Bulgaria's Govt Bravely Ventures 3.6% Economic Growth in 2011

Bulgaria's PM Borisov (center) with Deputy PMs Djankov (left) and Tsvetanov (right) during Wednesday's Cabinet meeting that okayed the draft budget for 2011. Photo by BGNES

Bulgaria's Cabinet has approved the draft 2011 State Budget Act, which projects an economic growth of 3.6% next year despite much criticism by the business sector describing this figure as "unrealistic."

Bulgaria's Finance Minister Simeon Djankov, however, declared after Wednesday's meeting of the government his disagreement with such wide-spread criticism.

"The projected economic growth is achievable. Let's not forget the growth of exports. Bulgaria's export has been growing since October 2009, and by mid 2010 it started to grow by more than 40% month-on-month. Our estimates show that even if we register an economic growth of 0% in 2011, we should be able to keep our budget deficit below 3% meeting the Maastricht Criteria of the EU Stability and Growth Pact," Djankov stated.

The draft state budget for next year provides for a deficit of 2.5%, or about BGN 1.96 B.

The government is supposed to bring its state deficit below the 3% threshold required by the Stability and Growth Pact in 2011, as in 2009 it turned out to be 3.9% of GDP instead of the projected 1.9%, a violation that the center-right Borisov government blamed on secret public procurement contracts signed by its predecessors in 2008 and early 2009.

In June 2010, the Bulgarian Parliament approved the 2010 State Budget Revision Act, providing for a GDP growth of 1% in 2010, and a budget deficit of 4.8% on cash base, and 3.8% under EU accounting rules. The law revised Bulgaria's originally planned budget deficit of 1.9%.

As a result, in the summer of 2010, the EC set Bulgaria under the so called excessive deficit procedure. According to European Commission statements, Bulgaria should not have problems reducing its deficit below the 3% limit in 2011.

Speaking about the parameters of the 2011 state budget, the Finance Minister said the expected current account deficit for 2011 was 3.5%, up from the expected 3% in 2010.

Djankov bragged that the new budget provides allows the state redistribute a budget amounting to only 35% of the GDP, down from about 40% in the past few years.

"This is meant to demonstrate that the ruling party GERB is a right-wing party, espousing rightist policies," the minister declared.

At the same time, Djankov explained that the draft budget is increasing the funding for health care, defense, and interior affairs but the increases are mostly destined to cover some of the debts of the respective state institutions. More money is envisaged for infrastructure mostly as co-funding for EU-financed projects. Administrative expenditures are supposed to be smaller by BGN 160 M in 2011.

In addition to the draft state budget, Djankov also expressed his satisfaction with the planned changes of the tax legislation, which, in his words, are supposed to turn Bulgaria in the country with the lowest tax burden on households as of January 1, 2011.

The entire package of amendments to four taxation laws approved on Wednesday by the Cabinet will be tabled to the Parliament together with the draft budget for next year.

"We are not increasing any taxes or excise taxes, the only increases refer to certain excise rates where we have to reach the minimum EU rates," Djankov said pointing out that the excise on gas will be increased by BGN 0.01.

He praised the compromise decision to introduce a universal flat 9% VAT on tourism services in Bulgaria. At present, the VAT rate for group and organized travels is 7%, while the individual and alternative tourism are subjected to the regular 20% VAT.

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