The Cabinet projects a gradually falling fiscal surplus and slowing inflation in the next three years.

This is according to a draft budget framework for the period that it approved on June 22.

Bulgaria’s economy would grow by a real 5.8 per cent next year, by 6.2 per cent in 2008 and 6.1 per cent in 2009 respectively, the Government said in a statement.

Bulgaria’s current account deficit is expected to rise to 11.8 per cent of gross domestic product (GDP) in 2007 from the 11.3 per cent deficit projected for this year. The Cabinet sees the external deficit narrowing to 9.7 per cent of GDP in 2009. It gave no forecast for 2008.

The government has set a fiscal surplus target of 0.8 per cent of the projected gross domestic product for 2007. The surplus is projected to fall to 0.7 per cent of GDP the following year and to 0.6 per cent of GDP in 2009.

In the medium-term, the major challenge to the budget policy is the attainment of the national priorities by maintaining a stable fiscal position and preserving the country’s macroeconomic stability after its entry in the European Union.

The average inflation in 2007 is expected to be 4.4 per cent, 2.8 per cent in 2008 and 3.1 per cent in 2009.

The budget surplus for 2007 is projected at 382.8 million leva, or 0.8 per cent of GDP. The figures forecast for 2008 and 2009 are 384.4 million leva, or 0.7 per cent of GDP, and 347.3 million leva, or 0.6 per cent of GDP respectively.

The revenue planned for the 2007-2009 period is in line with the overall tax strategy of the Government, the macroeconomic framework, the changes expected to be made in the tax legislation, and the budget revenue tendencies in the past few years.

The 2007 consolidated revenue is expected to reach 21 billion leva, or 41.4 per cent of GDP; the revenue for 2008 is projected at 23 billion leva, or 41.4 per cent of GDP, and for 2009 at 25 billion leva, or 41.3 per cent of GDP.

Consolidated expenditure is planned at 20.7 billion leva (including the contribution Bulgaria will have to make to the EU), or 40.7 per cent of GDP, in 2007; the 2008 figure is 22.6 billion leva, or 40.7 per cent of GDP; and the figure for 2009 is 24.7 billion leva, or 40.8 per cent of GDP.

The three-year budget forecast has been made by taking into account the financial inflow from the EU structural and cohesion funds and the money from the Common Agricultural Policy system.

The key challenge to the Government in the next three years will be the fullest possible optimum use of the EU funds in order to achieve a lasting positive effect on production, economic growth, and approximation of the EU living standards.

The money will be channelled mainly to the rehabilitation of roads, the energy sector, agriculture, environment, development of human resources, education and science.