Bulgarian Economists: Social System Tweaks Spell Disaster

Leading Bulgarian economists say the latest social security decisions of the cabinet are an abandon of their commitment to the country's constantly growing elderly population. File photo

The cabinet's decision to up payments for social security upon retirement by 3% and to not increase the required years of service is a serious threat to Bulgaria's economic stability.

The warning that the country is about to return to the difficult times of the 90s was voiced by a group of economists, united in the informal association "Independent Council for Retirement Reform."

The experts accused the government of a full abandon of their previous promises, and the labor unions (since they were the moving force behind the latest decisions) of pushing Bulgaria into a new crisis over the expectations the increased social security payments would lead to higher unemployment, reduced income, more "gray economy," and a new collapse of the retirement system.

Bulgaria's leading economists further lay blame on the labor unions for misleading Prime Minister, Boyko Borisov, by telling him social security payments are going up in other EU Member States.

Higher social security payments would not lead to higher retirement pensions, because when the retirement system itself is not reformed, the social security contributions are used only to finance current retirement payments and do not allow for additional savings, the experts said, adding the State cannot and should not abandon its commitments to the elderly, and appealing once again for reforms.

The above said reforms actually include reducing social security payments, which would stimulate the economy, and in long-term, lead to larger budget income and transfer of funds to the retirement system.

A temporary solution could be to finance the deficit in the retirement system through the sale of State bonds, the experts pointed out, blaming the cabinet of abandoning their own anti-crisis program from April, 2010 to fill the budget gap, including through privatizations, and instead choosing to update the budget deficit.

When talking about the hardships of the 90s, the economic experts were referring to the politics of the Socialist cabinet, headed by Zhan Videnov, deemed responsible for the severe economic crisis in Bulgaria in the 90s that escalated in the winter of 1996 – 1997, and eventually toppled the government.

The said riotous winter saw massive street protests in Bulgaria after the country's banking system rumbled to pieces and precipitous inflation emerged when the rate of the Bulgarian lev went down from BGN 60 for USD 1 to BGN 3000 for USD 1.

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