Bulgaria mulls 'financial pact' to buttress stability

(SOFIA) - Bulgaria's finance ministry presented on Tuesday plans for a new 'pact' to buttress financial stability through a series of fiscal measures.

"The financial stability pact has three main pillars -- limiting government expenditures to 37 percent of gross domestic product (GDP), capping the public deficit at less than 3.0 percent of GDP, and requiring any corporate and income tax changes to be approved by two-thirds of parliament," Finance Minister Simeon Djankov explained Tuesday.

The government's current budget expenditures range around 35.5-36 percent of GDP, Djankov said.

Bulgaria wrapped up 2010 with a public deficit of 3.6 percent of GDP, with the aim to bring it down to 2.5 percent this year.

After a 5.0-percent plunge in output in 2009, the EU's poorest newcomer scrambled to return to growth in 2010, registering a 0.3-percent rise in GDP and forecasting growth of 3.6 percent this year.

With its flat 10-percent income and corporate tax, Bulgaria remains the country with the lowest tax burden in the whole EU, Djankov cheered on Tuesday, pledging to keep that up.

The seriousness and long-term impact of the changes requires parliament to approve them as amendments in the country's constitution, Djankov said, adding he hoped the plan could take effect in late 2012 or early 2013.

"The pact aims to demonstrate that Bulgaria's governments will keep up fiscal stability" over the long term, Djankov said.

"It will also help Bulgaria's entry in the ERM 2 mechanism," he added, referring to the obligatory two-year waiting room for eurozone hopefuls.

The minister was categorical that Bulgaria would not take steps towards entering ERM 2 before the pact's approval by parliament, expected in late 2011, but he did not say whether it would also wait for the measures to enter into effect first.

Djankov declared entry into ERM 2 and the eurozone as a top priority when he took over as finance minister in July 2010.

But following general instability in the eurozone and the recent country bailouts, the finance minister has kept mum on any target date for joining.