On October 3, a host of ministers, Prime Minister Sergei Stanishev included, took the floor at a government-business conference dubbed Second Decade of Growth: Risks and Opportunities and hosted by Kapital weekly and German newspaper group Handelsblatt to present standpoints on the current state of economy and outline the challenges for the years to come.

Stanishev said that in the past 17 years, Bulgaria had achieved reforms related to “hardware”, meaning institutional reform, and now needed to reform “software” to make the country competitive.

Underlining that the country would continue a policy of fiscal stability and budgetary restraint, Stanishev rejected calls to use the country’s budget surplus to meet social needs and public sector salary demands. If the Government succumbed to teachers’ calls for a 100 per cent hike in pay and, thus, resorted to laxer public spending, the surplus would go to naught within a mere quarter.

He, rather, redirected attention to the need to enhance quality of education and spend more on scientific research. He called on business operating in Bulgaria to open up to R&D and, thus, instigate the gap bridging between science and business. This would be a win-win partnership as it was an investment into both involved parties’ long-term development.

Finance Minister Plamen Oresharski said that the Government had seen its capacity to wield power on the business environment on the decline. Apart from putting corporate tax rate at 10 per cent as of January 1 next year, he saw a healthy public finance structure as one of the Government’s few means to usher business and economy on the path toward competitiveness and efficiency.

In this sense, bad times were ahead unless the Government held on to strict fiscal discipline. The most explicit alert in this regard was the soaring current account (CA) gap, which had sent shockwaves both across the international and local expert community but also in the Government, he said. He reiterated his governmental CA deficit forecast of 18 per cent of GDP for full year 2007.

In view of the expected decrease in public revenues pending the introduction of 10 per cent flat tax rate, the Government should stick to belt-tightening with regard to public spending, Oresharski said. Therefore, the Government would seek to limit governmental spending to 40 per cent of GDP. He warned, though, that going below this threshold would have a detrimental impact on the quality of public service.

The state budget should also remain with a surplus in the next few years to sustain the current peg of the lev to the euro and, thus, safeguard export-oriented businesses from currency transaction losses.

Furthermore, the Government has decreased the economy’s vulnerability by cutting public foreign debt from 133 per cent to less than 20 per cent of GDP since 1997, Oresharski said.

He saw the growing shortage of qualified workforce as a major problem. Oresharski said that the private sector was raising salaries to unprecedented levels in their efforts to attract personnel. The imminent results, he said, would be inflation pushed past its present elasticity curve and the country’s failure to meet the Maastricht criteria, necessary to join the eurozone’s waiting room, the Exchange Rate Mechanism II.

Economy and Energy Minister Petar Dimitrov said that Bulgaria was in need of second-generation reforms. Now that Bulgaria has achieved fiscal stability and decent GDP growth levels, Bulgaria should create the conditions for attracting quality investors to seek a position of leadership on the Balkans. Sustainable economic growth and FDI flows could help the country’s economy develop and skip development stages, he said.

Dimitrov named development of the information technology and communication, energy and education sectors as the government’s top priority fields.

Labour and Social Affairs Minister Emilia Maslarova pointed out her ministry’s primary objective was to create a flexible labour market, a goal consonant with the needs of business as well. Unlike earlier calls, flexibility in work hours and forms of employment, as well as higher mobility of workforce posed little threat both to the Government’s social model and the security of local labour.