Bulgaria and Europe 2013-2014: Growth through reforms
In 2012, the gradual shrinking of budget deficits in the EU continued, but this is likely due to increased taxes and inflation, not because of limited government spending, which grew by EUR 165 billion annually. In almost all countries, the economic dynamics has been deteriorating, as the European economy contracted by 0.7% in the first quarter of 2013.
Over the past year we do not report a significant change in employment in Bulgaria, which remains about 2.9 million jobs. The Slow creation of new jobs is a major macroeconomic problem. According to data for real GDP, growth was 0.6% in the 12 months to March, reflecting the sluggish recovery of investment in fixed capital, which accelerated only in the last 2 quarters.
Social unrest and possible new waves of protests in the coming winter will increase pressure on the government to make decisions which can put the business in a hostile environment, such as possibly a disproportionate increase in electricity prices for business users. Active state programmes for temporary employment would cut the supply of labor and increase operating costs of the private sector. Additional risk is seen in the rhetoric of the new ruling coalition for discriminating against selected industries and manufacturers, which can lead to greater burdens on non-priority businesses.
The previous government was able to return the country to the path of fiscal stability, after 2 years of excessive deficit (ie more than 3% of GDP). About 60% of the accumulated cash deficit was covered by the fiscal reserve and only 40% by increase in public debt. As repeatedly warned, this possibility has been exhausted in the second half of 2012 and currently the only option for a larger deficit is to be financed through new loans. The state budget ended with a cash deficit of BGN 350 million in 2012 (0.4% of GDP), or about 3 times less than expected. At the beginning of 2013 budget performance faces a number of changes in tax laws, which put at risk the timely collection of revenue, and also - a political protest and uncertainty. It should be noted, however, that the deficit as of April was BGN 286 million (compared to BGN 217 million as of April 2012). The interim government fulfilled its functions to provide stability for the work of the revenue administration, and by the end of the year, the deficit is likely to remain within 1.3% of GDP. The improvement in some economic indicators gives reason for cautious optimism, but the economy is still stagnant and there are not enough factors to foster fast and stable growth.
In the medium term - in 2014 and 2015 several structural risks loom ahead. Firstly, the financial position of many state enterprises (such as the national railways and the state-owned energy companies) has deteriorated. Secondly, the European Commission may not recognize a portion of the costs of projects funded out of the operational programs.
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