SOFIA (Bulgaria), November 30 (SeeNews) – The key challenges before the Bulgarian government are to contain the public deficit and step up reforms, Ernst & Young's country manager for Bulgaria said.
"One very difficult task for the government will be to balance between the public spending and keeping the pace in proceeding with the reforms, especially as regards infrastructure, at the same time not leaving the fiscal deficit to exceed the Maastricht criteria," John Mystakidis told SeeNews in a recent interview.
In the 2011 budget bill which parliament has approved tentatively, the government of the centre-right GERB has projected a budget gap of 2.5% of gross domestic product (GDP). Next year's GDP is projected up by 3.6%.
Mystakidis added that at the beginning of the recession Bulgaria was one of the European countries with strong public finances and one of the very few countries that satisfied most of the Maastricht criteria.
The Maastricht budget deficit threshold of 3.0% of GDP is a prerequisite for entering the eurozone.
In 2009, 25 out of 27 European countries posted a budget deficit and ten of them posted a double-digit deficit. In comparison, Bulgaria after a long period of budget surpluses reported a fiscal deficit in 2009 while for 2010 a public deficit of more than 4% is forecasted, Mystakidis said.
"The difference is that most of the European countries have done restructurings in the recent years and in the case of Bulgaria they lie ahead."
Further commenting on the economic situation in Bulgaria, Mystakidis said that the currency board system, which has been operating in Bulgaria since July 1997 and is generally considered a cushion for the economic stability in the country, is posing certain challenges as regards private debt.
"The vast portion of the private debt is denominated in euro and in the case of devaluation of the Bulgarian lev versus the euro this will create additional burden for the borrowers."
As regards tax levels, Mystakidis said that "the stable tax regime in Bulgaria continues to attract companies from abroad, especially when this is combined with the over-tax burdening […] in Greece and Romania." But the real results are still to be seen, he added.
In times of recession there might be intense M&A activity because of new opportunities, Mystakidis commented. However, the M&A activity dropped very significantly during the last year and a half not only in Bulgaria, but all over Europe, he added.
"I see Middle East companies starting to research the opportunities in Bulgaria. This makes sense because Bulgaria is being perceived as a growth-potential country without having the instability risk of an emerging market," Mystakidis said in conclusion.