site.btaMedia Review: April 18

VOTE OF NO-CONFIDENCE IN CARETAKER CABINET

Speaking on the morning show of the Bulgarian National Television, former constitutional judge Plamen Kirov said that ousting a caretaker government is not impossible, although it should not happen. According to him, there are various hypotheses under which it can be implemented, but in time it will be overturned by the constitutional court. "Anything is possible in Bulgaria. After yesterday's scandals in the National Assembly one possible scenario is for the parliamentary group of CC-DB to secure a majority with the opposition and replace Rosen Jeliazkov (Speaker). The new speaker will include on the agenda a procedure for a vote of no confidence. And later let GERB and MRF complain to the Constitutional Court, " Kirov explained. 

According to him, the vote will have legal value, but temporary. However, it will change the situation. "This cabinet, which will fail the no confidence vote, will continue to operate, but the president will not be obliged to appoint new ministers in place of the proposed replacement ministers," Kirov said. According to him, it is clear that such a vote would not pass the Constitutional Court's test, but it would not happen quickly. "It will have legal value until the ruling of the Constitutional Court. And the Constitutional Court does not act very quickly, in general, the Holy Synod acts faster than our Constitutional Court, so such a decision will have a legal effect, but then the decision will be declared unconstitutional, "explained Kirov.  Yesterday, the parliamentary groups of Vazrazhdane, BSP and There Is Such a People collected 67 signatures for a vote of no confidence - for the first time against a caretaker government as one of the reasons is political interference in the work of the cabinet. 

Meanwhile, President Rumen Radev did not say whether he would sign the decrees on the replacement of two ministers – of foreign affairs and agriculture, stressing that he wanted to discuss the motives of caretaker Prime Minister Dimitar Glavchev first.  However, he opposed the nomination of Daniel Mitov for the post of foreign minister with the argument: "I have the right to have some responsibility to preserve decency, political in this model. So far, in my caretaker cabinet, I have not appointed a deputy chairman of a political party." "In an effort to impose a complete monopoly on power, the parties that voted the amendments to the Constitution have rendered meaningless the institution of the caretaker cabinet," Radev said, recalling that party meetings give orders and threaten the caretaker prime minister, referring to the statement of GERB leader Boyko Borisov, who criticized the fact foreign minister Dimitrov for trying to change the foreign policy course of the country. 

EUROPEAN ELECTIONS

TrudNews writes that half of Bulgarians declare their readiness to vote in the upcoming elections for European Parliament, citing a Eurobarometer survey conducted between February 7 and March 3 in all EU member states. By comparison, the total percentage of EU citizens who said they would vote for the European Parliament is 71%. Some 60% of respondents in all member states say they are interested in voting in June, which is 11% more than in the previous elections in 2019. The share for Bulgaria in this indicator is 40%, which is an increase of 5% compared to 2019. Eight in ten respondents in the EU agree that voting is more important given the current geopolitical context. In Bulgaria, 62% are of the same opinion, which puts the country last among the Member States.  

European citizens expect the main topics in the election campaign to be the fight against poverty and social exclusion (for 33% of respondents) and support for public health (32%). The same priority questions are raised by the Bulgarian respondents, the percentages being 48 and 34 respectively. Some 71% of Europeans believe that EU membership benefits their country. This opinion is expressed by just over half of the Bulgarian respondents - 52%, which puts Bulgaria last among the EU members.

POSTPONEMENT OF LIBERALIZATION OF HOUSEHOLD ELECTRICITY MARKET

Capital Daily writes that ahead of the elections, MPs postponed for a year the abolition of regulated electricity prices, The decision of GERB, the Movement for Rights and Freedoms (MRF), the Bulgarian Socialist Party (BSP) and Vazrazhdane could completely block payments for BGN 1.3 billion under the National Recovery and Resilience Plan. This step means a new cross subsidization of coal plants through household bills. 

The biggest energy reform, which was adopted in the autumn of 2023, will be postponed for another year. Instead of July 1, the liberalization of the wholesale electricity market will take place from July 1, 2025, which means that the artificial maintenance of coal capacity will remain for at least another 12 months. The surprise decision was voted at first reading at a meeting of the parliamentary energy committee on April 17. It was initiated by the MPs of BSP, GERB and MRF, but in effect was supported by all parties with the exception of CC - DB. The motives are that at the moment there is no readiness for the smooth transition from a regulated to a free electricity market, that there are no funds in the Electricity System Security Fund, and that there is no mechanism to provide liquidity to electricity distribution companies under the new model of purchases from the exchange. 

In reality, however, it is primarily about pre-election populism. MPs will be able to say that they have provided fixed prices for household electricity. Also, the postponement of the reform will allow the state to buy energy from the Maritza East 2 TPP by covering its full costs - something that could not happen through the exchange. This will allow the state power plant to agonize for another year, but there will be no cuts of energy and miners in the complex. The decision will also have a greater effect that goes beyond energy: the country is unlikely to receive the expected BGN1.3 billion under the National Recovery Plan, as energy reform is one of the mandatory ones. That is why new talks with Brussels on the issue will be necessary. At the same time, the convenient time for the introduction of the liberalization of the electricity market is missed, as now exchange prices are very low, even below fixed ones, and in fact there was an opportunity for households to receive lower tariffs. 

EFEFCT OF POLITICAL UNCERTAINTY ON ECONOMY

Capital Daily has summarized forecasts by leading financial institutions in connection with the latest political developments in the country.  

The main takeaways are that political uncertainty is hampering Bulgaria's economy.  The new forecasts for GDP growth and inflation are down. Consumption will continue to be the main driver of the economy this year, and increased political uncertainty is likely to have a negative effect on investment. The lack of a regular functioning government also carries the risk of another postponement of the country's entry into the euro area for 2026. 
 
In its latest forecast, the Bulgarian National Banka has revised down GDP growth for this year compared to December by 0.3 percentage points down to 2.2%. The central bank is also lowering its inflation projections to 2.3% at the end of the year and 2.7% at the end of 2025.  
 
"The economic outlook for 2024 will continue to depend on developments in the euro area as well as national factors. The most likely scenario for the euro area is a slight slowdown in growth to 0.4% (0.5% for 2023) with inflation of 2.4%. Against this background, Bulgaria's economic position looks better. Our expectations are growth to be slightly higher than last year and to reach 2.3% with falling average inflation to 4.2%", UBB Chief Economist Emil Kalchev predicted. 
 
UniCredit Bulbank said that it has revised down its forecast due to political uncertainty UniCredit Bulbank's economists also recently revised their expectations for GDP growth this year to 2.5% from 3%  three months ago, as they now expect weaker investment growth. The reason is "the negative effect that increased political uncertainty is likely to have on investment." According to analysts, Bulgaria's accession to the euro area will be postponed until early 2026, "because it requires a stable government that actively works to achieve the country's strategic external priorities." 
 
The transition to a new government is expected to slow down the decision-making process in the public administration. "This means that it is possible to expect further delays in infrastructure projects and the implementation of structural reforms. The latter is bad news not only for GDP growth this year, but also for the country's chances of successfully addressing the remaining structural weaknesses that hamper its long-term social and economic development," the analysis said. And also that Bulgaria will receive only one of the tranches under the Recovery and Resilience Plan this year, and the absorption of funds under the multiannual financial framework will also be temporarily delayed. "This is because attention is expected to focus on the preparation of the early parliamentary elections and the related campaign, leaving less time for other priorities, including the implementation of the measures needed to unlock the significant amount of European funding that Bulgaria is entitled to receive under both the Recovery and Resilience Plan, and under the Multiannual Financial Framework'. 

Another institution that recently revised its forecasts, the World Bank, also cited political uncertainty as one of the risks to Bulgaria's development. According to the World Bank, even if the banking sector remains stable and highly profitable, the ongoing credit expansion is fueling fears of an inflating credit bubble in construction. The latter, according to them, could lead to "a painful correction and growth of non-performing loans". The analysis shows that last year, nominal wages continued to grow at double-digit rates on an annual basis in 2023, thus the growth of the real average wage approached 5%, exceeding labor productivity growth. And this, according to them, feeds concerns about the country's competitiveness. 

ECONOMY

TrudNews reports that in January-February Foreign Direct Investments in the country amounted to EUR 260 million, according to central bank data. This is by EUR 497 million, or 65.6% down from the same period last year. The attracted share capital (contributions of foreign companies to the capital of Bulgarian companies and payments on property transactions in the country) in the first two months of the year amounted to EUR 16.6 million. It decreased by EUR 44.8 million. compared with the like period of 2023. Net investments of foreign citizens and companies in real estate in January and February were EUR 0.04 million against EUR 3.2 million a year earlier. Reinvested earnings in January and February were positive, amounting to EUR 270.8 million compared with EUR 758.3 million a year earlier. The change in net liabilities between companies with foreign participation and foreign direct investors is negative and amounts to EUR 27.2 million against EUR 62.5 million a year earlier. This means that Bulgarian companies return more loans to parent companies abroad than the new loans. 

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Capital Daily writes that Parliament has expanded the list of municipal investment projects, after municipalities supplemented, changed or added new ideas at the end of March and they were submitted to the Ministry of Finance and the National Assembly. Thus, with the amendments to the Budget 2024 Act, which are likely to be finally adopted on Thursday, the number of projects increases by 631 to 2,258. The total value of the approved projects increased to BGN 5.1 billion and the estimated budget for 2024 becomes BGN 3.7 billion (excluding European projects). 

The State Budget Act allows three times a year for the projects of the municipalities to be reviewed and the list supplemented and revised. And the argument is that some municipalities have not met the original deadline and this has caused concern among mayors and MPs that projects of certain municipalities will be financed. March was the first possible date for changes, and there will be two more by the end of the year. 

During her first hearing in parliament, caretaker Regional Development Minister Violeta Koritarova announced that a special new department has been created at the Ministry of Regional Development, which deals only with these projects. “The Ministry does not rank the projects, only checks the relevance," Koritarova said. According to her, about 20% of the submitted documents have inaccuracies and omissions. Neither does the Finance check the projects for appropriateness, but monitors everyone along the chain to pay their debts to the state, it became clear from the statement of caretaker Finance Minister Lyudmila Petkova. Funding will not be unlimited and each municipality will have the right to receive between BGN 10 and 100 million from the budget per year for their projects, depending onits size. 
 
Currently, there are still uncertainties among mayors about the scope of the program as well as about the necessary documents and the stages of implementation. The mayors have also identified differences between the estimated values of the priority projects and the detailed bills of quantities subsequently developed.