Bulgaria's interim government will nudge some spending away from day-to-day costs to create new jobs and help society's poorest but it will not ease up on one of Europe's tightest fiscal regimes, Finance Minister Kalin Hristov said on Friday.
Six people have burned themselves alive in protests against high power bills and low living standards that toppled an austerity-minded government last month - a measure of the economic desperation and anger at corruption in one of the European Union's poorest countries.
Hristov, who is on leave from his role as deputy central bank governor, said the caretaker cabinet would decide next week on a package to help poorer people pay their energy bills, increase support for disabled children and open new jobs. The country's EU Commissioner Kristalina Georgieva said earlier this month that Bulgaria could afford to borrow about another 1.0 billion levs ($661 million) to spur the economy.
But the interim government does not plan and does not have the powers to take new loans and all political parties are still firmly behind the country's currency peg to the euro, which can be endangered by borrowing more internationally. "We will follow the 2013 budget law. Within its framework an optimisation can be found ... towards special programmes for jobs and support for the most vulnerable," Hristov said in an interview on Friday.
He has some room to manoeuvre. The budget deficit last year was just 0.5 percent of gross domestic product and this year's envisages a 14 percent rise in spending that still leaves it at just 1.3 percent of national output. That would be the envy of any number of European governments struggling to rebalance public finances while spending enough to get their economies going again after the worst economic downturn since the second world war.
But economists and political leaders in Bulgaria remain convinced of the need to tread carefully to maintain confidence in the currency peg, a major plank of policy since hyperinflation and a bank meltdown rocked the Balkan country in 1997. Hristov was in charge of the peg at the central bank and financial investors view him as a safe pair of hands to manage finances until a May election.
With living standards of less than half of the EU average, over 22 percent of Bulgaria's 7.3 million population live below the poverty line. Millions have left to work abroad but unemployment at home still hit an 8-year high in February of 12 percent. The protests, still a regular occurrence despite the fall of Prime Minister Boiko Borisov's centre-right government, have demanded relief for households' finances but stopped short of saying the country should borrow more.
Campaigning for an election set for May throw more doubt on whether the next government - almost certainly a coalition - will not relax policy more as the country emerges from recession. For now, Hristov said this year's reduced growth forecast of 1-1.5 percent due to sluggish demand in the euro zone will not put the deficit target at risk. Fitch Ratings said last week that the political crisis in Bulgaria was unlikely to threaten its finances for now and kept a BBB- investment grade rating with a stable outlook.