AN International Monetary Fund (IMF) mission arrived in Sofia on March 9 to complete the first review of the non-funding arrangement with the Bulgarian Government and to discuss future policies.
Bulgaria signed in August 2004 a $146 million 25-month precautionary stand-by arrangement with the IMF, which is expected to be the last before the country’s accession to the European Union, scheduled for January 2007.
During its previous review mission in December, the IMF criticised the Government’s spending plans ahead of this year’s general elections. At the time, Bulgaria and the IMF said that they had failed to agree on a planned loosening of fiscal policy for 2005 but indicated they could bridge the differences in the following months.
The IMF mission that arrived on March 9 was expected to centre its attention on the fiscal policy of the Government for 2004. Meetings between mission leader Hans Flickenschild and Finance Minister Milen Velchev, BNB governor Ivan Iskrov, Minister of Economy Milko Kovachev and other state officials were scheduled for the visit, which will end on March 16.
The fund has not yet agreed with the 25 per cent rise of the minimum monthly wage in Bulgaria, which was introduced by the Government from January 1 this year. It also disagrees with the recent establishment of a state-operated public investment company that was injected with 340 million leva from last year’s budget surplus. Fund experts also expressed concern about credit growth, which is pushing up the trade deficit of the country.
On his return from a visit to IMF headquarters in Washington in January, Velchev said that a compromise was possible on the size of the injection for the public investment company.
There are clear signs that since the minimum monthly wage was already moved up to 150 leva by the Government’s decision, it might drop off the agenda of this mission’s talks in Sofia. However, the Fund’s experts were expected to discuss the risks of the increase for the macroeconomic framework and budget expenditure.
The IMF fears that the increase in the minimum wage will affect the other wages as well. Those who get higher wages at present will also request an increase. Ahead of elections, the trade unions are also likely to be more aggressive and the Government more likely to succumb to pressure. This will increase wages in both the public and the private sector, which is one of the main concerns of the Fund.
Unemployment is declining steadily at present, but it is still too high. It is employment, not the wage raise that should be the Cabinet’s priority now, the IMF believes.