By Radoslav Tomek and Elizabeth Konstantinova

Bloomberg

A euro-area recovery should “quickly” feed into Bulgaria’s economy as sound macroeconomic policies help an expansion to accelerate, central bank Governor Dimitar Kostov said.

There is “room” for economic growth this year to exceed the central bank’s forecast of 1.7% , Kostov said in an interview at the Euromoney conference in Vienna yesterday.

The 2014 budget is based on an assumption of an 1.8% rise in gross domestic product, while the European Commission forecasts 1.5% after an estimated 0.5% growth in 2013. The economy expanded 0.7% in the third quarter.

“When the crisis started, its impact on Bulgaria was very quick, so the economy will be rather quickly affected also by the euro-region’s recovery,” Kostov said. “Once the environment improves we shall be able to utilize the fundamentals.”

The Bulgarian economy, which relies on exports to western Europe, has been hit by sluggish performance in the euro region, which is still struggling to grow amid subdued prices and the threat of rising market rates as the U.S. Federal Reserve tapers its own monetary stimulus. The European Central Bank estimates that the bloc contracted 0.4% in 2013 and is set to expand 1.1% this year.

The Balkan nation has been gripped by political turmoil since February, when anti-austerity protests that echoed unrest across Europe forced out former Prime Minister Boyko Borissov’s administration.

Political Pressure

Premier Plamen Oresharski’s minority cabinet took power after a May snap election. It survived two no-confidence votes and recurring protests against what demonstrators say is a corrupt political system.

Kostov saw no threat in the government overshooting its budget gap target of 1.8% of GDP this year in an effort to appease demonstrators ahead of European Parliament elections in May.

“People don’t want additional spending, they want more transparency and less corruption,” Kostov said. “Moreover, there is fiscal prudence across the whole political spectrum.”

Bulgaria weathered the global financial crisis that started in 2008 without an international bailout, sustaining a currency board system that curbs government spending and operates a lev-euro peg.

“The currency board serves well and provides enough cushion,” Kostov said. “Fiscal policies are sound and on the external side, we have managed to adjust from a current-account deficit of 23 percent of GDP to a surplus.”

Current-Account Surplus

Bulgaria had a 10-month current-account surplus of 1.1 billion euros (.5 billion), or 2.8% of economic output January through October, according to the central bank.

Kostov reiterated Bulgaria’s cautious position on euro adoption. The country, which joined the European Union in 2007, is joining other eastern nations such as the Czech Republic in deferring the planned switchover.

“It’s not a question of the immediate future,” he said. “We will have to wait” until the euro-region crisis is solved.

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