Bulgaria's budgetary stance was sound, but continued tight fiscal policies would be required to safeguard macroeconomic stability in a context of rising external imbalances and high inflation, the European Commission said on February 13 2008.

The European executive based its conclusion on Bulgaria's updated convergence programme for 2007-2010, which the country is required to submit as a new member of the bloc.

The programme aimed to maintain a sound budgetary position throughout the period, by planning for the continuation of high general government surpluses. The EC suggested Bulgaria could comfortably maintain a budget surplus of 1.5 per cent of gross domestic product throughout the period.

Fiscal institutions and public sector wage policy needed to contribute to overall wage moderation in line with productivity gains, while the quality of public spending, including in health care, should improve, the Commission said.

However, the EC had not assessed the long-term sustainability of Bulgaria's public finances, since calculations on age-related cost projections were still under way.

To ensure sustainable convergence, by which the EC means Bulgaria's economy catching up with the rest of the bloc, the Cabinet should continue to keep its public spending in check, despite sustained economic growth, and further strengthen the efficiency of public spending, in particular through full implementation of programme budgeting, reinforced administrative capacity, and a reform of the health care system. Additionally, it should adopt policies to contain inflationary pressures, including by contributing to wage moderation through a prudent public sector wage policy and preserving competitiveness.