IMF Sees Bulgaria’s Budget Revenue Projection as Too Ambitious

Bulgaria’s 2014 budget revenue target is “very ambitious” and the government may have to cut spending if domestic demand and inflation fall short of forecasts, the International Monetary Fund said.

Next year’s budget, approved in parliament in a preliminary vote today, is “justifiable,” Michele Shannon, IMF mission chief, said in the capital Sofia today at the end of an annual review visit. The IMF reiterated its economic growth estimate of 0.5 percent for this year and 1.6 percent for next, which compares with the government’s 0.6 percent and 1.8 percent forecasts.

“We see some risks in terms of revenue -- it’s a very ambitious target,” Shannon told reporters. “Revenue may underperform if the domestic demand recovery is slower than projected, gains from administrative reforms are lower than budgeted, or, as projected by the mission, inflation remains subdued. Thus, expenditures may need to be restrained to achieve the deficit target.”

Bulgaria has been gripped by political turmoil since February, when anti-austerity protests that echoed unrest across Europe forced out former Prime Minister Boyko Borissov’s administration. The European Union’s poorest country by per-capita economic output weathered the global financial crisis without an international bailout.

Premier Plamen Oresharski’s minority cabinet, backed by the Socialists and the Movement for Rights and Freedoms, which represents ethnic Turks, took power after a May snap election. It’s survived two no-confidence votes and recurring protests against what demonstrators say is a corrupt political system.

Revenue, Debt

Budget revenue is estimated at about 31 billion lev ($21 billion), or about 38 percent of GDP, while spending is envisaged at about 32.4 billion lev, or about 40 percent of GDP.

The IMF doesn’t see risks in the government’s plan to borrow a total of 3.8 billion lev on global and domestic markets next year, Shannon said. Bulgaria’s public debt was 17.5 percent of economic output at the end of August.

“Bulgaria is characterized in Europe and in the region by its low public debt levels, which is seen as a strength,” Shannon said. “We believe that the government’s plans are consistent with prudent debt levels. We don’t see that as a key risk.”

Bulgaria’s financial system remains stable, well capitalized and liquid, even though profitability remains low, the IMF said in a statement. The banking system’s capital adequacy ratio of about 17 percent is higher than the required 12 percent regulatory minimum and aggregate Tier 1 capital is 15.6 percent, according to the statement.

Gross non-performing loans are 17.2 percent of total credit and are well provisioned, the IMF said.

“Weak credit demand and strong deposit growth have boosted liquidity, allowing banks to further reduce external financing,” the IMF said.

To contact the reporter on this story: Elizabeth Konstantinova in Sofia at ekonstantino@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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