Deutsche Bank called Bulgaria an example of success in its country economic report that was published last Thursday.
The authors of the report, which was quoted by the Bulgarian Finance Ministry, said that 2007 was a realistic year for Bulgarias entry into the European Union.
At the end of 2001, the new Government tightened the fiscal policy as it faced an increasing current account deficit, as a result of which the deficit was reduced from a target of 1.5 per cent to 0.9 per cent, the report said. This had a favourable effect for the signing of a new two-year stand-by agreement with the IMF.
The aim of the Government was to keep the fiscal deficit unchanged at 0.8 per cent of the GDP through 2002 and to gradually reduce it to achieve a balanced budget in a medium term, the analysts said. According to them, Bulgarias performance so far gives no reason for any doubts of its success.
In October 2001, the minimum wage was increased by 17 per cent and any future increases will probably be bound to the dynamics of public-sector wages.
The latest figures show a certain aggravation on the inflation front, according to the report. The inflation of the consumer price index increased to an average annual of 9.2 per cent in March with a 5.2 per cent increase only in the first quarter of 2002. Some one-off factors are partly to blame for that, including the increase of the excise duty for cigarettes and the introduction of a VAT tax for locally made medicines. Seasonal factors are expected to push inflation down in the summer months and yet, considering the ongoing trend of increase of petrol prices, the 3.5 per cent annual target will probably be overshot and 5 per cent seemed more realistic.
Further, the report said that one of the main goals of the Government was to improve the business climate and give a further push to structural reforms. To achieve that, important changes have been made in the tax system. The aim was to lower tax rates and improve tax administration and collection.
By reducing income tax from 38 to 29 per cent and pushing up the tax threshold, the Government brought the tax burden to levels that were below those in most transitional economies. The effective corporate income tax rate was also reduced to 23.5 per cent and was now lower than the average in the EU candidates of the first group.
The Government is planning an active approach to the labour market, including a programme for retraining and credit guarantees in areas with high unemployment.
The Bulgarian financial sector is strong and well capitalised and the IMF recently said that the banking system was in a position to assume a currency, interest and credit risk, the report said, adding that, however, more structural reforms were necessary to turn Bulgaria into a working market economy.
The Government is trying to carry through its privatisation programme within the two-year schedule and gives priority to strategic investors. A new law was recently adopted in a bid to make privatisation more effective and transparent. Four major privatisation deals were commenced last month: for Biochim Bank, Bulgartabac Holding, DZI (State Insurance Institute) and Bulgarian Telecommunication Company.
Deutsche Bank analysts hope that the deficit on the external current account will stay at manageable levels, financed largely by the influx of foreign investment. Foreign investment is expected to shrink to $850 million (6 per cent of the GDP) in 2002, $880 million (5.7 per cent of the GDP) in 2003 and some 5 per cent in the medium term.
Deutsche Bank expects a reduction of the debt/GDP ratio in the medium term as a result of the debt management scheme applied by the Government and the expected 4 per cent DGP growth this year. The DGP growth is expected to reach 5.5 per cent by 2005. Compounded by the successful sale of the BTC and the tobacco holding Bulgartabac, this could lead to an upgrade of the countrys credit rating at the end of this year or the beginning of next year, the report said.
The authors of the report, which was quoted by the Bulgarian Finance Ministry, said that 2007 was a realistic year for Bulgarias entry into the European Union.
At the end of 2001, the new Government tightened the fiscal policy as it faced an increasing current account deficit, as a result of which the deficit was reduced from a target of 1.5 per cent to 0.9 per cent, the report said. This had a favourable effect for the signing of a new two-year stand-by agreement with the IMF.
The aim of the Government was to keep the fiscal deficit unchanged at 0.8 per cent of the GDP through 2002 and to gradually reduce it to achieve a balanced budget in a medium term, the analysts said. According to them, Bulgarias performance so far gives no reason for any doubts of its success.
In October 2001, the minimum wage was increased by 17 per cent and any future increases will probably be bound to the dynamics of public-sector wages.
The latest figures show a certain aggravation on the inflation front, according to the report. The inflation of the consumer price index increased to an average annual of 9.2 per cent in March with a 5.2 per cent increase only in the first quarter of 2002. Some one-off factors are partly to blame for that, including the increase of the excise duty for cigarettes and the introduction of a VAT tax for locally made medicines. Seasonal factors are expected to push inflation down in the summer months and yet, considering the ongoing trend of increase of petrol prices, the 3.5 per cent annual target will probably be overshot and 5 per cent seemed more realistic.
Further, the report said that one of the main goals of the Government was to improve the business climate and give a further push to structural reforms. To achieve that, important changes have been made in the tax system. The aim was to lower tax rates and improve tax administration and collection.
By reducing income tax from 38 to 29 per cent and pushing up the tax threshold, the Government brought the tax burden to levels that were below those in most transitional economies. The effective corporate income tax rate was also reduced to 23.5 per cent and was now lower than the average in the EU candidates of the first group.
The Government is planning an active approach to the labour market, including a programme for retraining and credit guarantees in areas with high unemployment.
The Bulgarian financial sector is strong and well capitalised and the IMF recently said that the banking system was in a position to assume a currency, interest and credit risk, the report said, adding that, however, more structural reforms were necessary to turn Bulgaria into a working market economy.
The Government is trying to carry through its privatisation programme within the two-year schedule and gives priority to strategic investors. A new law was recently adopted in a bid to make privatisation more effective and transparent. Four major privatisation deals were commenced last month: for Biochim Bank, Bulgartabac Holding, DZI (State Insurance Institute) and Bulgarian Telecommunication Company.
Deutsche Bank analysts hope that the deficit on the external current account will stay at manageable levels, financed largely by the influx of foreign investment. Foreign investment is expected to shrink to $850 million (6 per cent of the GDP) in 2002, $880 million (5.7 per cent of the GDP) in 2003 and some 5 per cent in the medium term.
Deutsche Bank expects a reduction of the debt/GDP ratio in the medium term as a result of the debt management scheme applied by the Government and the expected 4 per cent DGP growth this year. The DGP growth is expected to reach 5.5 per cent by 2005. Compounded by the successful sale of the BTC and the tobacco holding Bulgartabac, this could lead to an upgrade of the countrys credit rating at the end of this year or the beginning of next year, the report said.
