site.btaUPDATED Institute for Market Economics Director: Recovery and Resilience Plan Is Chance to Avoid Belt-Tightening

The Recovery and Resilience Plan is a chance to avoid tightening the belts to meet the eurozone targets, and it is good to use it because there is a great need and all the other countries are much further ahead of us, Svetla Kostadinova, Executive Director of the Institute for Market Economics (IME), said in a BTA interview. She dwelled on the current socio-economic situation, the Institute's activities and the celebration of the 30th anniversary of IME.

"There is always an alternative to any policy. What distinguishes the Institute is that the alternatives we offer always rely on a few principles: low taxes to make the environment good for business; an increase in large social payments, but as much as possible to keep the budget in balance; and, of course, stopping large public policies or parts of them that have proven to have no effect," she explained.

In her words, the 3% deficit target that the Finance Minister said would be included in the state budget the new government is expected to draft, sounds good, but if the Recovery and Resilience Plan is not activated and starts to really work, it will be very difficult to achieve this.

Asked what she sees as thechallenges for the Bulgarian economy this summer, Kostadinova offers a long list. "More pressing challenges are Schengen, the eurozone, the budget. Big things are expected to be launched, which for a very long time could not get in order. We're talking about big reforms in education, health in particular - a sector that has an effect on everyone and seizes a lot of public resources, and there are still a lot of demands on it," she said.

She also said:

“Education in the field of worker competences is important. We see how because of population decline we cannot grow [economy-wise] because employers are not finding enough workers or skilled workers. It turns out that a significant proportion of those who are working have skills that are gradually starting to lose value in the labour market, and very few are being retrained. This is already having a major effect on the ability of foreign and domestic investors to develop. If we want to attract investment, we need to think along these lines too.”

“I cannot say that there is not an area in which there is a need for urgent reforms, in all of which we can single out two or three things that must necessarily be started.”

As for the Recovery and Resilience Plan, she says that Bulgaria has wasted two years in which most countries invested in infrastructure and skills development of their population, in education reform. "I mean, we couldn't take advantage at the time we needed it most, right after the colide pandemic, and I very much hope that this opportunity is not going to be completely lost, and so it can't have any real effect, especially on the ground." She says that some municipalities and regions are succeeding in attracting investors, retaining their people, providing good quality secondary education, but also regions that have no long-term success in any of these areas. "They need to be helped, including through this Recovery Plan."

Kostadinova believes that whatever is implemented from the final version of the Plan would be fine, even if 20% of the things that are written down and some of them already started are implemented, it would be better than zero.

"We just need to act, because these are the means that should really help countries not to shrink and not to make constraints that we will now have to make because of the eurozone entry targets."

Asked what unpopular measures the government will have to take meet eurozone and other targets, Kostadinova mentions raising some taxes that were lowered to offset the effect of the pandemic and the Ukraine war. "There are tax rate reductions that were concessions to certain sectors with the argument of recovery after the pandemic, but there is no longer any life logic for them to exist. There are public sector wage increases that, if necessary, could be implemented later. There are a lot of sectoral policies that everybody knows need to happen, but it's not the time because they're really unpopular."

She underscores the importance of decentralization, the ability for municipalities to have more resources to pursue real local policies - "something that the finance minister, whoever he is, has always claimed to support, but never in his mandate to make happen."

Kostadinova says that her organisation has a very active legal programme and lawyers who are involved in the whole debate about judicial reform and constitutional changes, again informally.