, “Bulgaria’s fiscal metrics are only outperformed by Estonia,” slated to adopt the euro in January, Unicredit SpA analysts Kristofor Pavlov and Matteo Ferrazzi wrote in a note today. “However, the tribulations related to Bulgarian fiscal accounts should not be underestimated. Uncertainty over budget figures is something we regard as very negative and misinterpretation among the government, investors and EU officials must be avoided.”
Letter to EU
Djankov said he sent a letter to Rehn last week outlining expenditure and revenue items being discussed in parliament that make up the wider shortfall. The government will notify the EU of the changes when lawmakers have passed them, he said.
Prime Minister Boiko Borissov’s government, which took office in July 2009, in April scrapped Bulgaria’s bid to apply for the pre-euro exchange-rate mechanism this year after finding “lies” in budget data that forced a revision of the 2009 deficit beyond the EU’s limit. The revision will also affect this year’s deficit forecast, the government said then.
Bulgaria together with Romania in March was ranked the EU’s most corrupt member, according to Berlin-based research organization Transparency International. The transparency index is a benchmark gauge of perceptions of a country’s corruption, an assessment of risks for investors, and is a composite index that combines data from 10 independent institutions.
Lawmakers are debating spending cuts worth 1.3 percent of GDP and expenditure on construction projects partly financed by the EU, increases to health care spending and some measures to support businesses, Djankov said. The new budget is scheduled to come into effect on July 1, he said.
Bulgaria’s government is committed to cutting the deficit to bring it within the EU’s limit of 3 percent of GDP next year as part of an effort to avoid sanctions under the bloc’s “excessive deficit procedure,” Djankov said.
The EU’s concern about Bulgaria’s budget comes as the bloc is struggling to defuse a fiscal crisis that threatens to break up the euro region. European bonds and the euro have been sliding since the Greek government, citing accounting mistakes, revised its deficit, raising concern about its solvency. Greece’s shortfall was 13.6 percent of GDP, the highest in the 27-nation bloc after Ireland.
Hungary’s two-week-old government sent the euro down to a four-year low when an official on June 3 raised the specter of a Greek-like default, blaming the prospect on accounting malpractices under the former administration. The government of Prime Minister Viktor Orban has since called the comments “unfortunate.”
EU governments this week vowed to police national budgets at an early stage and introduce a wider range of sanctions on excessive deficits to prevent a repeat of the Greece crisis that has sent the euro down 20 percent since a Nov. 25 high.
Budget revisions and the euro-region’s debt crisis have forced Bulgaria to rethink its timeframe for entry into the pre- euro currency framework, known as ERM, which the country had planned to join this year. Bulgaria will also reassess its euro adoption schedule, Djankov said.
“It is actually not helpful for Bulgaria to apply for ERM now given the questions around the euro,” Djankov said. “Sometime in early 2011 it will be a good time to revisit this question, including restarting the process, but we would like the markets to calm down on the euro.”
Still, the single currency’s crisis hasn’t deterred Bulgaria’s government from sticking to its long-term goal of euro accession, Djankov said.
“I’m confident that the euro is a strong currency and it will come out of the crisis even stronger,” he said. “Right now, it’s not as important for Bulgaria to be in the euro zone. We just have to wait for the questions around the euro to stabilize, and they will.”
To contact the reporters on this story: Agnes Lovasz in London at firstname.lastname@example.org;