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IMF Mission to Bulgaria and the revision of fiscal policy.
submited on 18.03.2005 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 18.03.2005 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The agreement between the IMF mission and Bulgarian government will affect mainly public investment expenditures. The listed capital of ‘Public Investment Projects’ corporation will be reduced from BGN 340 million to 220 million. Additionally, the government committed itself to cut another BGN 117 million in expenditures. This reduction will affect mainly other capital expenditures.
The overall impact of the revision will be a 12% reduction of investment expenditures compared to the plan in the Budget Act. From a private sector point of view, this will not directly transform into more funds available for private use since no taxes will be cut. Restrictions on expenditures will allow the government to continue piling up a fiscal surplus, which will be left aside for the new government to spend after the June general elections.
As a positive outcome of the mission we consider the agreement to refrain from spending of the money saved on reduced interest payments related to the USD denominated public debt. Any increase in current government expenditures would be in contradiction with the BNB-initiated monetary restrictions aiming at taming the expansion of consumption lending.
Negative reactions received from the IMF on the various ideas to boost public officials wages indicate a slight chance of the government undertaking these measures before the elections. We should also mention that productivity and labor costs analyses in the last few months show that opportunities for fast competitiveness growth based on low labor costs are to a great extent depleted. Any increase of wages in the government-financed sectors (as well as the expansion of government-funded subsidized employment programs) affect negatively private employers, reducing labor supply at market (lower) wages in certain sectors where productivity is still quite low.
The overall impact of the revision will be a 12% reduction of investment expenditures compared to the plan in the Budget Act. From a private sector point of view, this will not directly transform into more funds available for private use since no taxes will be cut. Restrictions on expenditures will allow the government to continue piling up a fiscal surplus, which will be left aside for the new government to spend after the June general elections.
As a positive outcome of the mission we consider the agreement to refrain from spending of the money saved on reduced interest payments related to the USD denominated public debt. Any increase in current government expenditures would be in contradiction with the BNB-initiated monetary restrictions aiming at taming the expansion of consumption lending.
Negative reactions received from the IMF on the various ideas to boost public officials wages indicate a slight chance of the government undertaking these measures before the elections. We should also mention that productivity and labor costs analyses in the last few months show that opportunities for fast competitiveness growth based on low labor costs are to a great extent depleted. Any increase of wages in the government-financed sectors (as well as the expansion of government-funded subsidized employment programs) affect negatively private employers, reducing labor supply at market (lower) wages in certain sectors where productivity is still quite low.
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