Bulgarian Parliament Endorses Plans to Aid Indebted Local Governments

Bulgaria’s central government will be able to extend interest-free loans to cash-strapped local governments, the Parliament has decided.

To be eligible for interest-free financing, indebted municipalities will have to show plans for their financial recovery that will have to be be endorsed by the finance minister, according to changes to the Public Finances Act passed on second and final reading on Wednesday.

The finance minister will have the power to set conditions for extending the loans and suspend financing should the recovery plan fail to meet its targets.

Opposition Socialists said the changes would help the government increase its financial leverage over indebted municipalities to achieve political goals.

According to GERB, the dominant partner in the minority coalition government led by Prime Minister Boyko Borisov, the changes will boost transparency in public financing.

The combined outstanding debt of local governments in Bulgaria exceeded BGN 210 M (EUR 105 M) as of end-January 2016, according to finance ministry data. The outstanding debt of some municipalities totalled as much as 90% of their budgets as of end-2015.

Tax collection rates below the country’s average and insufficient revenues were the main reason why almost 300 municipalites in Bulgaria relied on funding from the central government last year, according to dnevnik.bg.

Bulgaria’s consolidated budget, which comprises the central government budget and the budgets of the municipalities, was expected to show surplus of BGN 2.3 B at the end of April , equivalent to 2.6 % of 2016 GDP projected by the government, the finance ministry said last month.

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