Bulgaria is putting its euro-adoption plans on hold until the currency union overhauls its rules to prevent future crises, Finance Minister Simeon Djankov said.
“We want to wait and see how the remaining questions for the euro zone itself are resolved,” Djankov said in a July 22 interview in London. “We want to see how this develops before we decide when to go. It’s not a hot topic right now.”
Bulgaria may decide this year on when to revive its efforts to adopt the euro, including joining the pre-euro exchange-rate mechanism, known as ERM, after lawmakers vote on a plan to enshrine spending and deficit limits in the constitution, Djankov said.
Euro-area leaders on July 21 hammered out a new aid package for Greece to end a 21-month old sovereign debt crisis that threatened to rip apart the single currency. Leaders, including German Chancellor Angela Merkel, have called for tighter fiscal discipline within the currency union.
The yield on Bulgaria’s 2015 dollar bonds fell for a fourth day, dropping 1 basis point to 3.27 percent, the lowest level since July 11. The yield on its 2013 bonds denominated in euros was little change, at 3.09 percent.
Bulgaria, a European Union member since 2007 and the bloc’s poorest nation, cut spending and raised tax collection to trim its deficit, targeting a shortfall of 2.5 percent of economic output this year and 0.5 percent by 2014.
No Target Date
The Balkan nation has no official target date for adopting the euro. Prime Minister Boiko Borissov’s government, which took office in July 2009, scrapped plans last year to apply for joining the ERM after it was forced to revise the 2009 and 2010 deficit beyond the EU limit of 3 percent of gross domestic product.
The constitutional change is aimed at ensuring long-term financial stability and helping Bulgaria prepare for euro adoption. It’s designed to cap the budget deficit at 2 percent of GDP and government spending at 40 percent of GDP. While not yet part of the constitution, which requires a two-thirds majority to modify, the limits were passed as a law this month, Djankov said.
Moody’s Investors Service raised the nation’s debt rating on July 22 to Baa2, the second-lowest investment grade, from Baa3, citing the government’s budget rigor for the improvement. The rating is on par with Brazil and Kazakhstan and is a step above Hungary and Romania.
The increase reflects “ongoing fiscal discipline and improving institutional strength as well as the financial system’s relative resilience in a volatile regional environment,” Moody’s said.
While the improved rating would cut financing costs, Bulgaria may not need to tap international bond markets this year as the deficit in the first six months, at 0.9 percent of GDP, was smaller than the government expected, Djankov said. Bulgaria plans to raise about 500 million euros ($718 million) to refinance bonds maturing in 2014, he said.
The rating upgrade “certainly helps us to issue Eurobonds,” he said. “We’re not in a hurry. We need less money now than we thought we’d need at the beginning of the fiscal year. It’s very unlikely that it should happen this year.”
Djankov said he’s “quite confident” the economy will expand at least 3.6 percent this year, as targeted by the government. The economy grew 0.2 percent in 2010 and shrank 5.1 percent in 2009.