Recent weeks have seen an increase in the number of gloomy forecasts for Bulgaria’s economy. As Western Europe plunges deeper into recession, the early hopes that the East of the continent would avoid the same this year appear to have evaporated, but Bulgaria’s Prime Minister Sergei Stanishev remains confident that the worst would bypass the country.

"I expect positive growth for now but much lower than the one we expected (initially)," he told Reuters in an interview published on March 23. The Government targeted 4.7 per cent economic growth in the 2009 Budget.

That figure has been criticised as overly optimistic from the start by opposition and macro-economists, with Finance Minister Plamen Oresharski and central bank governor Ivan Iskrov both saying earlier in March that the economy was not doing as well as the Government would like.

Despite mounting signs of economic slowdown, however, the Cabinet and the three-way ruling coalition backing it in Parliament, continue to reject calls for a wider fiscal stimulus. Government investment will top five billion leva in 2009, mostly on infrastructure, and Cabinet officials remain adamant that it would be enough to give the real economy the boost it needs.

But employer organisations and analysts have said the one-track approach was insufficient. "The existing plan lacks a tax stimulus, focusing mainly on infrastructure projects. Those are slow and will hardly have any big effect to stimulate employment," Simeon Dyankov, chief economist with the World Bank’s finance and private sector vice-presidency, told mass circulation daily 24 Chassa on March 17.

"The biggest danger for Bulgaria is a massive jump in unemployment. In some countries it has already doubled and in the US, in February alone, 650 000 people lost their jobs. That wave is coming towards Eastern Europe and unless there are urgent measures, the damage will be great," he said.

Dyankov became the latest analyst to call on the government to cut payroll taxes, specifically the mandatory social security contributions that employers are required to withhold from employees’ wages. At 22 per cent of salary, social security was one of the highest tax rates in the European Union, Dyankov said.

He quoted a recent World Bank study which said that reducing social security contributions by five percentage points would help businesses keep 130 000 people employed. The Cabinet’s entire anti-crisis plan targets creating 80 000 jobs.

Businesses are firmly in favour of payroll tax cuts, with a survey of 160 executives, carried by Bulgarian think-tank the Institute for Market Economics, showing that companies would lose 545 million leva, or 0.8 per cent of the target gross domestic product for 2009.

But as pension reforms ground to a standstill over the past year, the Cabinet cannot afford to cut those taxes, which are used to pay current pension benefits. Reducing social security contributions by five percentage points would put a dent of one billion leva in the budget of the National Social Security Institute (NSSI) in the first year alone, NSSI head Yordan Hristoskov said on March 23.

On the final straight of its four-year term, the ruling coalition has no plans to reshuffle the Budget, nor would it do so if the parties in the coalition win the Parliamentary elections in July. Stanishev’s Socialists are firmly against more cuts and so is the Movement for Rights and Freedoms (MRF), which could join them in government.

"We are not planning any social security burden cuts in the next term. It can happen after the pension system is reformed, but there would be no more mechanical reductions like this term," MRF MP Yordan Tsonev, chairperson of Parliament’s economic policy committee, said on March 18.