site.btaNew Government Debt of up to 4.5 Billion Lv Proposed in Budget's Updated Version

New Government Debt
of up to 4.5 Billion Lv
Proposed in Budget's Updated Version


Sofia, September 27 (BTA) - The Finance Ministry proposes a new
government debt of up to 4.5 billion leva in the updated version
of the 2014 National Budget Act. The draft update was published
on the ministry website on Saturday.

The Finance Ministry says in a press release that the draft
amendments to the national budget envisage a worsening of the
annual forecast for the deficit on a cash basis under the
Consolidated Fiscal Programme of up to 4 per cent of the
forecast GDP (3,152.3 million leva), and this evaluation covers
the effects of the measures for increasing the revenues'
collectability and for implementing advisable savings in the
budget's expenditures part, mainly under the projects of the
Growth and Sustainable Development of Regions Public Investment
Programme.

In the context of the proposed deficit increase and the
provision of a reliable buffer for liquid support, there is a
need of a new national debt and, respectively, a change in the
expected debt limits for 2014, which would allow an additional
debt financing to the amount of 4.5 billion leva within this
year.

The planned new debt includes an opportunity for debt financing
with a view to providing a liquid support to the amount of the
state aid approved by the European Commission - up to 2.9
billion leva - or taking out within the same limit a new
government debt for providing a loan to the Bank Deposit
Guarantee Fund of up to 700 million leva. The circumstances in
question require an increase of the permissible maximum amount
of the government debt towards this year's end of up to 22.5
billion leva (28.4 per cent of the forecast GDP).

An increase by 2 billion leva is planned in the maximum amount
of the new state guarantees which can be issued during the year.
This is related to the planned option of issuing state
guarantees in favour of the Bank Deposit Guarantee Fund.

The press release reads further that the 2014 budget position
cannot be stabilized in the short term with the measures
concerning revenues and expenditures, because the possible
corrective actions can meet only partially the negative effects
on the budget balance, caused by the non-implementation of
revenues and the unensured commitments for expenditures in 2014.
This is also the main reason for the draft budget update.

The Finance Ministry recalls that in September the macroeconomic
forecasts were updated so as to reflect the national economy's
current development, as well as the changed expectations from
the international environment until the end of 2014 and next
year. For Bulgaria, the updated forecasts envisage a negative
inflation of consumer prices of 1.1 per cent, while the previous
forecast was for a positive value of 1.8 per cent. The GDP
deflator is also expected to be negative and amount to 0.1 per
cent, while the previous forecast was for a positive value of
1.5 per cent. The revised forecasts for 2014 envisage an actual
GDP growth of around 1.5 per cent on an annual basis, which is
a slightly more pessimistic scenario than the one included in
the macroeconomic framework with the 2014 national budget of 1.8
per cent. Despite the small change in the forecast for the 2014
economic growth, the updated macroeconomic forecasts revise in
a negative direction the evaluations for GDP's nominal value for
this year by over 2.4 billion leva (from 81,582 to 79,178
million leva). The lower nominal value means a decrease of the
forecast for the economy's abilities to generate higher tax
revenues. This is related to the risks for the implementation of
the budget's revenues not just in 2014 but also in the mid
term, and requires the application of a conservative approach to
the planning of the national budget's revenues.

The reasons for the expected non-implementation of the revenues
are complex: macroeconomic, administrative, normative and other.
The forecast for the economic situation has been overestimated,
and the influence of the external environment's unfavourable
development has been underestimated. Some of the main factors
include the unrealistic expectations for basic macroeconomic
indicators at the planning stage, the still weak influence of
the recovering domestic consumption on the revenues from
indirect taxes, the deepening deflation processes in the
economy, and the overestimated effects of the measures aimed at
increasing the revenues' collectability.

PK/DS