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The Stabilisation of the Current Account is Sought on a Wrong Place

A b s t r a c t

The current account of Bulgaria is with large deficit – 8,52% in 2003. The economy can not afford such a deficit for a long time.

IMF and the Bulgarian authorities are looking for a solution of this problem on a wrong place. They want to curtail further the squeezed consumer and investment demand. They also want to reduce the symbolic budget deficit. They insist for a reduction of the credit activity of the banks, which has been and is still lower than this in western and central Europe. The measures they impose will curtail domestic demand and the modest growth potential of the economy.

The Strategy for catch up economic development by 2020, produced by our team calls for average annual GDP growth rates over the first decade of 6-8% and 5,0-5,5% for the whole horizon. The catching up growth is possible through higher domestic and external demand. The increase of the external demand means reduction of the negative trade balance by outstripping growth of exports instead of suppressing imports.

The analysis of the composition of the deficit in the current account during the recent years confirms that the main source of deficit in the current account is the negative trade balance. It has grown from 9,3% in 2000 to 12,48 in 2003. The attention should focus on reduction of the negative trade balance. It could be reduced to 5-7% during the next 8-10 years by faster growth of exports compared to the growth of imports.

The reduction of the negative trade balance by suppressing imports would be a wrong policy. The healthy solution is an increase of output and of competitiveness. This, in turn, could be done through structural and technological modernisation of the economy. Data are provided on the primitive product composition in 2000 and the objectives for their improvement by 2010 and 2020.

The implementation of such fundamental modernisation would require approximately $360 billion for 20 years. With an investment rate of 20% in 2002 it should increase to 30-31% by 2010 and 35-37% by 2020.

As stated exports could be increased sharply by equally fast growth of output and of competitiveness. This calls for higher domestic savings, more foreign investment, more active investment lending of the banks in Bulgaria, better utilisation of EU transfers. Improvement of competitiveness could be facilitated also by a shift from pegged to managed floating of the exchange rate.

One thing is obvious – with the present macroeconomic policy Bulgaria can not reduce substantially the negative balance in the current account and prepare the economy for successful EU integration.

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