Balancing the budget is a major challenge for Bulgaria
Major challenge facing the Bulgarian economy is the balancing of public finances in terms of tightening public revenue in the context of the strong dependence of the budget by indirect taxes.
That says a new report by Industry Watch on the condition of the Bulgarian economy during the past two years in terms of the global financial crisis.
Priority for the Bulgarian economy is the low level of public debt and low zadazhnyalost households. However, according to the report „Industry Watch“ inner potential to increase productivity is not fully used.
Risks of deterioration of bank assets may be offset by relatively high levels of capital adequacy of banks and, if necessary – from established until fiscal buffers.
Beginning of the financial crisis in 2007 coincided with a period of rapid economic growth in Bulgaria, driven mainly by investment activity. Difficult to distinguish exactly how the dynamics of the Bulgarian economy was the result of fundamental factors related to increasing productivity and improving the business environment, and how much – only a consequence of the sharp credit expansion.
There are at least some indications that Bulgaria welcomes the crisis in a much more stable position of the vast majority of European economies (and U.S.), and the reasons for growth were not only „cheap money“, say experts.
Government conducted over the past 10 years a policy of budget surpluses, but in practice the Bulgarian state has almost no debt, unlike many developing economies in the region followed the loose fiscal policy.
Currency board arrangement did not allow the Bank to promote and facilitate the loan, assisting the creation of credit „bubble“ (as even last year, the Central Bank introduced a number of restrictions), and initial level of debt was extremely low.
For a relatively poor economy of the Bulgarian capital net inflow of foreign savings is directly related to growth. Tightening of money supply worldwide has resulted in a significant delay in the inflow of foreign capital into the country.
Foreign direct investment fell to 17% of GDP in mid-2009 at 29 percent in late 2007 and takes into account the sharp contraction of access to foreign loans. The new credit for real sector began to shrink even at the end of 2007, while commercial banks continues to attract growing new resource by the end of the second quarter of 2008
After the first effects of the crisis on the global economy began to gradually change the structure of Bulgarian exports – the share of consumer goods part of the expense of raw materials used for intermediate consumption in the manufacturing process.
Loss of jobs in an employment contract was concentrated in several sectors of the economy. More than 60%, or more than 56 thousand jobs have been destroyed in the manufacturing industry.
The rest were in the construction and trade. Cuts in employment were almost 100 percent in the private sector.
Adequate public policy should include a significant reduction of employees in the public sector, experts say.
Despite the recommendations of specialists to reduce public expenditure macroframe draft budget for the next four years caused the first clash in the cabinet „Borisov.
The project provides for the freezing of salaries and pensions for the next four years, which was the cause of protests from the Ministry of Labor and Social Policy.
Yesterday Prime Minister Boyko Borisov said that next year if the economy work, out of the crisis, stop smuggling, the trust back to Brussels and EU funds, we can talk about raising pensions and wages.
Borisov was asked to comment on the previous forecast of Prime Minister and BSP leader Sergey Stanishev that the salaries and pensions will be frozen. „He knows what is left and what is waiting for Bulgaria,“ Borisov said to Stanishev. The Prime Minister said that after the management of liabilities in the ruling coalition at the time the budget is over half a billion leva. He noted that pensions and wages have increased only a month ago, on July 1.
Finance