DEFICIT-CONSCIOUS: IMF mission head Hans Flickenschild,
left, used the last chance while on Bulgarian territory
on Tuesday to warn Finance Minister Milen
Velchev, centre, and Bulgarian National Bank
governor Ivan Iskrov that they are the
first and the last barriers to the threat of the
rising current account deficit.
left, used the last chance while on Bulgarian territory
on Tuesday to warn Finance Minister Milen
Velchev, centre, and Bulgarian National Bank
governor Ivan Iskrov that they are the
first and the last barriers to the threat of the
rising current account deficit.
THE board of directors of the International Monetary Fund (IMF) will take the decision whether to enter into another protective agreement with Bulgaria, Finance Minister Milen Velchev said on Tuesday at a news conference marking the end of a mission by the fund to Bulgaria.
"Together with the IMF, we agreed that by the end of 2004, Bulgaria will reach a budget deficit of 0.4 per cent," Velchev said.
Surplus revenues would be used to further decrease the deficit, he said. This year's budget projected a deficit of 0.7 per cent.
Velchev said that he was not worried about a new accord with the IMF, saying that Bulgaria was not in a hurry to conclude one. If the IMF board makes the decision at its regular meeting in July, the agreement might be enforced that same month.
Velchev described the fund's mission as successful.
He said many specific results had been achieved. The main concern that topped the discussion with the IMF representatives had been the deficit in Bulgaria's current account.
IMF mission chief for Bulgaria, Hans Flickenschild, said that the current account deficit was continuing to bother the fund, as well as the sharp credit increase. According to him, credit growth should be slower and the liquidity of the banks should be lowered.
The IMF considered the macroeconomic development of Bulgaria as favourable but the mission had found that previously encountered external risks had increased. Therefore, the fund had recommended that authorities take specific measures to reduce macroeconomic risks.
The Government should immediately start implementing the measures that the current mission had recommended, even before the IMF takes a decision on a future agreement with Bulgaria, Flickenshild said.
The IMF established during this mission that financial stability was not a problem for the country, and that this was due to the increased monitoring function of the central bank. The fund was still concerned about external security and the still-large size of foreign debt, despite the fact that it was decreasing and was now significantly lower than 60 per cent of GDP.
Bulgarian National Bank (BNB) governor Ivan Iskrov said that the bank's position was that Bulgaria needs a new protective agreement with the IMF, given that the presence of the fund in the country was a "mark of quality" and Bulgaria should have such an agreement at the moment it joins the European Union.
Iskrov said that a specific agreement had been reached with the fund for measures by BNB from one side, and the Ministry of Finance from the other, to lower the liquidity of the banks.
He said that within a month, the central bank would make amendments to the Minimum Obligatory Reserves Regulations. The reserves, which are used to calculate the fixed-term deposits of over two years, will be lifted from the current four per cent to eight per cent. BNB will also monitor the behaviour of the banks on the credit market and if by September 2004 the current sharp growth is not curbed, the bank will most probably equal the obligatory reserves on all deposits with those for two years or more.
If the minimum obligatory reserves of the banks are increased, this will lead to "extracting" 170 million leva from the banking system. As a separate measure, the Government will withdraw its deposits, amounting to 185 million leva, from financial institutions.
"The measures are not forced by a concern for the stability of the banking system, as Bulgarian banks are well capitalised, with proper quality of their credit portfolios and capital adequacy. They will be taken in order to limit the effect of the credit expansion on the current account deficit," Iskrov said.
"Together with the IMF, we agreed that by the end of 2004, Bulgaria will reach a budget deficit of 0.4 per cent," Velchev said.
Surplus revenues would be used to further decrease the deficit, he said. This year's budget projected a deficit of 0.7 per cent.
Velchev said that he was not worried about a new accord with the IMF, saying that Bulgaria was not in a hurry to conclude one. If the IMF board makes the decision at its regular meeting in July, the agreement might be enforced that same month.
Velchev described the fund's mission as successful.
He said many specific results had been achieved. The main concern that topped the discussion with the IMF representatives had been the deficit in Bulgaria's current account.
IMF mission chief for Bulgaria, Hans Flickenschild, said that the current account deficit was continuing to bother the fund, as well as the sharp credit increase. According to him, credit growth should be slower and the liquidity of the banks should be lowered.
The IMF considered the macroeconomic development of Bulgaria as favourable but the mission had found that previously encountered external risks had increased. Therefore, the fund had recommended that authorities take specific measures to reduce macroeconomic risks.
The Government should immediately start implementing the measures that the current mission had recommended, even before the IMF takes a decision on a future agreement with Bulgaria, Flickenshild said.
The IMF established during this mission that financial stability was not a problem for the country, and that this was due to the increased monitoring function of the central bank. The fund was still concerned about external security and the still-large size of foreign debt, despite the fact that it was decreasing and was now significantly lower than 60 per cent of GDP.
Bulgarian National Bank (BNB) governor Ivan Iskrov said that the bank's position was that Bulgaria needs a new protective agreement with the IMF, given that the presence of the fund in the country was a "mark of quality" and Bulgaria should have such an agreement at the moment it joins the European Union.
Iskrov said that a specific agreement had been reached with the fund for measures by BNB from one side, and the Ministry of Finance from the other, to lower the liquidity of the banks.
He said that within a month, the central bank would make amendments to the Minimum Obligatory Reserves Regulations. The reserves, which are used to calculate the fixed-term deposits of over two years, will be lifted from the current four per cent to eight per cent. BNB will also monitor the behaviour of the banks on the credit market and if by September 2004 the current sharp growth is not curbed, the bank will most probably equal the obligatory reserves on all deposits with those for two years or more.
If the minimum obligatory reserves of the banks are increased, this will lead to "extracting" 170 million leva from the banking system. As a separate measure, the Government will withdraw its deposits, amounting to 185 million leva, from financial institutions.
"The measures are not forced by a concern for the stability of the banking system, as Bulgarian banks are well capitalised, with proper quality of their credit portfolios and capital adequacy. They will be taken in order to limit the effect of the credit expansion on the current account deficit," Iskrov said.
