site.btaFinance Minister: Budget Update NeededDue to Revenue Underperformance,Blocked EU-funded Programmes

Finance Minister: Budget Update Needed
Due to Revenue Underperformance,
Blocked EU-funded Programmes


Sofia, October 1 (BTA) - Arguing for the need of a budget update
at Wednesday's meeting of the National Council for Tripartite
Cooperation, Finance Minister Roumen Porozhanov said it was
necessitated by serious disproportions in the 2014 National
Budget Act.

Caretaker Government's Position

Porozhanov identified three problems: revenue underperformance,
larger expenditures, and blocked financing under two EU
programmes. The budget was overambitious, with the revenue
projection at about 2,000 million leva more than in 2013, 1.8
per cent inflation and 1.8 per cent GDP growth.

This is an unrealistic target for revenue growth at a time when
the Customs Agency was not in a good condition, the Finance
Minister said. The Finance Ministry is trying to tighten control
- both at the borders and in various places around the country
- through mobile teams.

The main tax revenue problems are with import VAT revenues due
to the falling prices of raw materials and the fact that raw
materials from the EU are replacing those imported from third
countries, Porozhanov said. As a result, the value of exports
dropped 6.4 per cent from 2013.

The updated projections set deflation at 1.1 per cent, and the
GDP deflator is minus 0.1 per cent, compared with 1.5 per cent
in the earlier projection.

Real GDP growth is now projected at about 1.5 per cent year on
year. In nominal terms, GDP will be over 2,400 million leva less
than initially projected.

The Finance Minister recalled that the ministries' spending had
been reduced several times this year and they would be short of
funds by the year's end. That is why first-level spending units
should have their expenditures increased by 448 million leva,
including 150 million leva for the Labour and Social Policy
Ministry needed to expand social assistance due to the rise in
electricity prices.

Financing under Operational Programme Environment is expected to
resume in November but the State has to keep making payments so
that financing will not be lost.

The fiscal reserve is 8,200 million leva, said Porozhanov.

"We are submitting these proposals to show the problems which
will be faced until the year's end," said Porozhanov. The
deficit stands at 2,846 million leva, 3.6 per cent of GDP, at
the level of the national budget, and at 3,152 million leva, 4
per cent of GDP, at the level of the consolidated fiscal
programme. Eurostat criteria were used in calculating these
data.

He also said that the provision of assistance to a bank
institution must also be factored in into the deficit.

The proposed budget update includes a buffer for liquidity
support so as to ensure additional debt financing of up to 4,500
million leva by the year's end. Porozhanov said that when the
six-month conservatorship of a commercial bank expires, the
State may have to contribute to the Deposit Guarantee Fund. This
is part of the plan for restructuring of Corporate Commercial
Bank (Corpbank, which has been under conservatorship since
June), sent to the European Commission.

There are three scenarios, Porozhanov said. First, if the bank's
licence is revoked, the Deposit Guarantee Fund must pay an
estimated 3,600 to 3,700 million leva, he said. The shortage
will be 1,600 million leva, which can be raised through a
domestic bond issue. That is why the government-guaranteed debt
is projected at up to 2,000 million leva. Second, the central
government budget may provide 700 million leva to the Fund, and
the remainder may be raised through a bond issue. Third, a
rehabilitation plan may be implemented. "We hope the registered
interest is serious but we cannot rule out that the State may be
asked to provide extra liquidity if there is pressure at the
bank's reopening," said Porozhanov.

The Finance Ministry has concluded that the above scenarios call
for an increase in the maximum permissible government debt to
22,500 million leva (28.4 per cent of the projected GDP) as at
the year's end.

Employers' and Trade Unions' Position

A radical budget update, especially one as significant as the
proposed update, is a task that can be handled only by the next
government and a working Parliament, employers and trade unions
said at the meeting of the National Council for Tripartite
Cooperation (NCTC).

The budget update cannot be viewed as a routine expert task
which the caretaker cabinet can prepare and submit to the next
government and parliament, said Vassil Velev, Chairman of the
Bulgarian Industrial Capital Association. He was also expressing
the views of the Bulgarian Industrial Association, the
Bulgarian Chamber of Commerce and Industry, the Confederation of
Employers and Industrialists in Bulgaria, the Confederation of
Independent Trade Unions in Bulgaria (CITUB), and the Podkrepa
Confederation of Labour.

Velev urged the Finance Ministry to come up with a report and
analysis of budget implementation in the first nine months of
the year and with information on the fiscal reserve. A draft
update with a budget deficit exceeding 3 per cent of GDP should
not be proposed and adopted, according to the social partners.
It is unacceptable to issue new government debt, especially when
there is no publicly accessible information and options for
solving the problems at Corpbank and Victoria Commercial Bank,
and with the current composition of the Governing Board of the
Bulgarian National Bank.

CITUB President Plamen Dimitrov stressed that the trade unions
do not approve of an increase in debt and want the update to
reflect just the accumulated budget deficit, not scenarios for
rehabilitation of bank institutions.

The trade unions and employers want the proposed budget update
to be withdrawn and a new expert proposal to be prepared within
the scope they defined.

Reacting to this, Porozhanov said the next government would make
a decision on the budget update and Parliament would put it to
the vote, but without an analysis prepared by the caretaker
government, the procedure will be delayed. He said that the
caretaker cabinet did not want to the update to exceed the 3 per
cent budget deficit threshold set in the Maastricht criteria,
but that, in fact, it had already been exceeded. Without a
budget update proposal now, the drafting of the 2015 budget will
be delayed, and the ministries will be unable to make payments
at the year's end.

The NCTC's decision on the proposed amendments to the National
Budget Act says that the representatives of employers and trade
unions do not support them. On a suggestion by Deputy Prime
Minister and Labour and Social Policy Minister Yordan
Hristoskov, the social partners accepted the wording that they
"agree that the budget must be updated but recommend that the
national budget deficit should be at or below 3 per cent".

The NCTC meeting continued with a discussion of the budget of
the National Health Insurance Fund.
LI/DD