IMF: Bulgaria should restore the funds in the State reserve via privatisation and debt issuance

Bulgaria should restore the funds spent from the fiscal reserve during the crisis by the generation of revenues via privatisation and proactive debt issuance, proposed the International Monetary Fund (IMF) in its conclusions after completing its regular mission in Bulgaria on May 20.

Shortly after GERB came to power in July 2009, Bulgaria's fiscal reserve amounted to BGN 7.7 bn. As a result of the increased budget deficit in late May 2010, the GERB (Citizens for European Development of Bulgaria) government decided that the minimum threshold of the fiscal reserve should be reduced from BGN 6.3 bn to BGN 4.5 bn, while the free resources should be used for financing the Treasury deficit.

The recent data of the Ministry of Finance (MF) showed that by the end of the first quarter of this year, Bulgaria's fiscal reserve reached BGN 4.7 bn, or BGN 3 bn less, compared to the figure at the Government's inauguration.

The fiscal reserve played a crucial role in order for Bulgaria to cope so successfully with the latest crisis. It contributed to deficit financing and to the reinforcement of confidence in the Currency Board, while the expenditures related to the maintenance of the fiscal reserve were reasonable, stated IMF experts. Henceforth, the higher reserves will help the country counter the possible external economic and financial shocks along with meeting its upcoming bond maturity deadline. Privatisation will extend the role of the private sector and will bring additional proceeds thus helping the reserve.

According to Georgi Ganev, an economist and Programme Director of the Centre for Liberal Strategies, IMF's recommendation for debt issuance is strange and illogical. Such a measure will not change the net government debt. It only makes sense if interest rates are lower than the profitability generated from holding funds in fiscal reserves. I doubt that the latter is possible at this point, explained the expert.

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