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2023 Budget Deficit is 2.2% According to EU Methodology

01.02.2024

Based on preliminary data and estimates, the general government budget balance for 2023 is expected to be a deficit of around 2.2% of the projected GDP as estimated according to the European System of National and Regional Accounts (ESA 2010) methodology. Preliminary estimates show that an improvement has been achieved compared to the target level of the indicator for 2023 set in the grounds to the Law on the 2023 State Budget of the Republic of Bulgaria (a deficit of 3% of the projected GDP).

The better state budget deficit for 2023 enabled the government to approve BGN 1.2 billion on the account of the Ministry of Regional Development and Public Works, subject to the 2023 balance approved by the National Assembly, for the payment of municipal projects. This gives confidence and predictability that the state stands behind its commitments to invest in all municipalities in Bulgaria in 2024, with investments in infrastructure and improving the business and living environment at the local level expected to contribute to accelerating economic growth in the medium term. After securing these funds for financing the Investment Municipal Projects Programme, the Consolidated Fiscal Programme (CFP) deficit on a cash basis is 2.9% of the projected GDP.

Key parameters of the Consolidated Fiscal Programme as of the end of 2023

Based on the data from the monthly reports on the cash execution of first-level spending units, CFP revenues, grants and donations for 2023 amount to BGN 67,057.9 million and increase in nominal terms by BGN 2,269.1 million compared to those reported for 2022, with tax revenues being the main contributor thereto. It should be noted that the CFP revenues are lower than the estimates to the Law on the 2023 State Budget of the Republic of Bulgaria, mainly due to the delay of the second tranche for Bulgaria under the Recovery and Sustainability Plan which is expected in 2024. On the tax revenue side, most taxes and social contributions are above the annual estimates, except for the revenues from VAT on imports, customs duties and corporate taxes. Revenues from VAT on imports and customs duties have been negatively affected by the current price environment for crude oil imported for processing, the exchange rate of the US dollar and the reduced quantities of imported goods giving rise to VAT, including crude oil. The improvement registered in VAT on domestic transactions and intra-Community acquisitions in the previous months continues in December, offsetting the lag for this tax.

Tax proceeds, including revenues from social security contributions, amount to BGN 52,324.2 million. Tax and social security contribution proceeds grow by BGN 5,541.2 million (11.8%) compared to those reported for the previous year, forming 78.0% of the overall CFP proceeds. Direct tax revenues amount to BGN 11,206.2 million, increasing by 12.9% compared to 2022. Indirect tax revenues (VAT mostly) amount to BGN 22,755.8 million and increase by 5.6% compared to the previous year. Proceeds from other taxes, including other taxes under the Corporate Income Tax Law, property and other taxes, amount to BGN 2,734.7 million (including BGN 949.2 million earmarked contributions to the Electricity System Security Fund), increasing by 73.1% compared to 2022. Revenues from social security and health insurance contributions amount to BGN 15,627.4 million, increasing by 13.8% compared to the previous year.

Non-tax revenues amount to BGN 10,903.6 million, which accounts for 97.8% of the annual estimates, and are mostly formed by state, municipal and legal expense revenues, rents, concession revenues, greenhouse gas emission allowance revenues, etc.

Revenues from grants and donations amount to BGN 3,830.1 million, with a decrease of BGN 2,175.3 million reported in comparison to 2022. When comparing them with the revenues from grants and donations for the previous year, we should take into account the first tranche of BGN 2,677.4 million under the Recovery and Resilience Plan received in December 2022.

CFP expenditures, including the contribution of the Republic of Bulgaria to the EU budget for 2023, amount to BGN 72,677.3 million, which accounts for 98.1% of the annual estimates. In nominal terms, expenditures increase by BGN 6,565.0 million (9.9%) compared to 2022. Per the individual expenditure indicators, the most significant increase is registered with capital and social expenditures, as well as in the personnel expenditure component. 

Non-interest expenditures amount to BGN 69,996.7 million, which accounts for 98.8% of the annual estimates. Non-interest current expenditures amount to BGN 60,729.8 million. Capital expenditures (including net increment of state reserve) amount to BGN 9,202.7 million. The current and capital transfers to other countries amount to BGN 64.2 million. Interest payments amount to BGN 830.8 million, or 100.8% compared to those planned for 2023.

The part of Bulgaria’s contribution to the EU budget paid from the central budget as of 31.12.2023 amounts to BGN 1,849.9 million, which complies with the existing legislation in the area of EU own resources.

The CFP balance at the end of December 2023 is a deficit of 2.9% of the projected GDP and is formed by a deficit of 2.8% of the projected GDP under the national budget and a deficit of 0.1% of the projected GDP under EU funds. The CFP balance corresponds to the fiscal rule requirement within the meaning of Article 27(4) of the Public Finance Law. Preliminary data show that an improvement in the expected implementation of the Revised Medium-Term Budget Forecast 2024-2026 of 3% of GDP has been achieved in 2023 as compared to the target level of the indicative CFP balance.

The fiscal reserve as of 31.12.2023 is BGN 13.4 billion, including BGN 10.9 billion of fiscal reserve deposits in the BNB and in banks and BGN 2.5 billion of receivables under the EU Funds for certified expenditures, advance payments, etc.

The Consolidated Fiscal Programme implementation data as of 31 December 2023 are published in the Statistics section on the website of the Ministry of Finance. The statistics is accompanied by an Information Bulletin on the Execution of the State Budget and the Main Indicators of the Consolidated Fiscal Programme, which represents a short analysis of the performance of the key budget parameters on a consolidated level and by constituent budgets.

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