- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
submited on 08.07.2013 in category Regulated markets | Fiscal affairs | Privatisation | Political stability | Monetary policy | Macroeconomic developments
Surprisingly, the new government has announced plans to update the state budget for 2013. So far there is no draft amendment to the budget, but the prime minister and finance minister suggested the following arguments:
- Expected revenue shortfalls of at least BGN 500 million;
- Revealed contracted but not included in the budget expenditures of BGN 500-600 million;
- Payment of old debts to the business for BGN150 million;
- Quick recovery of VAT to business.
As already predicted in our annual analysis of the macroeconomic situation, these arguments have nothing to do with the declared "social package" consisting of new emergency measures. This was confirmed by the Prime Minister.
At the end of May, the situation with the budget implementation is as follows:
- For five months there is a surplus of BGN 45 million (BGN 65 million surplus as of May 2012). Only in May 2013 the surplus was BGN 330 million – more than the BGN 280 million in May 2012. After the worsening budget picture at the beginning of winter now there is visible improvement.
- Revenues increased by 7.2% annually for five months compared to6% planned growth for 2013.There has been some decline in excise duty, but revenues in April and May compensate the slowdown during the first three months. VAT revenues increased by 12%, despite the decline in the prices of raw materials and oil in April.
- The surplus is achieved despite the increase in pensions by more than 9% in April, ie for 2 months government pays higher pensions
- Unrecovered VAT as of May is at levels near historic lows
- The fiscal reserve is BGN 5.8 billion, even after payment of BGN 800 million debt on 6-month bonds issued in February (for the early reimbursement of agro-subsidies), as the fiscal reserve level is above the statutory minimum of BGN 4.5 billion and significantly above the February level (due to seasonal changes in the liquidity of state finances)
According to our estimates, the budget can be followed without an update. It should be borne in mind that it is not clear what is involved in these "spending commitments" that are not budgeted. On the one hand, the government has no right to conclude contracts for expenditure not provided for in the budget for the year, thanks to the stringent requirements imposed in 2010. On the other hand, comments and examples reveal that in fact the government wants to include new expenditure (projects) with the update, such as the start of infrastructure investment projects.
Currently there is no clear estimate of the increase in the deficit. One of the stated estimates says thatthe increase should be by around BGN 1.2 billion or from 1.3% to 2.8% of GDP. Last statement of the Prime Minister of "slight increase" implies keeping the deficit below the limit of 2% of GDP (approved by the new law on public finances, coming into force in 2014) or an increase of BGN 600 million to BGN 1.7 billion.
Financing of the deficit can only be done through new debt issuance. Currently (having in mind the small surplus until May), the fiscal reserve allows BGN 500 million gold to be used to finance the deficit. The remaining BGN 600 million will be newly issued debt - already BGN 1.4 billion were this year, and the budget law has provided a limit of BGN 2 billion, which means thatthe threshold will be utilized fully. If there is a larger deficit, respectively, new debt will have to be issued, and the parliament must approve the increase in the limit. In terms of total debt, the permitted limit at the end of the year amounts to BGN 14.6 billion. By May the debt stood atBGN 13.6 billion, but it will drop to BGN 800 million due to the repayment of the bonds in February, so the government is able to increase the debt by BGN 1.8 billion without requiringbudget update from parliament.
Interest rates on long-term 10 year bonds are still at low levels - 3.4 percent in June - but that was before the announced intention to update the budget.