Bulgaria's pro-cyclical policies to further boost inflation, put at risk eurozone entry - Fiscal Council

Bulgaria's pro-cyclical policies to further boost inflation, put at risk eurozone entry - Fiscal Council

Bulgaria's Fiscal Council, a body that advises the government on fiscal governance, said that the draft budget for 2022 is built on optimistic growth expectations and pro-cyclical policies that will further fuel inflation, jeopardising the country's plans to join the eurozone in 2024.

Furthermore, the structural balance is expected to deteriorate to minus 3.3% excluding the fiscal measures to curb the impact of the pandemic, though the economic situation does not give grounds for such a significant fiscal expansion in 2022, the Fiscal Council said in a statement published earlier this week.

Consequently, according to the Council, Bulgaria risks entering an excessive deficit procedure in the coming years.

Bulgaria's 2022 draft budget envisages a deficit of 4.1% of the planned gross domestic product (GDP) with coronavirus-related expenditure included and of 2.5% of GDP without the expenditure on coronavirus measures. The draft budget is built on GDP growth forecast of 4.8%.

Finance minister Assen Vassilev said last week that the government expects average annual inflation of 5 - 6%, up to 8%, in 2022.

Bulgaria's consumer prices rose by 7.8% year-on-year in December following an annual increase of 7.3% in November. The average annual inflation rate in 2021 was 3.3%, according to the latest data by the National Statistical Institute.

Bulgaria's foreign debt is still low but it is growing at an accelerating pace, the Council noted.

Bulgaria plans this year to seek on foreign and domestic markets up to 7.3 billion levs ($4.23 billion/3.73 billion euro) in debt, part of which will go to refinance a bond issue. The 2022 draft budget envisages raising 4.3 billion levs of new debt, and 3 billion levs to refinance existing debt, Vassilev said.

The draft budget bill will be submitted to parliament for consideration on January 31.

According to the agreement signed by the four political forces that form Bulgaria's government coalition after the November snap election, the budget for 2022 will be updated in the middle of the year.

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