Finance Minister Milen Velchev and the International Monetary Fund commission leader for Bulgaria, Gerald Schiff, expressed optimism about the signing of an agreement at a press conference ending the IMF delegation's visit last Thursday.

"The IMF has no differences with the Bulgarian government on the broad parameters of economic policy," Schiff announced. He said that the country's medium-term prospects for development are excellent, but there are certain risks in the short term.

"Our positions on a number of parameters have moved closer and I am optimistic that there will be an agreement with the IMF," Velchev added. He expressed surprise at the disaster forecasts that were made by the media and experts.

The IMF commission has submitted a document to the government and the National Bank summing up its views on the economic situation in Bulgaria and outlining areas where further agreement has to be reached, Schiff said.

Considering the global situation after the terrorist attacks on the U.S., the IMF projected economic growth of 4.5 per cent in 2001, and a current account deficit of seven per cent of GDP. The IMF expected the government to lead a reasonable fiscal policy and insisted that the budget deficit be reduced to 0.5 per cent of GDP from the 1.5 per cent target set in the budget for 2001. The IMF also wants a rethink of the promised zero corporate income tax rate on reinvested profit.

Svetoslav Gavriiski, the governor of the Bulgarian National Bank, said the foreign exchange reserves were 6.7 billion leva. The expected trade deficit was over $1 billion, and the current account deficit was about five per cent of GDP, Gavriiski said.

The basic differences during the negotiations had to do with the government's fiscal policy. "Expenditure-wise, the IMF insists that structural reforms be speed up in the energy sector, transport, health care and education," Velchev said. The subsidies to the district heating companies and the BDZ (Bulgarian State Railway) are unacceptably large. They should be reduced and the balance should be directed to disadvantaged groups, according to Velchev.

"Bulgaria will need about $400 million external financing in 2002," Velchev said. Given the short time to the end of the year and the situation on the international financial markets, Bulgaria is hardly likely to issue Eurobonds now, but Velchev is optimistic that this will happen in 2002, with or without an agreement with the IMF.

The draft budget for 2002 will be introduced into Parliament by the end of October, Velchev said.

Professor Ivan Angelov, a prominent Bulgarian economist quoted by the Bulgarian News Agency (BTA), believed that Bulgaria's policy should be one of gradual parting with the IMF so as to have an agreement with it by 2003-04 without receiving any financial aid. He also said that Bulgaria had been the first government to go into negotiations with the fund with a clearly defined position of its own.

According to Josif Avramov, a professor of economics at Sofia University, in the forthcoming negotiations, Bulgaria should accept the IMF-proposed 0.5-1 per cent budget deficit and current account deficit of six per cent, while insisting on the zero profit tax rate for reinvested profit and income tax reduction from 20 to 18 per cent.