Bulgaria Govt Approves Austerity Budget Draft for 2012
Bulgaria's government approved on Monday the draft budget for 2012, which aims at a budget deficit of 1,35% of gross domestic product, a growth of 2,9% and inflation of 2%.
"It's going to be a difficult year in financial terms," Finance Minister Simeon Djankov told reporters. "The budget is drafted in such a way that it will make sense even if economic growth is slower than the macro-economic forecast, down to 1 or 2%."
The government hopes that bringing down the budget deficit will shield the economy from the blows of the European debt crisis.
Spending is forecast at 35.4% of GDP, or BGN 29 B, while revenues are expected to total BGN 28.7 B, or 35.2 percent of GDP, according to the draft budget.
The government may sell up to EUR 1.0 B in bonds on the international markets next year to finance a bond that matures in early 2013.
It plans to issue BGN 1.2 B on the domestic market.
The government decided to increase the minimum monthly wage from BGN 270 to BGN 290 by the second quarter of next year.
There are also plans to redirect significant funds from the security sector to education and culture. More money has been allotted for science and justice, while the budget for security agencies have been cut.
The complete package of tax and budget policies of the cabinet of the ruling, center-right Citizens for European Development of Bulgaria party (GERB) were discussed last Friday during an emergency meeting of the so-called Three-Way Council between the government, the trade unions, and the business.
The trade unions demand an increase of the minimum monthly wage by BGN 20 to become effective on January 1, 2012, while the business is backing the April 1 deadline, proposed by the cabinet. In addition, employers want an increase of only minimum retirement pensions while the trade unions ask for the increase of all pensions.
The business and the trade unions were successful in convincing Djankov that the fiscal reserve must remain at the current BGN 4.5 B. Initially, the draft budget included the option for the fiscal reserve to go down to BGN 3 B, if needed.
After the cabinet gives the green light to the budget, it will be tabled for debates in parliament.
Two years ago Bulgaria's finance minister Simeon Djankov famously used a meatless pizza as a metaphor for the austerity 2010 budget. Local media have described budget 2012 as a meatless pizza too, which is however even not decorated with olives.
Driven by strong exports, as well as the good performance of the industry and services sectors, the Bulgarian economy has started to expand, but too weakly and unsteadily.
In the middle of October Bulgaria's government sharply revised downwards its economic growth forecast for next year from 4,2% to 2,5%, citing the slow-down in Western Europe and in particular Germany, the country's biggest trading partner.
The economy expanded by 2% in the second quarter on an annual basis, down by 1.4% in comparison with the previous quarter, which marked the first considerable increase in economic growth since the country plunged into a recession. The seasonally adjusted GDP edged up by 0.3%.
The government expects this year's growth to be 2.8%.
The International Monetary Fund recently downgraded its forecast for the 2011 growth of the Bulgarian economy to 2.5% from a projected 3% estimate made at the beginning of the year.
Meanwhile the European bank for Reconstruction and Development (EBRD) lowered its annual economic growth forecast for Bulgaria from 3.1% to 2.3% in 2011.
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