For the second time in its history of dealings with the Bulgarian government, the International Monetary Fund (IMF) left Sofia last week without a firm agreement on next year's budget. This caused some concern in the markets, especially since there were a number of difficult sticking points holding up any new compromise. Wages, the fate of the budget surplus, booming private debt and a worrying current account deficit were behind most of the furrowed brows. Yet at the same time, there are signs that measures previously taken to reign in some of the more negative recent economic indicators are beginning to take effect.
At a press conference in Sofia on September 23, IMF mission chief Hans Flickenschild highlighted one of the chief disagreements between the Fund and the government. He told reporters that the IMF wanted Prime Minister Saxe-Coburg's administration to limit year-end fiscal expenditure to 1% of GDP - a comment aimed at restraining the usual practice of issuing Christmas bonuses and annual pay rises amongst public workers.
However, the government had already announced plans to spend all excess fiscal revenues - an amount expected to total around 2% of GDP.
At the same time, the government had also agreed a 25% wage hike for public employees next year, more than twice the 10% the IMF was prepared to go along with.
Meanwhile, the government and the IMF had also failed to reach agreement on a planned minimum wage increase from Lv120 ($1:Lv1.60) a month to Lv150.
Behind much of this debate is the perennial one of a government wishing to meet popular political targets, while the Fund wants to reign in spending. Cutting expenditure elsewhere was also the subject of much IMF concern too, as the figures for debt showed that while government borrowing has been falling in recent years, private debt has been booming.
This has gone hand in hand - naturally enough - with a boom in consumer credit and imports. While this has also seen some healthy-looking economic growth figures - second-quarter GDP expansion was around 6% - the result is a current account deficit problem that is now raising more and more eyebrows.
The Fund forecasts that the deficit will reach some 8.8% by the end of the year. For an emerging economy this is a very high figure, with many analysts seeing a current account deficit of around 5% as the upper limit under normal circumstances. Any more, and the economy begins to get into serious difficulties.
Yet despite this worry, there are also signs that Bulgaria may be in a position to sustain a higher deficit than some countries.
First of all, there is the strong level of foreign direct investment (FDI) in the country. On this there was recently some good news, with Deputy Prime Minister Nikolay Vassilev announcing at the official opening of the Invest in Veliko Tarnovo forum last week that FDI would reach $2bn by the end of the year. This would be a useful increase on last year's total of $1.5bn.
Secondly, there is the issue of consumer credit and its snowballing recent history. While few would deny that Bulgaria's banks have been a lot easier in loaning their lev in recent months, there is also evidence that this is now in decline.
According to a report in the paper Dnevnik on September 24, domestic lending slowed to Lv255m in August - down from Lv535m in July, Lv280m in June and Lv340m in May.
Central bank figures show that by the end of August, the combined net credit portfolio of the country's banks stood at Lv11.57bn. Consumer loans constituted Lv87.4m in that month, slightly less than the July benchmark of Lv92m. In addition, the banks extended Lv58.6m in home purchase credits in August, down on the Lv70m borrowed by homebuyers in the previous month. Home purchase loans now account for 6% of the banks' overall credit portfolio.
The decline has come after certain measures advocated by the IMF were put in force back in May. At that time, some Lv300m in government accounts with local banks was withdrawn and the minimum compulsory reserves commercial banks are required to deposit with the central bank were raised.
Further measures will come into effect on October 1, including a raising of the minimum reserve requirements on long-term deposits, which would go up from 4 to 8%.
Thirdly, at the same time, the banking sector in general is in a fairly healthy condition in terms of deposits. The deposit base increased by 30.7% in August, year-on-year, with total deposits in the system at the month's end amounting to Lv16.13bn.
Nonetheless, concerns are still high that unless more is done, the current account deficit could be a major headache. The rise in global oil prices is also likely to have a strong negative impact on this.
The Fund also predicts Bulgaria's gross foreign debt will reach 62% of GDP by the end of the year. The increase is due to private sector borrowing abroad, where cheaper financing is now more easily available.
Finance Minister Milen Velchev now says that the government will go along with the 1% spending cap for end of year fiscal expenditure, though he also said that many issues would be left until the next IMF visit, scheduled for late November or early December. Meanwhile, the Fund has agreed to the paying of Christmas bonuses and pensions.
It seems Bulgarians may not be in for such a cold winter then, although much remains to be done when the IMF next comes to town.