Cause and Effect in European Politics and Law

Who and how talks about the budget deficit in Bulgaria

Adelina Marini, December 6, 2009

Since the new Bulgarian government has come to power, one of the main topics is the budget deficit. However, there is a significant difference in the way the government talks about the deficit and the independent economic experts. The deputy prime minister and minister of finance Simeon Dyankov describes the fight with the budget deficit as a success, although he does so while presenting data on a monthly basis. This approach does not give a clear picture about the overall situation and leaves the impression that this type of talking has other goals than informing about the real situation of the public finances.

On the contrary, the experts analyse the overall situation, not only on a monthly basis. Thus, according to the economist Petar Ganev from the Institute for Market Economy (IME), by the end of October, the deficit in the consolidated fiscal programme is over half a billion levs ( over 0.26 bn euro). "Yes, on a monthly basis the deficit might have been controlled, but there is no clear vision how the accumulated in the previous months deficit will be deleted". The expert also recalled the history of the budget for 2009 by pointing out that the consolidated fiscal programme was on a half a billion surplus, accumulated mainly because of the high revenues during the traditionally strong for the budget months - January and April (the payment of taxes).

Then, the elections came and the budget collapsed - June and July totally changed the situation in the Treasury. Deficits of over 370 mn levs (189 mn euro) for June and over 570 mn levs (292 mn euro) for July left the budget in red. In August, September and October the budget has been stabilized, although very hard and on a monthly basis but without deleting the evils done in the middle of the year.

Peter Ganev added that the new government, indeed, too measures by cutting expenses as well as by boosting revenues. But these measures could have been much bolder, especially with regard to the expenses. Focusing on revenues and the unblocking of EU funds for the country distracted the attention from the main problem, which is - cutting the large and extremely inefficient expenses of the state. While the government spoke of the dissipation of the previous cabinet, expenses had to be abruptly cut, like all programmes, defined as ineffective (even defined as misuse) by the new ministers had to be shut down and being restructured by making them "efficient". "Now it's too late. Now we have to think about Budget 2010 ... where the expenses again a record high ... and again we expect deficit", the economist from IME underlined.

According to Mr. Ganev, maybe now we are not accumulating deficit but it is not diminishing either. There is also a lack of clarity what will happen by the end of the year. A little more optimistic sound the data of Industry Watch Bulgaria. However, in their forecast they say they also lack information about the future. "The policy f the government related to restriction of expenses started giving results. In October we see a weak excess of revenues vs. expenses, which means that the budget is coming to a surplus of a little over 3 mn levs (1.53 mn euro) just in a month. Since the beginning of the year until the end of October we see an improvement of the balance of the budget where the expenses exceed the revenues by almost 546 mn levs (280 mn euro). It is still too early to say whether the government will succeed in balancing the budget in 2009. Based upon the current data, we remain optimistic about balancing the budget for this year and for 2010".

IME forecasts that it is possible because of the large indebtedness of the state towards companies, the budget to overload with more expenses by the end of the year. And Industry Watch is saying that the debt instead of decreasing is increasing.

The accumulated foreign and internal debt of the state by the end of October are approximately 9.3 bn levs (4.76 bn euro). For the 12 months until October 2009 the state debt is decreasing (largely because of installments of the internal debt) by around 4%. In the same time the fiscal reserve is around 7.8 bn levs (4 bn euro). An interesting fact is that a year ago the debt was less than the reserves of the state and now it is with almost 1.5 bn levs bigger. Measured on a net weight, the debt of the state (debt minus reserves) in fact is increasing for the past year, the data of Industry Watch show.

Looking at the analyses of the economists we could see the most obvious fact which is the lack of distinct data that could give a good idea of the situation of the budget deficit for 2009. This can be explained only with the fact that the government is either incapable to provide these data or that it does not want to do it because they will impair the image of the government as dealing strongly and effectively with the heritage of the previous government and th severe financial and economic crisis. However, it is important for the ruling parties to realise that there is no better remedy for the crisis and the recovery of the economy than the precise and true information. This information is needed not only by the taxpayers, the business and the analysts but also many foreign investors who take such data into account before deciding whether to invest in a country or not.