Bulgaria Budget deficit widens to 995.6M leva in June
Bulgaria’s consolidated Budget deficit for the first half of 2014 was 995.6 million leva, or about 509 million euro, compared to only 7.6 million leva in the same period of last year, Finance Ministry data showed. In June alone, the consolidated Budget deficit increased by 107 million leva, compared to a deficit of 53.1 million leva reported in June 2013.
The latest figures will give new ammunition to the numerous critics of the outgoing Plamen Oresharski administration, which resigned last week to pave the way for early elections. In recent days, during Parliament debates on a Budget revision bill, MPs for opposition party GERB repeatedly recalled their arguments from last year that this year’s budget revenue targets had been arbitrarily increased for the sole purpose of justifying increased spending.
This has not stopped Oresharski and outgoing Finance Minister Petar Chobanov from claiming that the Budget was sound and the only reason to decrease the revenue target by 500 million leva, as proposed in the Budget revision bill, was to “offer more flexibility” to Bulgaria’s next government. Chobanov even went as far as to say that if the current cabinet had stayed in office for the full year, the Budget revision would have been unnecessary.
The Finance Ministry blamed the increased deficit on higher social spending and government co-financing for projects funded with EU money. The halted EU funding under operational programmes for regional development and environment accounted for 478.3 million leva – certified expenditures by the government that would be recouped once the European Commission released the funds, the ministry said.
A further reason for the higher deficit was that the revenue figures for the first half of 2013 had been boosted by one-off VAT payments, while this year the government spent higher amounts on prompt VAT repayment (to companies that had higher VAT tax credits than VAT payments), the ministry said. The respective amounts – 65 million leva in one-off VAT revenues last year and 70.6 million leva more in VAT repayments – would only account for 13.6 per cent of the total Budget deficit so far this year.
The Budget figures so far have raised doubts that the deficit target set by the Oresharski cabinet – 1.8 per cent of GDP or an estimated 1.5 billion leva (possibly less if economic growth falls short of the amount envisioned in the Budget’s macroeconomic framework) – would be met.
Traditionally, the Budget revenues get a strong boost in April from income tax receipts but this was not the case this year, when the surplus in April was only 9.5 million leva, compared to 509.2 million leva in April 2013. This was doubly surprising given that this year’s April figures should have received an additional boost because the self-employed and practitioners of liberal professions were also required to pay their taxes for the last quarter of 2013 in April, as opposed to the end of the year, as was the practice previously.
On the other hand, spending traditionally goes up in the final months of the year to cover seasonal expenses, such as supplementing the budgets of state institutions that are facing a deficit.
EU rules allow member states to run deficits of up to three per cent, which in Bulgaria’s case would be about 2.4 billion leva – a figure that appears well within reach – before triggering the bloc’s budget monitoring system and excessive deficit proceedings.
But that does not take into account the prospect of additional deficit spending should Bulgaria decide to bail out the country’s fourth-largest lender, Commercial Corporate Bank, which has been under the central bank’s administration since June 20. The state of its credit portfolio remains uncertain, as the Bulgarian National Bank is yet to provide a clear picture of the bank’s assets, and political parties have been reluctant to approve a full bailout without knowing all the facts.
The numbers
Consolidated Budget revenues in January-June stood at 14.17 billion leva, roughly 45.7 per cent of the amount targeted for the full year – or 4.7 million leva higher than at the same point of 2013. The Finance Ministry said that this did include dividend payments from state-owned companies, which are operating under new deadlines in 2014, with that revenue now due later in the year.
Tax revenue collected in the first four months was 11.18 billion leva (46 per cent targeted for the year), compared to 10.95 billion leva in the same period of 2013, an increase of 2.7 per cent.
VAT revenue collected in the first six months of the year was 3.49 billion leva, or 42.1 per cent of the full-year target – a troubling development given that VAT revenue accounts for 47.8 per cent of the tax revenue targeted for 2014 and 43 per cent of the total revenue targeted in the state Budget.
Budget spending in January-June, by comparison, increased to 15.17 billion leva (including Bulgaria’s contribution to the EU budget), seven per cent higher than at the same stage of last year, or roughly 46.7 per cent of the full-year target.
(Photo: Alessandro Paiva/sxc.hu)
