22.10.2018

The Ministry of Finance has published the draft 2019 State Budget of the Republic of the Bulgaria Law and the up-to-date 2019 – 2021 Medium-term Budget Forecast which offers the grounds thereto.

The up-to-date budget forecast presents the medium-term economic prospects and Government priorities, as well as the key parameters of the budget framework for the following year. A new point in the forecast’s content is the inclusion of more information when presenting the expenditure policies, i.e. both with fiscal parameters and by using fiscal indicators measuring the extent of their performance.

Maintaining fiscal sustainability and conducting a consistent, transparent and feasible fiscal policy contributing to an improvement in the business climate, promotion of investment and triggering labour market development in order to achieve economic growth and employment by sticking to the common EU rules remain the key objectives. This forecast retains the budget balance objectives set in the Medium-term Budget Forecast for the 2019 – 2021 period for a deficit of 0.5% of GDP for 2019 and a balanced budget stance for 2020 which will be preserved in 2021 as well.

The revenue and expenditure policies in this forecast are a continuation of those set in the Medium-term Budget Forecast for the 2019 – 2021 period, and in order to build on it, both the macroeconomic aspects and the expanded fiscal possibilities for ensuring financing for priority sectors and implementation of horizontal measures related to the budget area have been taken into account.

As a percentage of GDP, a downward trend is observed as regards revenues for the 2019 – 2021 period, which drop from 37.7% down to 35.8%, while at the same time increasing in nominal terms and from BGN 43,857.0 million in 2019 г.they are expected to reach BGN 47,582.3 million in 2021. The tax policy part takes account of the effects from the current changes in tax legislation related to the implementation of measures aimed at improving collection, urging economic development, reducing the administrative burden and introducing EU tax law provisions into the national legislation. The low corporate and personal income tax rates are planned to be retained in the medium term, which will contribute to a higher economic growth and will have a positive influence on labour supply and demand.

The expenditures, expressed as a percentage of GDP for the 2019 – 2021 period, also register a drop from 38.2% down to 35.8%, which accounts for an average annual consolidation step of around 1.2 p.p. of GDP, having a major consolidation contribution to achieving the deficit targets. Nominally, expenditures increase, expected to reach BGN 47,582.3 million in 2021 from BGN 44,457.0 million in 2019.

The priorities of the 2019 budget, which build upon the priorities and the assumptions for the development of the sectoral and horizontal policies set in the medium-term spring budget forecast, are social policy, education, defence and income policy.

As regards social policy, funds to the following amount are envisaged: additional BGN 40.4 million for each year from the forecast period (50% more than the funds in 2018) for targeted heating allowance for the purposes of social protection and equal opportunities; additional BGN 150.0 million for each year from the forecast period for ensuring the financial framework of the draft Disabled Persons Law and the draft Personal Care Law upon passing them; BGN 7.0 million with regard to the introduction of a new type of monthly allowance for children who are not entitled to hereditary pension from deceased parents in accordance with the amendments to the Family Allowance for Children Law, the amount of the allowance for 2019 being BGN115.

The policies on accessible and quality education are implemented by means of a comprehensive integrated approach, based on the interlinked and coordinated actions of the institutions on national and local level. The funds from the state budget are mainly targeted at the four pillars to finance the system, in accordance with the School and Pre-School Education Act, as well as at financing the training of students and PhDs defined on the basis of the complex assessment of the quality of training.

The aim of the policy in the area of defence is to meet the requirement the defence expenditures to reach the defined percentage of GDP as per the National plan to increase expenditures on defence to 2% of GDP of the Republic of Bulgaria by 2024, and the expenditures on defence in the budget framework for 2018 total BGN 1,839.3 million, or 1.58% of GDP. Funds are provided to maintain and develop the national defence capacities as well as the capacities related to the collective defence, including funds for implementation of the investment projects approved by the National Assembly.

As regards the income policy, in addition to the already envisaged in the MBF from this spring increase in the minimum wage over the coming years (from BGN 510 to BGN 560 as from 1 January 2019, to BGN 610 as from 1 January 2020 and to BGN 650 as from 1 January 2021), the current forecast provides for a 10% increase in the funds for wages and contributions in the budget sector as from 2019, which will allow for increasing the individual basic monthly wages of the persons employed, based on the position occupied and the performance assessments. For 2019, the increase in the remunerations of the pedagogical staff is 20% on the average, in view to attaining a double increase, as compared to 2017, in the amount of funds intended for remunerations of the pedagogical specialists in 2021.

Provisions have been made for changes in the mechanisms for allocation of the target subsidy for capital expenditure as well as of the general equalising subsidy. As regards the allocation of the target subsidy for capital expenditures, there are provisions for additional resources to the main and the additional component in order to support municipalities in category 4 and 5 to improve the condition of the social and technical infrastructure on their territory. The change of the mechanism for allocation of the total equalising subsidy by municipalities in 2019 is linked to setting a condition for access to the subsidy. Eligible to receive equalising subsidy in 2019 will be the municipalities whose invariable tax revenues as of 31 December 2017 per inhabitant were lower than 120% of their level for the country per inhabitant.

A priority for the country also remains the successful absorption of EU funds and resources under EU programmes in view to using them to achieve sustainable economic growth, higher employment, social inclusion and territorial cohesion and to build a competitive and innovative economy.

Government debt management will comply with the main objectives and rules of the fiscal policy and will take account of the status and the three-year forecasts of the key macroeconomic indicators. Based on the assumptions and the forecast net debt financing for the period 2019-2021, the government debt is expected to decrease from BGN 22.2 billion in 2019 to BGN 22.0 billion at end-2021, respectively from 19.1% to 16.5% of the forecast GDP. The level of the consolidated general government debt is expected to continue declining, being in the range from 22.5% to 17.7% of GDP or around BGN 24.3-23.5 billion. The forecasts for the relative share of the consolidated debt as a percentage of GDP remains well below the maximum reference value of the Maastricht convergence criterion of 60%, which will ensure preservation of the level of government indebtedness within sustainable limits as well as of the leading position of the Republic of Bulgaria among the 28 EU Member States in terms of the low debt burden level.

The estimates for declining risks and robust prospects for the development of the public finance in Bulgaria, which are taken into account in the reviews and forecasts of the European Commission, the international financial institutions and the rating agencies, are indicative that fiscal policy objectives and budgetary projections are realistic.

The Pocket Budget has been released which outlines the key priorities of the 2019 Budget and of the 2019 – 2021 Up-to-Date Medium-Term Budget Forecast