The entry of Bulgaria and Romania into the EU is expected to raise higher living standards and trigger faster economic growth, which occurred among the EU10 that joined in 2004.

Accelerating growth coupled with higher state spending risks pushing the nations above the deficit and inflation targets for adopting the euro, which new members are required to do.

With an average monthly wage of EUR 250, Bulgaria has one of the lowest income levels in the EU. The government plans to raise public sector wages by 10% next year.

Bulgaria now meets criteria on low public debt and the deficit. Prices of services and some goods will inevitably rise to match respective EU rates, fueling inflation.

Reining in inflation to meet euro terms by 2010 will be a challenge in 2007 and 2008, Deputy Finance Minister Georgi Kadiev has warned.

The Balkan country's accession on January 1 brings along removal of trade barriers and cutting of tax receipts.

Bulgaria may have a budget deficit next year after posting a surplus in 2006 as government revenue drops during the nation's first year of European Union membership, he told Bloomberg.

Bulgaria will collect BGN 570 M less in value-added tax and customs fees, putting pressure on the budget as government spending on roads and railways rises.

In end-October the cabinet approved the 2007 budget, which forecasts a 25% jump in capital investment to BGN 2.7 B. This will be partly paid by the EU if the government justifies investments in projects ranging from road and railway building to water and sewage systems.

This means in the first year of EU membership Sofia will spend more than it gets from the EU, the deputy finance minister explained.

The bill predicts a surplus of 0.8% of GDP. The government is prepared to face revenue losses of as much as BGN 700 M next year, Kadiev has said.

Bulgaria's inflation is estimated at 6.2% in 2007 and 4% in 2008, according to an outlook issued by UniCredit Group.

The EC has recently released forecasts for Bulgaria and Romania, saying that growth will be supported by new investments and EU aid. In Bulgaria, for instance, investments will increase 14% each in 2007 and 2008.

Bulgaria's GDP will grow 6% in 2006, 6% in 2007, after completing its first 12 months of membership, and 6.2% in 2008.

Romania's economy, after growth 7.2% this year, will expand 5.6% in 2008, the commission said, led by industrial activity. The inflation rate will drop to around 4.6% in 2008.

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