16.07.2013

The Law Amending the 2013 State Budget of the Republic of Bulgaria Law proposes revision of the revenue forecasts and implementation of part of the most urgent stabilization measures of the Government Programme. They are targeted at growth, improvement of the business environment and support to disabled people.

The estimates for revenue underperformance are due to the optimistic assumptions in the macro-framework forecast at the time of planning the current year budget, along with the underestimated effects of legislative changes in regimes and deadlines for declaration and payment of some taxes, the contracted domestic demand, the dynamics of exports and imports and the exchange rate fluctuations. The impact of these factors and the low collection affect VAT and excise duties revenue. Highly overestimated are also the revenues from the tax on interest earnings. As a result of the urgent measures taken for the two revenue agencies the expected underperformance of tax revenues under the budget of the Republic for 2013 amounts to around BGN 555.0 million compared to the initial estimates of the revenue agencies - almost BGN 980 million (1.2% of forecasted GDP).

At the same time there is no flexibility or buffers in respect of expenditure, which could meet the pressure on the budget position and the expected revenue underperformance. Ministries and agencies place insistent requests in the course of the 2013 budget implementation for additional resources exceeding BGN 500 million (0.6% of forecasted GDP). However, not all requests could be satisfied while maintaining the fiscal stance, therefore first level spending units have to also take measures to prioritize and optimize the expenditure under their budgets.

Expenditure to pay liabilities to companies and expenditure to support citizens totalling BGN 200.4 million are foreseen with the purpose to overcome the pressure on expenditure due to arrears and to ensure additional resources in the contingency reserve for contingent and urgent expenditure in its part for structural reforms and additional fiscal measures. Of that BGN 160.4 million (0.2 % of forecasted GDP) is dedicated mainly to payment of State arrears to businesses accumulated basically in the Ministry of Defence, the Ministry of Interior and the Ministry of Justice. Additional resources for investment under the Ministry of Health budget and for agricultural producers are also foreseen. The envisaged additional resources amounting to BGN 40 million are to ensure the social payments for the most vulnerable groups. The money will compensate the shortage for payment of integration allowances whereby the financing of the rights of disabled people and their social and economic protection will be ensured. In order to encourage the social commitment of employers the approved annual quota for food vouchers for 2013 to the amount of BGN 160 million will be increased to BGN 200 million.

The proposed revision of the 2013 State Budget of the Republic of Bulgaria Law (2013 SBRBL) will be implemented while preserving the financial and fiscal stability of the State.

The revised forecasts for 2013 are for economic growth of around 1%, which is a more pessimistic scenario compared to the provided for in the macro-framework to the 2013 Budget growth of 1.9%. The changes proposed to the 2013 SBRBL foresee to increase the deficit by BGN 493.4 million (0.6% of forecasted GDP), whereby the budget position is changed to deficit of 2.0% of forecasted GDP, but still remains within the provided for in Article 20(4) of the Organic Budget Law ceiling of 2.0% of GDP and meets the Maastricht criteria.

The proposed increase of the deficit determines a change in the maximum amount of the new government debt to be assumed in 2013. The 6-month GS to the amount of BGN 800 million issued urgently on the domestic market in February 2013 actually deplete the approved ceiling. On the other hand a buffer in the fiscal reserve has to be provided to minimize eventual liquidity risks. The provision of additional debt financing to the amount of BGN 1.0 billion will not affect the provided for ceiling on the maximum government debt amount as of the end of the year of BGN 14.6 billion as set out in § 14 of the Transitional and Final Provisions of the 2013 SBRBL.

In summary, the Draft Law Amending the 2013 State Budget of the Republic of Bulgaria Law foresees adjustment of the budget position while preserving continuity in respect of fiscal stability and ensuring a more realistic basis for the 2014 Budget preparation.