The Bulgarian Parliament has approved the 2010 State Budget Revision Act, the first mid-year budget update in the country since 1997.

A total of 120 MPs from the rightist ruling majority voted in favor of the revised budget, while 51 MPs from the opposition Bulgarian Socialist Party and the ethnic Turkish party DPS voted against.

Only 171 MPs out of a total of 240 were present and took part in the vote of the bill at first reading.

The GERB party government has sought to justify the revision with the reduced revenues as a result of the economic crisis, and its unwillingness to increase any taxes.

One of the main factors that necessitated the revision of Bulgaria’s 2010 state budget is the low level of domestic consumer demand, said Finance Minister Djankov at opening of the Parliament debate on the budget update.

The 2010 Budget Revision Act projects a 1% GDP growth in 2010, and a deficit of 4.8% of GDP on a cash basis and 3.8% of GDP under EU accounting rules, far wider than initial estimates.

Thus, the country’s consolidated fiscal framework will end the year with a gap of BGN 2 B. The current 2010 Budget Act provided for a 2010 deficit of only BGN 560 M.

It also provides for a 20% reduction of non-interest state spending; cuts in administrative expenses are expected to save BGN 900 M.

At the same time, however, the revised state budget will provide additional BGN 220 M for Bulgaria’s National Health Insurance Fund, BGN 116 M in subsidies for the tobacco producers, and BGN 142 M for social spending and benefits.

About BGN 200 M are set aside for funding infrastructure projects, while another BGN 660 M are envisaged for paying out debts owed by the state to private companies.

It also provides for a 20% reduction of non-interest state spending; cuts in administrative expenses are expected to save BGN 900 M, and for a deficit of 4.8% of GDP on a cash basis and 3.8% of GDP under EU accounting rules. It sets the fiscal reserve minimum at BGN 4.5 B, down from BGN 6.3 B.

The new law will also allow the government to spend money from the fiscal reserve with the only requirement to leave at least BGN 4.5 B in it at the end of 2010.

“It is crucial to stress that using funds from the fiscal reserve to a certain extent will not exert a substantial influence on the stability of the currency board because its proposed parameters preserve the levels from 2004 and 2005. A preemptive measure for raising funds is the option to issue state bonds worth up to BGN 2 B – in December 2009, we had envisaged only BGN 1.2 B,” said Djankov.

He outlined the three main pillars of the government’s approach to handling the state finances in time of crisis: first, no increases of direct and indirect taxes; second, increasing social payments and state investments by BGN 800 M at the expense of cuts in the state administration; third, expecting an economic growth of 1% and a deficit of 3.8% of the GDP.

“It is crucial to stress that using funds from the fiscal reserve to a certain extent will not exert a substantial influence on the stability of the currency board because its proposed parameters preserve the levels from 2004 and 2005. A preemptive measure for raising funds is the option to issue state bonds worth up to BGN 2 B – in December 2009, we had envisaged only BGN 1.2 B,” said Finance Minister Djankov when presenting the revised budget.

He outlined the three main pillars of the government’s approach to handling the state finances in time of crisis: first, no increases of direct and indirect taxes; second, increasing social payments and state investments by BGN 800 M at the expense of cuts in the state administration; third, expecting an economic growth of 1% and a deficit of 3.8% of the GDP.