Bulgaria's Rulers Adopt 2011 Budget Deficit of Almost 3% of GDP

The Bulgarian Parliament debated the final draft of the 2011 budget for 15 hours. Photo by BGNES

Bulgaria's Parliament has adopted at second reading the 2011 State Budget Act after 15 hours of debates that went late into the night.

The budget bill was adopted at second reading only with the votes of the ruling center-right party GERB and their allies from the nationalist party Ataka.

The major difference between the bill adopted at first reading is the increase of the projected 2011 budget deficit from BGN 1.96 B to BGN 2.16 B – or from 2.5% to about 2.75% of the GDP – which, if it materializes, would still be below the 3% threshold set by EU Stability and Growth Pact.

The higher deficit came from decisions to increase the funding for certain sectors – BGN 40 M more for education, BGN 10 M more for culture, BGN 10 M more the judiciary, among others.

In June, the center-right Bulgarian cabinet revised the state budget increasing its 2010 target for deficit to 4.8% of GDP on a cash basis and 3.9% of GDP under EU accounting rules, far wider than initial estimates. Final Eurostat data released recently showed that in 2009, Bulgaria's budget deficit actually was 4.7%.

The budget law projects state revenue of BGN 16.076 B in 2011 vs. state spending of BGN 18.23 B. Tax income will be BGN 14.353 B plus BGN 1.674 B from non-tax revenues. Both the opposition Socialist Party (BSP) and the rightist Blue Coalition demanded that the budget law should provide for higher projections of state income in 2011 but these motions were rejected.

Bulgaria's contribution to the EU budget will be BGN 811.479 M.

The projected GDP in 2011 is over BGN 77 B (EUR 39.3 B), which means a GDP growth of 3.6%, a figure the opposition and other critics slammed as unrealistic.

After growing by more than 6% in 2004-2008, the Bulgarian economy shrank by 4.9% in 2009, and is expected register a growth around 0% in 2010 (-0.1%, according to a recent forecast of the EC).

The main factor for the GDP growth in 2011 is expected to be an increase in exports, followed by an increase of domestic demand. Earlier this week, the European Commission estimated the expected increase in Bulgarian GDP at 2.6%, thus being less optimistic than the country's government.

The 2011 state budget also provides for raise BGN 2.35 B in foreign debt in order to finance the deficit. At present Bulgaria has one of the lowest levels of state debt in the EU – 14.9%, after in the period 1990-1997 it amounted to about 168% of the GDP; it shrank dramatically only after 2001.

An especially controversial provision adopted as part of the 2011 budget allows the government to "nationalize" the reserve of the National Health Insurance Fund – which amounts to BGN 1.5 B. Thus, the government will be permitted to use this money for both healthcare spending and expenditures in other sectors.

Deputy Finance Minister Vlavislav Goranov explained that the funds in question will be used to finance state expenditures because this is better option than a foreign loan, whose interest would cost the state budget up to BGN 100 M.

He declared that the decision cannot be seen as "nationalization" of the reserve of the National Health Insurance Fund because the Fund is a "publicly owned resource."

"It makes more sense – to use this money that otherwise won't be in use and will be kept at a low interest rate, rather than taken international loans on which we will spend BGN 100 M for interest," Goranov said.

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