Bulgaria’s Cabinet was set to table its Budget revision bill in Parliament in the first week of June, with Finance Minister Simeon Dyankov estimating that Parliamentary floor debates could be held as early as June 10.

The draft has not been made public, but according to media leaks, it envisioned a 3.2 billion leva Budget deficit this year, the equivalent of 4.8 to five per cent of estimated gross domestic product.

The revision became inevitable when the Cabinet’s efforts to cut costs and balance the books without Parliamentary approval were rejected by the Constitutional Court in March. Despite being drafted as "balanced", the 2010 Budget will now have a large deficit caused by the revenue shortfall, as domestic consumption is expected to remain low and any economic recovery would be led by an increase in exports, which do not generate value-added tax, the Budget’s single largest source of revenue.

Dyankov said on May 29 that the worst was over for Bulgaria: "The decline in industrial production stopped, exports are growing for the sixth month running, unemployment is falling to 9.7 per cent and the mortgage market is growing. There are signs that the country is climbing out of the crisis."

Consumers would not feel the impact of the economic recovery for at least another quarter or two, he told broadcaster Darik Radio. More good news came on June 1, when the Finance Ministry reported a Budget surplus of 369.6 million leva for April, reducing the cumulative deficit for the year so far to 1.3 billion leva.

However, the bulk of the surplus was due to the annual transfer that the central bank makes to the consolidated Budget in April. Budget revenues were down 1.6 billion leva compared to the first four months of 2009.

Call for frugality
The planned Budget revision was once again missing the opportunity for far-reaching reforms, Sofia think-tank Institute for Market Economics (IME) said on May 28, presenting its "alternative Budget revision". The think-tank has long been an advocate for lower taxes and reducing the Government’s role in redistributing resources.

"The changes in the 2010 Budget are legalising the huge Budget deficit that is being accumulated. The revision clearly show where the problem is – the changes envision 1.4 billion leva less revenue and 1.4 billion leva more spending compared to 2009. From that vantage point, it is difficult to talk of any belt-tightening in the public sector," IME said.

With the exception of interest paid on foreign debt and social benefits contributions made on behalf of state administration employees, which have remained mostly flat or decreased in the first quarter of 2010 compared to the same period of the previous two years, all other areas of Government spending – social benefits, maintenance costs, salaries, subsidies and capital spending – showed a marked increase, IME said.

The figures showed that the rising deficit was not solely due to the hidden costs of deals signed by the previous socialist-led government in the last months of its term, the think-tank said. According to Prime Minister Boiko Borissov, such contracts, amounting to 2.1 billion leva in 2009, were the reason for Bulgaria’s revised 3.9 per cent Budget deficit for last year.

Instead of real reforms, the Budget revision would increase spending, including from the fiscal reserves that Bulgaria is required to maintain in order to guarantee the stability of the Bulgarian lev’s peg to the euro, and still yield a higher deficit, IME said.

The think-tank’s suggestions were to scrap all additional spending measures and cut all Budget allocations to individual ministries by at least 20 per cent, the only exception being the Defence Ministry, where costs should be cut by 30 per cent. The budgets of the judiciary and Parliament, as well as public broadcasters, should be cut by 20 per cent and Budget allocations to municipalities, the Bulgarian Academy of Sciences and universities – by 15 per cent. This would result in savings of 1.75 billion leva and would not require dipping into the fiscal reserves, IME said.

Cutting costs should be accompanied by reforms, the brunt of which would be on reducing the role of the Government in education – fostering increased competition for funding among universities, as well as the pension and health care systems, where the state should offer taxpayers a choice whether to put at least some of their money in private hands.

"Growth cannot be generated through Government spending, especially in areas as social benefits, subsidies and support for bankrupt sectors and inefficient structures. The only way to exit the crisis early is a drastic cut in Government spending and focusing on economic growth," IME said.

Revision, take two?
The Cabinet’s revision draft was also criticised by Blue Coalition co-chairperson and head of Parliament’s economic policy committee Martin Dimitrov, who said on June 1 that increased spending and insufficient reforms could prompt a second revision before the end of the year.

The right-wing Blue Coalition has mostly backed the minority Government of Borissov’s GERB party, but the Coalition’s support is not mandatory for the Budget revision to pass in Parliament, since ultra-nationalist Ataka party is seen as likely to back the Cabinet’s draft. The Blue Coalition would formally endorse or oppose the bill only once it is made public, Dimitrov said.

Should the Cabinet fail to make a concerted effort to cut down the size of state administration and implement reforms, it could soon be forced to ask for the International Monetary Fund’s help, which is likely to demand the same measures now being postponed, Dimitrov said, as quoted by Dnevnik daily. According to Dyankov, the issue of IMF aid was not on the agenda and there were no talks being held to secure IMF funding.