Budget 2014 - Unable to Boost Bulgarians' Income

Novinite Insider » EXPERT VOICES | November 19, 2013, Tuesday // 11:17
Bulgaria: Budget 2014 - Unable to Boost Bulgarians' Income Photo by Sofia Photo Agency

Financial Experts: Economic Recovery? Not Really

Financial experts have voiced disagreement with Bulgaria's Socialist-led government, which claims Bulgaria's 2014 budget will speed up economic recovery and help boost people’s income and living standards.

“There are small steps in the right direction, but they will not take us far. What really matters is whether those measures will be implemented and what their impact will be,” Mika Zaykova told the morning broadcast of Nova TV channel on Tuesday.

"The deflation syndrome is one of the major problems in this budget, it creates a Catch-22 situation. Low prices force producers to keep salaries low, which shrinks further consumption.

The situation is complex and it will take lots of efforts to inject life into the business activities and consumption. 

It is very alarming that the number of Bulgarians, who are working, but still remain poor, is increasing and now total some 1.7 million people," Mika Zaykova added.

The 2014 budget is based on an assumption of 1.8% growth, while the European Commission forecasts 1.5% after this year’s estimated 0.5%.

GDP rose 0.2 percent in July-September from a year earlier and shrank 0.1 percent from the previous three months, the first contraction in 15 quarters.

The subdued growth was a result of Bulgaria’s political instability compounding sluggish European Union demand for the country’s exports.

Mika Zaykova agreed with the other guest in the studio - former Social Affairs Minister Ivan Neykov – that the budget is a bit better, but not very different from last year's.

''There are positive steps, but people's living standards will not improve. People have to know that.”

IMF: Revenue Target Too Ambitious

The International Monetary Fund has expressed concerns over a too “ambitious” revenue target in Bulgaria's 2014 budget, but believes that the deficit target is achievable.

“We see some risks in terms of revenue -- it’s a very ambitious target,” Michele Shannon, IMF mission chief, told reporters in Sofia at the end of an annual review visit.

“Revenue may underperform if the domestic demand recovery is slower than projected, gains from administrative reforms are lower than budgeted, or, as projected by the mission, inflation remains subdued. Thus, expenditures may need to be restrained to achieve the deficit target.”

“Bulgaria is characterized in Europe and in the region by its low public debt levels, which is seen as a strength,” Shannon said.

“We believe that the government’s plans [to borrow a total of BGN 3.8 B on global and domestic markets next year] are consistent with prudent debt levels. We don’t see that as a key risk.”

The financial system remains stable, well capitalized, and liquid, but profitability remains low, the IMF said in an official statement.

Prudent supervisory policies have resulted in a high system-wide capital adequacy ratio of 16.9%, comfortably above the 12% regulatory minimum, and aggregate Tier 1 capital is 15.6%.

Gross NPLs are 17.2% of total loans but are well provisioned, and NPLs net of IFRS provisions are 10.6%.

Weak credit demand and strong deposit growth have boosted liquidity, allowing banks to further reduce external financing, the IMF said.

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