Bulgaria's current account deficit rose sharply in the first half of 2006, which was in line with forecasts.

According to experts, capital inflows will continue to counterbalance the deficit's growth.

The first-half current account gap widened to a preliminary 7.6 per cent of the projected gross domestic product (GDP), from 5.2 per cent a year earlier, Bulgarian National Bank (BNB) data showed on August 11.

The current account gap through June widened to 1.815 billion euro, from 1.116 billion euro a year earlier, the central bank said in a statement.

In June alone, Bulgaria had a current account deficit of 63.2 million euro, lower than the 106.1 million euro gap in June 2005.

"The figures are pretty much on track with what we expected," IMF resident representative in Bulgaria, James Roaf, said, quoted by the SEE News news service.

"They look quite encouraging. We see exports growing stronger than imports over the last year, which is an encouraging sign and there has been some turnaround in overall current account deficit," he added.

Six-month exports rose by 29.9 per cent to 5.699 billion euro while imports were up 26.8 per cent to 7.870 billion euro.

Georgi Stoev, senior economist with Industry Watch, a Bulgarian think-tank, agreed that the current account figures are in line with expectations.

"The deficit is growing with a considerable pace but it is fully compensated with the capital inflow into the economy," he said.

Foreign cash inflows covered 77.8 per cent of the current account deficit for the first half of 2006, against 72.6 per cent a year earlier.

Bulgaria attracted 1.412 billion euro in foreign direct investments (FDI) in the first six months against only 810.4 million euro in the same period of 2005.

"Inflow of foreign investment results in much bigger imports of goods than exports of goods, which is relatively normal for an economy like the Bulgarian," Stoev said.

The trade balance, which accounts for the bulk of the external deficit, rose by 351.7 million euro year-on-year to 2.171 billion euro, or nine per cent of GDP.

The Bulgarian government has said that current account deficit is expected to widen to 12.4 per cent of GDP this year from 11.8 per cent of GDP in 2005.

However, the IMF expects Bulgaria's current account gap to widen this year to 12.4 per cent.

"That will require exports to be growing faster than imports in the second half of the year," Roaf said.

Stoev said that he expects the external deficit to continue growing with the same pace but added that it was not worrying.

"The more important thing is whether it will continue to be covered by capital inflow in the economy and I think it will," he said.

"Strong foreign direct investment is a good thing for the country and a sign that the current account deficit will continue be financed quite comfortably," Roaf said.