Bulgaria′s PM Downplays Fears of Economy Overheating

Ivo Prokopiev, Chairman of the Confederation of Employers and Industrialists in Bulgaria (L) and Prime Minister Sergey Stanishev (R) joined the annual meeting of business and government. The economy of Bulgaria, which joined the European Union in January, is not showing signs of overheating, the prime minister has argued in defiance of experts' increasing warnings.

"I don't think it is correct to talk about Bulgaria's economy overheating," Sergey Stanishev said at the annual meeting of government and business that discussed the risks and opportunities of the second decade of growth. The forum was organized by the "Capital" economic weekly and the German "Handelsblatt" business daily in partnership with the Confederation of Employers and Industrialists in Bulgaria (CEIB).

Stanishev admitted the government had its doubts about the budget at the beginning of the year following the decision to cut the corporate tax from 15% to 10%. "We feared a repeat of Hungary's scenario, but managed to steer clear by implementing a number of measures," he said. According to him everyone is talking about the budget surplus, but few are aware of the risks that a widening current account deficit poses.

Stanishev reiterated his warnings of financial destabilization and hyperinflation if wages are doubled throughout the public sector. "In order to catch up with the developed countries of the European Union and have a knowledge-based economy, we need reforms of a new generation in education, development and the labour market," he said.

According to CEIB chair Ivo Prokopiev, the property market and construction sector will continue to be major drive of the economy for another five or seven years. "During this period we must find smart, based on new technologies industries, which will create added value and become the economy's new drive," Prokopiev said.

The World Bank and international ratings agency Standard&Poor's have recently warned that the economy of Bulgaria is at a risk of overheating and called for a policy mix cooling down excessive domestic demand to minimize the risk of asset and debt bubbles emerging and bursting.