Bulgaria’s Cabinet approved more Budget cuts at its second meeting on August 5, delivering on the campaign promises made by new Prime Minister Boiko Borissov.

The Government will save 1.16 billion leva by cutting 15 per cent of the budgeted spending for state institutions. The reduction comes on top of the 10 per cent buffer imposed by the Sergei Stanishev cabinet.

Several institutions were made exempt from the new cuts – the education and interior ministries, Bulgarian National Television and Bulgarian National Radio, as well as the budget of the judiciary branch.

Bulgaria faces a Budget deficit of 2.5 billion leva at the end of 2009 and the new cuts will reduce it by less than one half, but the Cabinet could not afford further cutbacks in spending, Finance Minister Simeon Dyankov said.

"We cannot reduce spending further because that would hurt consumption, which is why these reductions will not include scaling back salaries, pensions and social payments," Dyankov said, as quoted by Bulgarian news agency BTA.

Instead, the Government will seek to boost Budget revenue, in particular collection of excise duties and value-added tax. Bulgaria was second in the European Union when it came to the collection of VAT, so there would be no major reshuffling at the top of the National Revenue Agency, Dyankov said, but the Government needed to do a better job to collect excise duties at customs.

"We made a comparative analysis to last year. All of a sudden, even with a slowdown of economic activity, the collection of VAT and excise duties on fuels fell by two, two-and-a- half times faster, which makes no economic sense," Dyankov said, as quoted by Dnevnik daily.

According to Dyankov’s estimates, Bulgaria could boost revenues by as much as 1.2 billion leva by improving excise duties collection, mainly on fuels and spirits. The question was not whether, but how fast the changes could be implemented, he said.

A further source of funding could be the Bulgarian Energy Holding, but Dyankov said he would need some more time to get a better picture of the situation in the company that manages most of Bulgaria state-owned energy assets.

"I said it before, there is about one billion lost there every year. A billion in taxes that should be in the treasury, but is not," Dyankov said.

Bulgaria would not seek, for the time being, to borrow money from the domestic debt market to cover any Budget shortfall, he said.

Foreign debt was an option, given that the credit default swaps, the derivative instruments that measure investor perceptions of bankruptcy risk, have declined over the past month, showing markets’ confidence in the new Cabinet, Dyankov said. The Government had no plans to borrow from abroad this year, however, and could consider the issue at the beginning of 2010, he said.