Bulgaria Cuts 2009 Budget Spending by BGN 1,2 B

Business » FINANCE | August 5, 2009, Wednesday // 14:30
Bulgaria: Bulgaria Cuts 2009 Budget Spending by BGN 1,2 B Bulgaria's new Finance Minister Simeon Djankov does not rule out issuing Eurobonds on international markets in a bid to cover the budget deficit. Photo by BGNES

Bulgaria's new center-right government has decided to cut public spending by an additional BGN 1,156 B and improve tax collection to avoid slumping into a budget deficit at the end of the year.

"There are no cuts in wages, pensions and social payments because this will deal another blow to consumption... but the cuts are in planned capital investments," Finance Minister Simeon Djankov told a news conference.

According to Djankov the spending cuts will cover no more than 46% of the gaping deficit. In order to achieve the balanced budget that the new government has been aiming at, it will also seek ways to bring in extra revenue.

The cabinet plans to cut 15% of all administrative costs in the second half of this year to help save BGN 1,2 B. Plugging loopholes in excise tax collection and curbing contraband is expected to help cover another BGN 1.3 B.

The new finance minister does not rule out issuing Eurobonds on international markets in a bid to cover the budget deficit.

He has lowered the country's 2009 economic forecast to a contraction of 6,3% against a growth of 4,7% that was envisaged by the macro frame of budget 2009.

Bulgaria faces a budget deficit for the first time in eight years. The IMF forecast a shortfall of 1% of GDP this year and urged the previous government to cut spending 20%.

Economists have warned that without the cuts the budget deficit, set at BGN 2.5 B at the end of the year, may put pressure on Bulgaria's currency peg to the euro.

The country has already entered recession with its economy shrinking 5% from January to March and contracting 1.6% in the fourth quarter on a quarterly basis.

Bulgaria's gross domestic product (GDP) contracted by 3,5%in the first quarter of 2009 on an annual basis, the first time that the country's GDP marked a drop year-on-year since the financial and economic crisis in 1997.

The former Socialist government claimed that Bulgaria is better prepared to weather the global crisis in comparison to other European countries thanks to its prudent fiscal policy and does not need IMF aid for now.

The center-right GERB party, which won the general elections on July 5, has given indication that it is likely to turn the IMF for help, something the previous government has resisted and most economists would applaud.

A final decision is expected to be taken in February, when the budget parameters and the impact of the public spending cuts the party plans to undertake will be clear.

 

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Tags: Simeon Djankov, minority government, budget, elections 2009, euro zone, exchange-rate mechanism

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