Industry Watch: Bulgaria Must Shrink 2011 Budget Expenditures

Industry Watch experts recommend to Bulgaria's cabinet to significantly shrink the expense part of budget 2011. File Photo

The current EU economic policy must respond quickly to the challenge of serious reforms to prevent the crash of the EUR, high inflation and permanent loss of trust in EU economies, experts from Industry Watch say.

The conclusion is stated in the Industry Watch latest report "Bulgaria and Europe amidst the Crisis: Macro Risks and Prospects for Major Industries in 2010-2011."

Developments in Eurozone countries showed that the initial plans for compensating the effects of the global crisis through fiscal stimuli reached their logical conclusion. Increased budget deficits in Greece, and even in conservative Germany, were penalized by global markets, lowering the uncertainty dominating during the crisis' transition period, according to Industry Watch.

In an optimistic scenario for European economies' development, the leading EU governments act decisively to secure fiscal discipline and reinstate trust.

The Greek crisis revealed the imbalances in Europe’s public finances. After the run on the EUR, the EUR 750 billion plan, the expected fiscal reforms, and the adjustment of the national budget for 2010, the prospects for the Bulgarian business changed significantly.

However, from the view point of Bulgaria's public finances, even with a moderate positive growth in the upcoming 18 to 24 months, stimulated by the positive developments in European markets, the budget revenues will not go up fast enough in order to compensate for the increased expenditures, according to Industry Watch analysts.

When export is the moving force behind economic growth, while new investments and credits stall, systems such as the Bulgarian one, counting on direct taxes - the Value Added Tax (VAT) and excises, cannot generate an adequate revenue increase. For this reason, experts recommend to Bulgaria's cabinet to significantly shrink the expense part of budget 2011.

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