Commissie beoordeelt stabiliteitsprogramma's van Bulgarije, Letland en Roemenië (en)

Having examined the first convergence programmes [1] of Bulgaria and Romania, the European Commission finds that the budgetary position of Bulgaria is sound. However, Bulgaria is encouraged to achieve a higher surplus than currently planned in 2007 and to maintain a comfortable budgetary surplus in coming years so as to foster macroeconomic stability and reduce external imbalances. Romania, which enjoys even higher growth than Bulgaria and faces a widening external deficit, should improve its budgetary position by a significant adjustment in order to obtain a sufficient safety margin against breaching the 3% ceiling and to avoid a pro-cyclical policy. Romania should also control the increase in public spending and review its composition. The Commission has also examined the updated programme of Latvia and finds that the planned fiscal loosening in 2007 is inconsistent with a prudent fiscal policy aimed at ensuring sustainable convergence. From 2008, some progress is envisaged, but there are risks to the achievement of the budgetary targets which lack ambition given the high growth also enjoyed by the country.

"I am concerned that the countries assessed envisage a loosening of fiscal policies in 2007 at a time of favourable economic growth. This is not consistent with the objective of running prudent fiscal policies and ensuring sustainable convergence, including by reducing the external imbalance and containing inflation. Stability-oriented fiscal policies are key for sustainable economic development. Bulgaria is, therefore, encouraged to maintain strong budgetary positions and Romania should aim for a more ambitious budgetary consolidation path. Latvia has sustainable finances in the long term, but it should carefully avoid pro-cyclical policies to be able to deal with growing imbalances in its economy, " said Economic and Monetary Affairs Commissioner Joaquín Almunia i.

Bulgaria joined the EU on 1 January 2007 and submitted its first convergence programme on 5 January, covering the period 2006-2009.

Based on a macroeconomic scenario that appears plausible, the programme aims at maintaining a general government surplus in the range of 0.8-1.5% of GDP over the programme period. For 2007, a sharp deterioration to 0.8% of GDP from 3.2% of GDP in 2006 is projected. The medium-term objective (MTO) for the budgetary position presented in the programme is a balanced budget in structural terms (cyclically-adjusted and net of one-off and other temporary measures), which is in line with the requirements of the Pact. The MTO would be maintained by a large margin throughout the programme period.

The programme and the Commission's assessment show that the budgetary outcome in 2007 could be higher than projected in the programme whereas the risks to the budgetary projections for 2008 and 2009 appear broadly balanced. However, the fiscal policy stance implied by the programme could turn out pro-cyclical in 2007. This would not be in line with the Stability and Growth Pact.

Bulgaria had a debt of just below 30% of GDP in 2005 which is projected to decline to around 21% of GDP in 2009.

Overall, the medium-term budgetary position is sound. However, the planned reduction in the budget surplus during economic good times in 2007 would imply a pro-cyclical fiscal stance and adds to existing external imbalances.

Therefore, the Council should invite Bulgaria to: (i) achieve a higher budgetary surplus in 2007 than currently planned and to maintain a strong position thereafter in order to foster macroeconomic stability and to contain the high external deficit; and (ii) further strengthen the efficiency of public spending, in particular through a reform of the healthcare system.

Latvia submitted a new update of its convergence programme on 12 January 2007, covering the period 2006-2009.

Latvia enjoyed an economic growth of 11.5% in 2006, the biggest in the EU, and projects that the economy will grow by 9.0% in 2007 and 7.5% in the last two years of the programme. The Commission considers such projections plausible but also sees significant risks linked to a high inflation and a strong external imbalance.

The programme aims to gradually improve the fiscal outlook from an expected deficit of 1.3% this year and achieve a balanced budget by 2010. Latvia has set itself a MTO of a structural deficit of 1% of GDP, which is unchanged from the previous programme update and aimed to be achieved by 2008. In the absence of information on the measures envisaged for 2008 onwards, the Commission sees risks to the proposed achievement of the MTO. Moreover, the planned loosening of fiscal policy in 2007 is not in line with the Pact, as it is strongly pro-cyclical and does not respect the requirement of a stronger adjustment towards the MTO in good times.

At the same time, the public debt ratio is low and expected to decrease to under 10% and, all in all, the risk to the sustainability of public finances in the long term is also low.

Overall, the worsening of the budgetary position in 2007 is not in line with a prudent fiscal policy aimed at ensuring sustainable convergence, in view of the external imbalance and high inflation. In the subsequent years, the programme envisages progress towards the MTO, but the budgetary targets are not ambitious.

Therefore, the Council should invite Latvia to: (i) reduce the risks of macroeconomic instability by achieving a significantly better budgetary target for 2007 and by adopting as soon as possible measures - as part of a broader reform strategy - leading to further consolidation beyond the MTO in subsequent years, and (ii) establish a clearer and more binding medium-term framework for the planning and control of public finances.

Romania joined the EU on 1 January 2007 and submitted its first convergence programme on 25 January 2007, covering the period 2006-2009.

The programme is based on a plausible macroeconomic scenario and aims to achieve a deficit in structural terms (in cyclically-adjusted terms and net of one-off measures) of 0.9% of GDP. However, this so-called medium term objective (MTO) is expected to be reached only in 2011, i.e. beyond the programme period.

The Commission believes that the risks to the budgetary targets are broadly balanced in 2007, but the deficits could be higher than projected thereafter, mostly because of the risk of expenditure overruns and an unsubstantiated tightening in 2009. The budgetary strategy does not provide a sufficient safety margin against breaching the 3% of GDP deficit threshold with normal macroeconomic fluctuations. The structural deficit, estimated at 3% of GDP in 2006, is planned to increase in 2007 and is projected to improve only to 2¼% of GDP in 2009. The adjustment effort is rather limited considering the good economic times that Romania is experiencing. Moreover, it is back-loaded and not supported by sufficient measures, notably in 2009.

The public debt ratio, however, is low (below 15% of GDP) and is expected in the programme to decrease further.

Overall, in a context of strong growth prospects and a widening external deficit, the programme envisages a pro-cyclical fiscal loosening in 2007; the progress towards the MTO, which is targeted to be reached only beyond the programme period, is clearly insufficient and back-loaded. Moreover, there are risks to the achievement of the budgetary targets from 2008 onwards.

Therefore, the Council should invite Romania to: (i) exploit the good economic times to significantly strengthen the pace of adjustment towards the MTO by aiming for more demanding budgetary targets in 2007 and subsequent years; and (ii) control the envisaged high increase in public spending and review its composition so as to increase the growth potential, as well as improve the planning and execution of public expenditures within a binding medium-term framework.

The Commission recommendations for these Council Opinions are available at:

http://ec.europa.eu/economy_finance/about/activities/sgp/country/doctype/cr_en.htm

[ Figures and graphics available in PDF and WORD PROCESSED ]

[1] According to Council Regulation (EC) No 1466/97 on the strengthening of budgetary surveillance and the surveillance and coordination of economic policies (as amended by Regulation No 1055/2005), Member States must submit updated macroeconomic and budgetary projections every year. Such updates are called stability programmes in the case of countries that have adopted the euro, and convergence programmes in the case of those that have not yet done so. This regulation is also referred to as the 'preventive arm' of the Stability and Growth Pact.