Bulgaria's Fears over Deficit Woes Assuaged

Finance | April 23, 2010, Friday // 12:16|  views

Bulgaria ranks third among European Union member states in terms of fiscal discipline. Photo by BGNES

A day after the European Commission said it would launch a discipline procedure against Bulgaria for exceeding the deficit ceiling of 3% of GDP, the country's commissioner in Brussels have tried to quell panic reactions.

“Bulgaria faces no risk of being punished because of a higher [than the EU norms] budget deficit,” Bulgarian Commissioner Kristalina Georgieva said after a meeting with the Parliamentary Speaker Tsetska Tsacheva on Friday.

"We can safely say that even in these times of crisis the government, the finance minister and the parliament stick to a tight fiscal policy. There is no risk for Bulgaria to be subjected to punitive measures,” Georgieva added.

The comment comes a day after the European Union statistics office confirmed that Bulgaria's deficit for 2009 was beyond the 3.0% cap set by the EU Stability and Growth Pact and stands at 3.9%. The news was immediately followed by Brussels' announcement that it will start a budget discipline procedure against Bulgaria.

"This is an automatic procedure and it does not mean that the country, which had cast itself as a paragon of fiscal rigor, has suddenly turned into a country with a poor fiscal performance,” Georgieva explained.

She stressed that thanks to its tight fiscal discipline Bulgaria ranks third among European Union member states and “we are hardly those, about whom the European Commission and the European Bank should be concerned.”

The European Union's official statistics agency Thursday said the Bulgarian budget deficit in 2009 was wider than the government had estimated, even though Sofia recently revised upwards its last year's fiscal gap due to a hidden deficit.

In the first of its twice-yearly reviews of government finances in the 27-member bloc, Eurostat said the Bulgarian government's budget deficit was 3.9% of gross domestic product last year, which is up by 0.2% over the government's revised figure.

Bulgaria's center-right government announced earlier in April a larger than expected 2009 deficit caused by unaccounted procurement deals, signed by the previous Socialist-led cabinet. The previously undiscovered expenses increased the 2009 gap to 3.7% of gross domestic product (GDP) from an initial 1.9% under the EU rules, the cabinet said.

Experts however commented that though much better than other member states, Bulgaria's larger than expected 2009 deficit will worsen its chances for application to join the bloc's exchange-rate mechanism ERM II.

They stressed that it is still very early to say whether the swelling deficit is due to the global crisis or the policy of the government, which has vowed to do its best to keep the deficit for 2010 under 3% in line with the Maastricht criteria.

The Eurostat statistics agency chided the quality of Greece's budget data, saying that its budget deficit may be revised up by up to a half percentage point from an already high 13.6% on uncertainties over issues including off-market swaps.

"Eurostat is expressing a reservation on the quality of the data reported by Greece, due to uncertainties on the surplus of social security funds for 2009, on the classification of some public entities and on the recording of off-market swaps," the agency said.

The EU’s statistics office said Greece’s deficit was 13.6 percent of GDP last year, topping the government’s two-week-old forecast of 12.9 percent and the EU’s November prediction of 12.7 percent. “Uncertainties” about the quality of the Greek data may lead to a further revision of as much of 0.5 percentage point, Luxembourg-based Eurostat said.

Eurostat said the euro zone's combined deficit hit a record high of 6.3% of GDP in 2009, up from 2% in 2008. That reflects both a rise in government debt as tax revenues declined and social welfare spending increased, as well as contractions in many economies.

Greece was not the euro-zone member with the highest deficit, however. That dubious honor went to Ireland, with a fiscal gap of 14.3% of GDP, while Spain had a budget deficit of 11.2% of GDP and Portugal a budget deficit of 9.4% of GDP.

Outside the euro zone, the U.K. had the largest deficit, amounting to 11.5% of its GDP.

For the 27-nation EU, the deficit swelled from 2.3% to 6.8 percent.

Regarding the overall debt burden, the ratio for the eurozone increased from 69.4% at the end of 2008 to 78.7% at the end of 2009, and in the EU27 from 61.6 percent to 73.6%.

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Tags: EC, budget deficit, budget discipline procedure, eurostat, Eurozone, economic growth, Simeon Djankov, Boyko Borisov, EC, European Commission, finance minister, Convergence Program, Eurozone, ERM II, budget deficit, recession, GDP


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