Bulgaria Downgrades Economic Growth Forecast over EU Recession Fears

Business » FINANCE | November 16, 2011, Wednesday // 13:06
Recession Fears  Downgrade Bulgaria's Economic Growth Forecast: Bulgaria Downgrades Economic Growth Forecast over EU Recession Fears Finance Minister, Simeon Djankov, a strong supporter of strict fiscal discipline, says that fiscal security is the base of national security. Photo by BGNES

The forecasted growth of Bulgaria's economy in budget 2012 has been updated from 3.7% to 2.3%, Finance Minister, Simeon Djankov, announced Wednesday.

Djankov spoke during debates in the Parliament on the draft budget 2012 in the presence of his colleagues Culture Minister, Vezhdi Rashidov, the Minister for the Management of EU Funds, Tomislav Donchev, Environment Minister, Nona Karadzhova, Social Policy and Labor Minister, Totyu Mladenov, and Education Minister, Sergey Ignatov.

The Finance Minister presented the macro-frame of the budget for 2012 to be passed by the Members of the Parliament at first reading. He said the new economic growth forecast ranks Bulgaria 5th in the European Union with an average EU growth forecast of 0.6%.

"Our main task becomes more and more clear – to continue the policy of fiscal discipline. The likelihood of recession is strong, for this reason all expected parameters of the budget have been downgraded. We must act and be even more conservative than the conservative 0.6% EU growth forecast, and avoid risks," Djankov told the MPs.

According to the Minister, further shrinking of the deficit would be achieved by maintaining the same level of direct taxes while the threshold of the fiscal reserve would be kept at BGN 4.5 B. The deficit fiscal goal is very conservative – 1.3% of the Gross Domestic Product (GDP).

Inflation, triggered mostly by internal demand, is forecasted at 2.5% by the end of 2012; the unemployment rate will remain at the 2011 level, while revenues will reach BGN 29 B or 35.2% of GDP.

Djankov further stressed that economic slowdown would lead to slowdown in exports while EU funds would be the main mean of financing, especially for infrastructure, science and education, adding the budget provides for diversified sources to turn decision making more flexible.

The forecast for direct foreign investments is 2.8% of GDP; revenues in the republican budget are estimated at BGN 17 B with BGN 15.4 B from taxes.

Bulgaria's deposit to the EU is BGN 895.7 M; the Council of Ministries subsidy is BGN 51.8 M; the Interior will get BGN 898 M, which is less than 2011; the budget of the State Agency for National Security (DANS) is also reduced while the funds are being redirected to education.

"Internal demand would be the top moving force behind economic growth in 2012. The debt policy will be conservative and debt would remain below the maximum new debt, allowed in the budget. Fiscal security is the base of national security and it becomes a more and more important factor in Europe," the Minister concluded.

The opposition, left-wing Bulgarian Socialist Party (BSP) of the right-wing Blue Coalition, the ethnic Turkish Movement for Rights and Freedoms (DPS) and the far-right, nationalist Ataka already said they will not vote for the draft budget.

The ruling, center-right Citizens for European Development of Bulgaria party (GERB) is counting for the budget approva on its own MPs, the independents and, reportedly, on the MPs from the conservative Order, Law and Justice Party (RZS) – one of the strongest opponents of GERB until the October elections.

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Tags: unemployment rate, inflation, revenues, RZS, Blue Coalition, Ataka, DPS, BSP, GERB, inflation, GDP, deficit, economic growth, bond issue, Retirement age, Simeon Djankov, finance minister, budget 2012, draft, first reading, MPs, taxes, exports, EU funding, slowdown, recession
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