Simeon Dyankov and Prime Minister Boiko Borissov
Bulgaria will no longer target joining the exchange rate mechanism (ERM2), the euro zone's waiting room, in 2010, Finance Minister Simeon Dyankov said on April 9.
The Cabinet of Prime Minister Boiko Borissov, which took office at the end of July 2009, made accession to the ERM2 one of its main policy priorities. That, in turn, prompted the Cabinet to delay payments to the private sector to maintain a low cash deficit, while at the same time not borrowing funds to increase government debt, analysts have said.
The policy resulted in a 0.8 per cent Budget deficit, but employer organisations and some macroeconomists said that the measures made the economic recession worse because instead of stimulus money, the economy got an ever-worsening cash squeeze. Furthermore, critics said that Bulgaria should not have been pushing for ERM2 admission so hard at a time when there was no political backing to allow the country into the euro zone in the first place.
But according to the latest calculations, Bulgaria's real Budget deficit was 3.7 per cent of gross domestic product, above the three per cent threshold stipulated in the Maastricht criteria for joining the euro area.
The reason for the high deficit were the commitments made by Bulgaria's tripartite coalition under contracts that were never made public, Dyankov said.
The high deficit was sufficient grounds for the European Commission to launch an infringement procedure against Bulgaria, but the Cabinet would target staying within the Budget deficit limits set by the Maastricht criteria in 2010, he said.
The Budget data and the contracts signed by the previous government, now under investigation by prosecutors, did not affect the fiscal stability of the country or its banking system, Dyankov said.