Bulgarian National Bank (BNB) expects the countrys current account deficit to drop in 2006 to less than 11 per cent of gross domestic product (GDP).
Ivan Iskrov, BNB governor, said this at the Economists Sixth Business Roundtable with the Bulgarian Government on March 22.
The country ended 2005 with a current account gap of 11.9 per cent.
The central bank also expects that in 2006 the end-year consumer price inflation will slow to six per cent from 6.5 per cent in 2005, Iskrov said.
This year we expect the current account deficit to fall below 11 per cent of GDP due to slowing of the growth of imports and recovery of the growth of exports, which we saw in the last quarter of last year and the beginning of 2006, Iskrov said.
BNB data shows that in January 2006 exports rose by 27.5 per cent year-on-year, while imports (excluding energy products) grew by 17 per cent.
Bulgarias current account deficit widened to a revised 11.9 per cent of GDP in 2005, or 2.531 billion euro, from 5.8 per cent or 1.131 billion euro in 2004.
Some economists blame the widening of the current account gap on the sharp rise in Bulgarias trade deficit, which was prompted by company investments and a surge in lending activities of commercial banks. The International Monetary Fund has also been warning Bulgaria of the threats of imports and lending for the countrys financial stability.
Other analysts say that the country should not fear the deficit or the lending growth, as long as they both are signs of the growing economy.
Imports of investment goods rose by 31.2 per cent last year and their share in total imports reached 28 per cent, said Iskrov. This only supports the idea that the deficit and lending are in support of the economic growth.
Iskrov said that the investment goods share-rise was combined with a slowing of the growth of imports of non-energy resources and consumer goods.
In the current year we expect the high growth of imports of investment goods to continue, having in mind the fast process of technological upgrade of the economy, which is pre-determined to a large extent by the countrys forthcoming membership of the European Union, he said.
The BNB and the Cabinet have already taken several measures to guard against the high external deficit and to handle the risk it poses to macroeconomic stability.
These central bank measures include restrictions on bank lending, which should slow credit growth. The Government, for its stake, will pursue a budget surplus of three per cent of GDP this year after a surplus of 985.6 million leva or 2.36 per cent of GDP for 2005.
Prime Minister Sergei Stanishev told the Economist Roundtable that Bulgaria needed to set up an export bank to back exports and thus counter the large trade gap.
The external imbalance of the country, financed by an inflow of capital, is more a signal of stability, confidence and potential for economic development, said Iskrov.
