Bulgaria will sign an agreement with the International Monetary Fund (IMF) by the end of the year, which will guarantee economic stability and an improvement of the living standard of Bulgarians, promised Prime Minister Simeon Saxe-Coburg on Tuesday, speaking at the opening of the Third Southeastern European Economic Forum.

But first, it was Finance Minister Milen Velchev, who voiced the government's plans after returning from Washington last week. "If the price for getting an agreement with the IMF is delaying the election promise for a zero tax rate on reinvested profit, then it is a low price," Velchev told a press conference in the skiing resort of Pamporovo on Saturday.

According to him, no sensible investor would come to Bulgaria after the September 11 terrorist attacks in the U.S. without an agreement with the IMF and without guarantees for economic stability in the country. Another problem in reaching an agreement with the IMF has been that the government's draft is for a budget deficit of 1-1.5 per cent of GDP while the fund insists on 0.8 per cent, Velchev explained.

Without an agreement with the IMF, Bulgaria loses an annual aid package of $150-200 million in cheap financing, which otherwise the World Bank would be giving in support of the balance of payments, deputy finance minister Krassimir Katev said in an interview on Sunday. The money has already been budgeted and the risk of losing it is quite substantial, he said.

"IMF is the fiscal policeman of the world and this is how it is seen by international financial circles. If the fund endorses a statement about the good financial health of a country, then investors will feel much safer and will come to invest here," Katev said.

At the same time there are the green-field investors, mostly from European countries, who look to more distant horizons. It is important for them to be in Bulgaria before it joins the EU in 2007, so the inflow of green-field investment is unlikely to cease, he said.

The moment Bulgaria signs an agreement with the IMF, two of the international credit rating agencies, Standard & Poor's and Fitch IBCA, are expected to upgrade the country's credit rating. Both have assigned Bulgaria a B+ with a positive outlook. Katev explained that investors are anticipating an upgrade but credit rating agencies often lag behind market developments. The preliminary reports of Standard & Poor's are due within a month, and the final decisions will then be taken by their board by the end of the year.

Apart from the above two agencies, in the past month Bulgaria has also been visited by the staff of R&I Credit Rating Division International Group of Japan, which has not yet prepared a credit rating for Bulgaria. Katev expects from them a high credit rating, 2B or 2B-, which will allow the country to get financing by selling bonds to the Japanese bond market. This is a relatively cheap way of securing financing, Katev commented.

The introduction of VAT for tourist services will have a minimum effect on the price of tourist packages and the total income from tourism, according to the deputy finance minister. "We have information that a portion of the revenue from tourism is currently being concealed and taxes are being evaded. As a net result, VAT shouldn't tangibly affect demand in the tourist sector."