James Roaf has been IMF Resident Representative in Bulgaria since 2003. He is British and before his appointment to Bulgaria he served as Deputy Division Chief at International Capital Markets Department and Senior Economist at the International Capital Markets Department. From 1998 till 2000 Mr. Roaf worked at Economist, Russian Division, European II Department. He also was an assistant to UK Executive Director, IMF and World Bank Group, representation of UK authorities at the IMF and World Bank. Speaks Italian, Spanish, French and Russian. Married with two children.
James Roaf answered questions of Novinite.com Editor-in-Chief Milena Hristova
Q: What will be IMF main requirements in the new agreement with Bulgaria?
A: As with previous programs, the main objective of the new agreement is on ensuring macroeconomic policies that support continued robust growth and low inflation, in the context of the currency board. In the present situation this means addressing potential risks arising from a large current account deficit. This involves policies to keep demand in the economy from growing too fast, including a tight fiscal policy and restraints on bank lending, and structural reforms to encourage a stronger supply response.
Q: How will restrictions on bank liquidity, as agreed by Bulgaria and the IMF, impact the lending activity in the country?
A: We hope and expect that bank lending will continue to expand strongly, but that the rate of credit expansion will come down from the unsustainably high rates that we've seen over the past year or two. Annual credit growth might fall to around 35 percent by the end of 2004 - implying that banks would still be playing a major role in supporting investment and consumption.
Q: How do you view fears that IMF efforts to curb rapid credit growth in the country will drive clients away? How do you expect banks to respond to the measures?
A: There appears to be strong demand for bank loans at present, and we expect that to continue. Banks may become somewhat more cautious and selective in granting loans, but we would regard this as a healthy development. If banks were to continue expanding lending at the very high rates we have seen recently it could start to raise prudential questions about the quality of their loan portfolios.
Q: Does the credit register for loans at the central bank include those below BGN 10,000?
A: Yes, the credit register was expanded to cover all loans as of July 1, 2004. This measure will help banks to monitor risks better, and in particular will help them identify whether individuals are seeking to obtain multiple consumer loans from different banks.
Q: What risks does an increasing current account gap pose to the economy?
A: A country in Bulgaria's situation, with rising incomes and good investment opportunities, would be expected to run a current account deficit. And so far Bulgaria has been able to finance its current account deficit while continuing to reduce its external debt, mainly because of strong foreign direct investment. However, if the deficit becomes too large, external debt starts to rise, or doubts begin to emerge about the availability of financing to cover the deficit, people will begin to worry about the sustainability of the currency board arrangement. The measures in the new program are intended to ensure that the current account deficit starts to decline as a share of GDP, and to help ensure adequate non-debt financing, including privatization receipts and other foreign direct investment.
Q: When do you expect Bulgaria to bring the privatization process to an end?
A: No doubt privatizations will continue for a number of years, although many of the big enterprises have been sold at this stage. The main enterprises to be sold in the next couple of years are the tobacco companies and the electricity distribution and generation companies.
Q: How would you comment the vow of the Finance Ministry to cut direct taxes in 2005 when general elections will be held in Bulgaria?
A: We will discuss the details of the 2005 budget in the missions that will visit in the autumn. Our main concern is to make sure that the overall balance of the budget is at an appropriate level - within that there are different choices that can be made about levels of expenditure and taxation. The government has been pursuing a policy of reducing direct taxes over a number of years, in order to promote economic activity, and intends to continue with that policy in 2005.
Q: IMF and the government have agreed on a balanced budget for 2005 should lending and budget deficit problems persist. Why?
A: The government has agreed that the fiscal stance in 2005 should be neutral compared to the result for 2004, unless bank lending growth slows and the current account ceases to be a cause for concern. This is because under the currency board fiscal policy is the primary lever of macroeconomic policy, and it would not be appropriate to ease policies if there is an excessive external deficit.
Q: Why did the IMF oppose to raise the fixture of the minimum monthly wage by 25% to BGN 150?
A: We have serious concerns about such a large increase in the minimum wage in a single year, coming on top of an increase of 40 percent over the past three years. A 25 percent increase would be well beyond the rate of productivity growth in the economy, and potentially could threaten competitiveness in some industries, and push some workers into the grey economy or unemployment. However, this is a complex issue and we have agreed with the government to look closely at the available information in the coming weeks, and to discuss the appropriate minimum wage policy in the context of the September mission.
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