Bulgaria will need 100 years until it catches up with average EU standards, according to a study released in mid-summer by the Californian University.

Yet Bulgaria is no sleeping beauty, statements by local government officials and international think-tanks indicated, because the country has made huge strides in mending its macro-economic performance, as well as raising the sustenance levels from the lows of 1996-97.

Furthermore, a new report from the Economic Intelligence Unit (EIU) said that despite the fact that Bulgaria was still vulnerable to external shake-ups, it was on track to sustain its solid financials in the medium term.

Current account deficit worries aside, all other macro-economic financials seem to have allowed the Bulgarian Government and Finance Minister Plamen Oresharski, in particular, to tailor and implement a socially-orientated fiscal framework.

True to the pledges, first announced on July 29-30, and agreed at the Evksinograd summit of the tripartite coalition – on the eve of the Government’s two years in office, Oresharski confirmed on August 30 that the Government will:

- raise the minimum wage by 40 leva to 220 leva;
- reduce social security contributions by three percentage points;
- slant the employer-employee social security pay distribution from 65:35 to 60:40;
- increase pensions by another 10 per cent as of October 1 this year;
- increase salaries in the public administration sector by 10 per cent;
- increase the health insurance contributions for minors, aged 18 years and under, from 0.5 per cent of the health insurance contributions to three per - - cent of the minimum income for self-insured individuals. In the future, the instalments will fully be covered by the state.

In addition, the maximum social security income will increase from 1400 leva to 2000 leva and the minimum from 220 leva to 240 leva.

These are just some of the figures that featured in the Government’s fiscal framework for the 2008-2010 period.

The Government’s “going social” does not stop there. Oresharski gave assurances that the minimum wage would be increased in a series of steps, to ensure gradual convergence with the EU average and to compensate for the introduction of the single 10 per cent flat tax rate. Nonetheless, he would not commit to a ceiling that to be reached by 2010.

In addition, pensioners would receive another 10 per cent increase, the first time a government has raised pension rates twice within a year.

From next year, Oresharski said, pensions would continue their upward path, yet from next year onwards increases would be calculated following the so-called “golden Swiss rule”. It foresees 50 per cent of the increase linked to the annual weighted average inflation and the other 50 per cent to the increase in social security income. The rule, according to Oresharski, would be in use in each of the three years through to 2010.

Companies were also set to enjoy the same VAT rate as today, 20 per cent.

The large increases in the budget’s spending column did not prevent Oresharski from placing an optimistic budgetary bottomline. He said that the budget surplus would not exceed 2.5 per cent by 2010.

Local analysts argued that the budget surplus was set to reach unprecedented highs. The embedded surplus figures were among the surprise points in the fiscal framework, local analysts said. The other was the hefty increase in social security incomes.

Oresharski continued his optimistic tone when talking about basic macro-economic parameters. He expected GDP and inflation to grow by six per cent and 3.7 per cent, respectively, in each of the next three years.

Yet whether the forecast painted by the local financial institutions are not overly upbeat can be seen only on juxtaposition with forecasts of international financial institutions and think-tanks.

While the analytical outfit of the Economist, the EIU, saw Bulgaria among the EU’s stars in terms of GDP growth, it was still more conservative compared to the governmental forecast. Its mid-term expectations were for GDP growth to decrease from 5.8 per cent to 4.1 per cent by 2011.

Forecasts for inflation, on the other hand, were for growth from five per cent in 2007 to 2.9 per cent by 2011.

Experts from the EIU pitched budget surplus forecasts at an even higher level. Their prognosis saw the country’s budget surplus maintained at the three per cent level in 2010, growing to 3.3 per cent in 2011.

The International Monetary Fund (IMF) placed its GDP growth forecast on a par with the Government’s. It believed total output would grow by six per cent in both 2007 and 2008.

In addition, figures published on the official website of the IMF saw inflation slowing from 5.3 per cent this year to 3.6 per cent next year.

Budget surplus forecasts, however, were more conservative, putting them as low as 2.4 per cent of GDP for this year and 1.4 per cent for 2008.

Despite the rosy expectations at hand, think-tanks are warning about the worrying rates of the country’s current account deficit. At its present rate, the deficit had almost reached the equivalent of 20 per cent of GDP, which was among the highest levels in the EU.

This particular parameter showed the largest discrepancy between governmental and EIU forecasts. While the government believed the current account gap would decrease to 9.7 per cent of GDP by 2009, the EIU maintained the gap would grow to 19.3 per cent by 2009 and 26 per cent of GDP by 2011.

The EIU’s pessimistic forecast was based on expectations that the demographic problems of the country would increase. Within the next five years, the EIU maintained, the population is likely to decrease to 7.4 million individuals. Yet, the trend would impact over the longer run because the economically active population would remain at its present level of 3.2 million people through  to the end of 2011.

With negatives deferred until after the mid-2010s, the EIU believed the country would comfortably fit within the five Maastricht criteria before the expiry of the five-year period, naturally making it a good performer within the ERM (excahnge rate mechanism) II mechanism, the Eurozone’s waiting room.

This spelt good news for the Bulgarian economy, Bulgaria is unlikely to rush its Eurozone bid. Oresharski has repeatedly said, this year, that the country would most likely adopt the euro in the period 2012-2015.

With all financial prospects looking good for the time being, both from the local and international perspective, abiding by the social line in economics looks like a timely thing to do.