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BULGARIA AIMS FOR EURO ENTRY WITH FISCAL PLAN, PENCHEVA SAYS

15.04.2011

By Elizabeth Konstantinova

April 14 (Bloomberg) -- Bulgaria's three-year fiscal plan, to be submitted to the European Commission tomorrow, aims to cut the budget deficit and boost economic growth to move toward euro adoption, Deputy Finance Minister Boryana Pencheva said.

The plan estimates gross domestic product growing 4.1 percent in 2012, 4.4 percent in 2013 and 4.2 percent in 2014, Pencheva said in an interview today in Sofia. The government seeks to narrow the deficit to 0.5 percent of GDP by 2014, keeping corporate and personal income taxes unchanged, she said.

The EU's poorest member by per-capita GDP is emerging from its deepest economic slump in more than a decade, after a lending boom stalled and investment dried up during the global credit crunch. The government expects record exports to drive economic growth to 3.6 percent this year after a 0.2 percent expansion in 2010 and a 5.1 percent contraction in 2009.

"The convergence program aims to guarantee financial stability and promote economic growth driven by exports, rising consumption and investment," Pencheva said. "We had record levels of export growth in the first months of the year and imports are also expanding, which reflects increasing consumption."

Bulgaria weathered the financial crisis without turning to international lenders for a bailout, unlike countries such as Greece, Romania and Hungary.

Euro Outlook

Bulgaria has since 1997 run a currency board system in which it pegs the lev to the euro and requires foreign-exchange reserves to cover all lev in circulation. The country plans to continue the regime, with the fixed exchange rate of 1.95 lev per euro, Pencheva said.

Prime Minister Boiko Borissov's government, which took office in July 2009, scrapped plans last year to apply to join the pre-euro exchange-rate mechanism after it was forced to revise 2009 and 2010 deficit figures so they exceeded the EU limit of 3 percent of GDP.

Efforts to adopt the euro will get a boost from joining Europe's Competitiveness Pact, Pencheva said. Bulgaria, which entered the EU in 2007, has no official target date for the currency switch.

"Our indicators look good in terms of the euro-adoption criteria," Pencheva said. "The program ensures we work toward meeting all of the technical criteria. Then it is very much a political decision."

Moody's Investors Service said April 5 it may raise Bulgaria's credit rating because government finances are "healthy." The company also said it will monitor the country's implementation of a plan to cement spending limits in the constitution and how it weathers the Greek crisis before making a decision.

Budget-Deficit Cap

The Finance Ministry is working on a plan to cap the budget deficit at 2 percent of GDP and spending at 40 percent. It also proposes a flat 10 percent personal-income and corporate tax.  The plan, which has yet to receive approval from the Cabinet and lawmakers, would require a two-thirds parliamentary majority to change the taxes, Pencheva said.

The "debt policy guarantees minimum risk and maximum efficiency in financing the budget deficit and the state reserves," Pencheva said, adding that Bulgaria has no immediate need to sell Eurobonds.

The fiscal plan estimates public debt at 18 percent of GDP this year, 19 percent in 2012, 17.4 percent in 2013 and 17.1 percent in 2014, she said. The euro-adoption limit is 60 percent.

The government expects inflation to slow to 2.4 percent by the end of 2014 from an estimated 4.2 percent this year and 2.8 percent in 2012, Pencheva said. Euro candidates must also show that they can control consumer prices.

"The price-growth peak was already passed this year, caused by a nearly 20 percent increase in global commodity prices," Pencheva said. "I expect inflation to moderate by year-end."