Bulgaria’s proposed Budget rewrite runs into turbulence

Written by on September 29, 2014 in Bulgaria - Comments Off on Bulgaria’s proposed Budget rewrite runs into turbulence

Changes proposed by the Finance Ministry to Bulgaria’s Budget 2014, providing for higher domestic debt and envisaging a four per cent deficit, have run into turbulence with some employer organisations opposing the rewrite while unions have asked for more time to consider their position.

A trilateral meeting of government, private sector organisations and trade union federations that had been scheduled to discuss the Budget amendments on September 29 was expected to be postponed to October 1.

Bulgaria currently is in the stewardship of a caretaker government pending the formation of a cabinet after early parliamentary elections on October 5. However, the caretaker cabinet commissioned a Budget rewrite as a matter of urgency to correct serious shortcomings in the one approved by the former parliament while the now-departed Bulgarian Socialist Party government was in power.

The proposed Budget amendments, posted by the Finance Ministry on its website, propose new government debt of up to 4.5 billion leva.

Speaking to public broadcaster Bulgarian National Radio on September 29, Association of Industrial Capital head Vassil Velev said that the proposed increase in domestic debt and the envisage four per cent deficit were not justified.

There were no compelling reasons for proposing such a drastic increase in the deficit, and “even less” for such a drastic increase in debt, Velev said, adding that the real figure for debt arising from the proposals was 6.5 billion leva, taking into account government guarantees.

Responding to the Budget rewrite’s gloomy forecasts for economic growth over the next two years, Velev said that 1.5 per cent growth in gross domestic product was “very good” considering what had happened in the past year, including events that had not been foreseen, such as the crisis in Ukraine, the events around Corporate Commercial Bank, as well as deflation.

Speaking to Bulgarian National Television, caretaker Social Affairs Minister Yordan Hristoskov said that the September 29 meeting of the national council on tripartite co-operation probably would not take place, given that unions and employers had asked for more time to acquaint themselves with the new estimates.

The first leader to respond publicly to the proposed Budget amendments was head of state President Rossen Plevneliev, who on September 28 told reporters that the proposed changes were essential because the wrong parameters had been set in the existing Budget 2014.

He said that the wrong figures had been put in deliberately, and this made updating the Budget even more necessary.

Plevneliev said that the caretaker government was doing nothing more than telling the truth, that revenue estimates had been unrealistically high while at the same time, targeted spending had been deliberately increased by the same amount.

The previous government had conveniently planned higher revenues so as to be able conveniently incur more spending, he said.

Plevneliev pointed out that the previous government had amended the Interior Ministry Act and promised the ministry’s 60 000 employees larger salaries and bonuses, even though there was no money in the Budget for this.

“We cannot accept the fact that in November and December, the Interior Ministry will be without pay, and so the Budget needs to be updated,” Plevneliev said.

The same applied to making it possible for funding for EU projects to go ahead, he said.

Plevneliev underlined that it would be up to the 43rd National Assembly, being elected on October 5, to decide what to do about the debt, support for the financial system and about spending, and he said that each party would have its specific arguments.

He backed the fact that the caretaker government had come up with a draft proposal, saying that it could not just sit back and wait while the Budget was incorrect and when there was financial instability.

Caretaker Finance Minister Roumen Porozhanov told BNR that the proposed Budget revision objectively reflected the state of the country’s finances.

He said that he expected that the tripartite meeting on September 29 would be postponed because unions and employers had been sent the materials about the proposed Budget update on September 27 while the regulations required two full days.

Porozhanov said that his ministry was already preparing amendments to the Bank Deposits Guarantee Act which correspond to the European directive on payment of deposits.

Last week, the European Commission took the first step towards an infringement procedure against Bulgaria for failing to adequately introduce legislation related to the directive on payment of deposits.

Current Bulgarian law allows payments on guaranteed deposits to begin only after the withdrawal of the licence of a bank. Brussels wants depositors to have immediate access to deposits.

The caretaker Finance Minister also commented on why the proposed Budget amendments provided options for covering liquidity problems in Bulgaria’s banks.

“Because if they occur and there is no money, there will be serious consequences,” he said. “So the draft sets aside about 5.8 billion leva ‘for any new funding’ in banking.”

The draft Budget amendments provide for several options for dealing with the Corporate Commercial Bank situation, depending on whether the bank’s licence will be revoked or whether it will be rehabilitated.

If the Corpbank licence is revoked, guaranteed deposits must be paid out, but the fund has less than the amount that would be required, only 1.6 billion leva. The shortfall could be made up by a bond issue but because of concerns that the entire issue may not be sold, provision was made for funding.

He said that the caretaker government held the view that leaving the bank deposit guarantee fund without sufficient funds would create more tension and mistrust.

The leader of the Bulgarian Socialist Party, Mihail Mikov, said that his party was refusing to send representatives to a meeting proposed by Finance Minister Porozhanov to discuss the proposed amendments to the Budget.

Mikov said that it was unconstitutional for the caretaker cabinet to initiate changes to the Budget.

He also questioned how the Finance Ministry had decided which parties to invite for discussions, saying that this prejudging the outcome of the October 5 parliamentary elections.

Yordan Tsonev of the Movement for Rights and Freedoms dismissed, in comments to local media, the invitation to political parties from the Finance Ministry as an “election stunt”.

Boiko Borissov’s GERB and the centre-right Reformist Bloc said that they would send representatives to the consultations.

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