A changing of the guard is taking place in relation to International Monetary Fund relations with Bulgaria.

James Roaf, who has served an exemplary term as resident representative of the IMF in Sofia, including through some difficult negotiations, is handing over to Juan Fernandez-Ansola, who will be Bucharest-based and will be responsible for both the two new European Union member states, Bulgaria and Romania.

It is a time of transition in relations. Bulgaria’s agreement with the IMF expires in March next year. Before then, there will be two further missions to this country, the first to discuss the 2006 and 2007 national budgets and the second to review progress in implementation of the Bulgaria-IMF agreement.

With its membership of the EU, Bulgaria will move to a new phase of independence as its changes its relationship with the IMF. The IMF will continue to report annually on reforms in Bulgaria. As such, it will remain an important and authoritative adviser on the Bulgarian scene, and many will look to it to assist in guiding Bulgaria to remaining on the path of fiscal responsibility and by extension, a sound business environment.

Meanwhile, many of the observations made by the IMF about the current state of Bulgaria’s finances are well-taken.

The IMF, understandably, has taken a positive view of the fact that Bulgaria’s balance of payments situation is improving, with exports rising and the rate of imports slowing.
The Fund believes that the current account deficit, a subject that has worried it this year, could reach the target agreed between the IMF and Bulgaria earlier in 2006.

However, given the current account deficit and the increase in private sector borrowing, the IMF has taken the defensible view that Bulgaria should look towards achieving a higher budget surplus in 2007. This is always an intriguing and complex debate, given the country’s legitimate need to spend on certain priority social services, such as health care and education. As this newspaper has said before, the Government should, as one way to achieve a stronger capacity to spend, pursue more effective revenue collection. Rather than, it may be added as an aside, pursuing populist measures such as an arbitrary increase in personal income tax that may yield returns which are insignificant - and especially meaningless until something is done to ensure 100 per cent tax compliance in Bulgaria.

Meanwhile, the IMF foresees possible economic growth of 5.6 per cent in 2006 and six per cent in 2007. Given the long-term strategic goals of Bulgaria, including the difficult hurdle of leaving behind the lev and adopting the euro before the end of this decade, it is to be hoped that this and other economic indicators indeed pan out positively.

In the light of this latter long-term goal, the striving to change to the euro, Bulgaria’s finances and economy will require careful management, including through - among other things - an appropriate taxation policy, and the maintenance of an appropriate budget surplus. As noted before and elsewhere, the latter is especially necessary in order to deal with any further problems with the current account deficit.

The ending of the agreement with the IMF, and joining the EU, are only part of the transitions through which Bulgaria is passing. It is good for the country to have the IMF as a friendly but firm adviser. We wish Fernandez-Ansola the best during his term of office.