Cause and Effect in European Politics and Law

The demography and the budget of Bulgaria

Adelina Marini, September 1, 2009

The sustainability of the public finances in Bulgaria is under serious threat in the long-term because of the expected serious deterioration of the demographic structure of population of Bulgaria. This is one of the risks, included in the mid-term fiscal framework of Bulgaria for the period 2010-2013, published today by the Bulgarian Ministry of Finance. According to the forecast, the demographic structure poses a serious risk for the fiscal policy because of the increase of the elderly people which will lead, in the long-term, to pressure on the budgetary expenses for pensions and healthcare. All this is under the condition that there are no urgent reforms in the social system and the education, pending to start for decades.

Another mid-term risk that enforces the continuation of conservative fiscal policy in Bulgaria, is the high deficit of the current account. For last year the deficit reached 25.3% of the GDP and for the first 6 months of 2009 it dropped in half. The expectations are the current account deficit to reach 11% for 2009. In the mid-term this deficit is expected to fall gradually reaching by 2013 7.2% of the GDP, forecasts the Bulgarian Ministry of Finance. Nevertheless, the mid-term fiscal framework indicates that it is the current account deficit that had been the main factor for the cautious fiscal policy led by the previous governments. This type of policy will continue.

The framework indicates also that the financing of the budget is another very serious risk, caused by the continuing drop of confidence of the investors in the economies of Central and Eastern Europe. Although there are no concrete numbers or measures, the Ministry of Finances forecasts that the debt policy of Bulgaria might be reoriented in the direction of shorter term State Securities emissions to avoid increase of the budget deficit and not to allow greater depletion of the fiscal reserves.

Unemployment is expected to increase up to 9.5% for 2009 and 11.4% for the next year. But the for period 2011-2013 the Ministry odes not quote any concrete numbers by indicating that the expected economic growth will be accompanied with an increase in employment. The expectations of the Ministry are that next year the Bulgarian economy will contract with 2%. Possible growth is foreseen in 2011 of 3.8%. For 2012 the expected growth is 4.8% and for 2013 - 5%.

The mid-term fiscal framework for the period 2010-2013 provides a thorough analysis of the effects of the EU funds. You can read about this later on euinside.