October 31, 2016 / 12:06 PM / a year ago

UPDATE 2-Bulgaria targets 1.4 pct/GDP fiscal deficit next year

(Adds budget execution data for the first nine months of 2016)

SOFIA, Oct 31 (Reuters) - Bulgaria will target a deficit of 1.4 percent of gross domestic product next year in a budget that projects higher revenues and spending, the finance minister said, steering a modest course towards economic reform in the EU’s poorest country.

Under the budget bill, approved by the government and awaiting parliamentary approval, economic growth is forecast to slow slightly to 2.5 percent from this year’s expected 2.6 percent, mainly due to weaker exports, Vladislav Goranov said.

“The budget is conservatively planned and is doable,” Goranov told reporters. “It also allows us to decrease the deficit if there is faster growth”.

The International Monetary Fund expects Bulgaria’s economy to grow by 3.0 percent this year.

The government expects to run a balanced budget this year, having initially targeted a 2.0 percent deficit. But delays in administering EU-backed projects mean capital spending has been lower than anticipated while growth has exceeded forecasts.

Based on preliminary data, the finance ministry said it expected a fiscal surplus of 3.8 percent of GDP in the first 10 months of the year, unchanged from the figure posted for the first nine months of the year.

The 2017 draft budget sees tax revenues rising to 38.4 percent of GDP from 37.3 percent this year, and spending to 39.8 percent from 37.3 percent.

More funds have been earmarked for education, healthcare and defence, but one analyst said an opportunity to make bolder reforms to overhaul inefficient parts of the economy had been missed.

“When you have revenues that outperform, you can afford to spend funds to overhaul inefficient sectors. But we do not see enough reform drive,” said Lachezar Bogdanov, an economist with the independent think-tank Industry Watch.

Bulgaria needs to keep a firm control of its state finances to protect its lev currency peg to the euro. The government plans to cut the fiscal deficit to 1.0 percent of GDP in 2018 and to 0.5 percent in 2019.

For a table of Bulgarian macroeconomic forecasts, see (Reporting by Tsvetelia Tsolova; editing by Gareth Jones)

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