Cause and Effect in European Politics and Law

The Bulgarian budgetary deficit is reaching a billion and a half levs

Ralitsa Kovacheva, April 3, 2010

Only for the first two moths of the year the budgetary deficit has reached 1.4 billion levs (0.71 mn euro), according to the data of the Bulgarian Ministry of Finance by the end of February. The information shows a slowdown of budgetary revenues, mainly in the proportion of tax revenues. The Ministry of Finance is expecting the revenue collection from indirect taxes, especially VAT and excise duties, to be "tense".

The VAT revenues amount to slightly more than 684 million levs (350 million euro), which is 10.1 % of what has been planned in Budget 2010 and some 575 million levs (294 million euro) less than last February. The tendency of decreasing import, combined with increasing export, is also contributing to less revenues from VAT. The unemployment growth is making execution of planned tax revenues more difficult from individuals and social security contributions, the Finance Ministry notes.

In the same time, social and health insurance payments exercise enormous pressure on expenditure in the first two months of the year, compared to the same period of 2009, since the spending has increased by 816.3 million levs (418 million euro) or 22.2%. The main reason is the increase of pensions in July 2009. There is also growth in spending under the Social Security Code, like unemployment compensations, health insurance costs, etc.

Another two main groups of expenditure, which indicate significant increase, are maintenance spending and subsidies for no financial enterprises - the increase for January and February 2010 is by approximately 170 million levs more than last year and amounts to 333.2 million levs (170 million euro). Out of this sum nearly 200 million levs (102 million euro) is subsidies for farmers, which combined to the direct payments and payments on market measures for farmers in January and February, the total amount of funds for the sector reached over 330 million levs.

The higher maintenance spending, compared to the same period of last year, is due to phased payments of outstanding obligations of the state from the previous year. In January and February the government settled around 110-120 million in debts of ministries, departments and agencies.

Commenting on the data, the analysts from the consulting company Industry Watch reaffirmed their forecast of last year, when the budget was approved, that the expected revenues is too optimistic. Mostly this applies to VAT, which will probably be implemented up to 60% of what's planned because the investments are still not enough and, therefore, the import too.

With regard to the sources which the government can use to finance the budget deficit, according to Industry Watch, the fastest way is to use the government's deposits in the Bulgarian National Bank and in commercial banks - the so called fiscal reserve, which, according to the official data of the Ministry of Finance, by the end of February was 6.34 billion levs (3.25 billion euro), or 9 per cent of GDP.

The analysts are determined, that the potential deficit could not be financed with higher tax revenues, rather the government should urgently focus on public spending cuts. According to the experts, the planned savings of 450 million levs (230 million euro) are only a small part of what’s necessary.

If there is no significant change in fiscal policy on a 12-month basis the deficit would surpass the limit of 3% of GDP, set for euro zone membership - an aim, which from conservative started to look like an optimistic one, the analysts said. Up to 3 % of GDP budgetary deficit is allowed for non euro countries too, according to the rules of the Stability and Growth Pact. To achieve that aim, the deficit should not exceed 2 billion levs (roughly 1 billion euro). This means that the formal goal of the “anti-crisis package” - cutting the deficit by 1.6 billion levs - could be successfully achieved. And there is no room for compromises for the rest of the year, Industry Watch commented.

The finance minister Simeon Dyankov is convinced that the government’s measures are timely and effective. “The total additional revenues and reduced administration costs amount to 1.6 billion levs. This is a resource that is needed to keep up with the Budget", Dyankov said, when he presented the crisis measures to parliament. The Finance Minister announced also that for the first time since December 2008 there was a decline in unemployment on a monthly basis – according to the figures from the Employment Agency, the unemployment in March fell by about 4,400 people (10.14%). These figures are another signal that the economy is recovering, Dyankov said.