23.10.2013

Accelerated economic growth is the main objective of the policies set forth in the draft 2014 State Budget of the Republic of Bulgaria Law.  In order to achieve it, a balanced approach is needed towards some of the key growth factors such as the availability of qualified human capital, basic infrastructure, technological knowledge and effective use thereof.

The 2014 draft budget implements a policy aimed at galvanizing economic growth in the medium term and transforms the macroeconomic model imposed in recent years, i.e. containing growth through fiscal policies.  An end is put to the practice of adding limited resources to all ministries and institutions without binding it to achievable results. The optimization of expenditure of ministries and institutions will enable to secure financial resources for the implementation of the public investment programme.

The Government's policy is targeted at a change in the allocation of public resources and use of the state budget as an effective instrument for steering the economy towards sustainable growth, promotion of investment and employment and ensuring the social protection needed by the vulnerable groups of society.

The Ministry of Finance plans a real economic growth of 1.8% in 2014 and a GDP reaching BGN 81.582 billion. The rate of inflation (HICP) for next year is expected to be 1.8 per cent. The revenues are planned at BGN 30,886.0 million (37.9% of GDP, which is an increase by BGN 501.2 million compared to 2013). Expenditures are planned at BGN 32,358.3 million (39.7% of GDP with a limitation of 40% of GDP, which is a growth by BGN 380.1 million compared to 2013). The deficit is planned at 1.8% of GDP, or BGN 1,472.3 million in nominal terms. The debt in 2014 is planned to amount to BGN 18.0 billion, which is a difference of BGN 3.4 billion against the level of government debt expected at the end of 2013. The amount of debt will drop substantially as early as the start of 2015 given the forthcoming peak repayment of around BGN 1.7 billion USD-denominated global bonds issued in 2002.  The fiscal reserve is preserved at the level of BGN 4.5 billion as of 31 December 2014.

Adhering to the national priorities of the Government's programme, the 2014 draft budget envisages targeted measures and mechanisms influencing several key policies.

The Government plans to implement a public investment programme called "Growth and Sustainable Development of the Regions" to the amount of BGN 500 million. It is a new mechanism for financing public investment projects and competition programmes thus binding expenditure more tightly to the commitments taken in the Government's programme. The annual amount of the funds for investment projects will be linked to the economic cycle, to the process of absorption of EU funds for investment and to a critical review of the existing policies and programmes. The introduction of this mechanism will stimulate the ministries and the local authorities and will contribute to improving the quality of their budget proposals.

Education and life-long learning policies are a key priority for 2014. Reforming vocational education is the main focus of stable and sustainable economic growth. The main focus here is not only on pupils' acquiring specific skills and capabilities but on the development of pedagogical staff and the introduction of e-learning which will improve the quality, the access to and the attractiveness of vocational training. A milestone is the integration of the learning process into professional and practical experience through binding vocational schools to the business. The new mechanism of additional BGN 100 million planned for the system of education will improve the qualification of the labour force in the long run and will have a positive impact on increasing labour productivity. Additional resources are also provided in support of small schools and kindergartens, for prevention of early drop-outs and for stimulation and retention of pedagogical staff.

Social policy and measures to reduce poverty and encourage social inclusion are another key priority of the 2014 Budget. One of the main social functions of the state - prevention of poverty and reduction of the number of poor people - will be realized thereby. This priority will be realized through a specific package of social measures focused in support of several target groups - children and family, disadvantaged people, the elderly, and households and businesses. Increase of the monthly allowance for children with disabilities to BGN 240, increase of the maternity allowance to BGN 340 and expansion of the range of people receiving energy related assistance are among these measures. Additional BGN 2 million will be allocated to the Ministry of Labour and Social Policy for the Service "Public Canteens". The resources provided for social activities in 2014 total BGN 11.262 billion, which is an increase by BGN 354.9 million compared to the previous year.

The 2014 Budget reinstates the so called Swiss Rule for pension indexation. This will result in an increase of pensions by 3% as from 1 July 2014, additional BGN 120 million being provided therefor. The Draft Law also provides for an increase of the ceiling on pensions from BGN 770 to BGN 840 as from 1 July 2014. In the field of pension policy the contributory service and retirement age under Article 68 of SIC are kept at their 2013 levels.

The reform in the healthcare sector is another Government priority in 2014. The first step is a new legal framework and health insurance demonopolisation. It is foreseen with part of the social insurance contributions under the NHIF to form a resource whereby to start the implementation of priorities in the health sector. Financing for reforms in the Ministry of Health system to improve the functioning of emergency medical help is provided for. Funds are also provided to strengthen human capital by increasing the remuneration of health professionals.

Agricultural sector development continues to be a priority of the Government. In the medium term interventions are foreseen that have direct effect on economic growth, such as the modernization of the sector by encouraging investment and innovations, increasing productivity through effective restructuring, and enhancing the qualifications of those employed in the sector.

The optimization of the administration is launched as a priority Government policy with the Draft 2014 Budget. The leading principles of this initiative relate to fiscal discipline, orientation of policies and expenditure towards results and benefits, provision of quality services at lower costs, more concise administration. The reform will entail a series of specific steps related to gradual restructuring of administrative units consistent with the Strategy for Optimization of the Bulgarian Administration.

The tax policy will be focused on support of economic growth and improving fiscal stability in the long run. Effective actions of revenue administrations will be aimed at ensuring resources to implement the Government fiscal policy, improving the business environment and encouraging economic activity, and also at limiting tax fraud. The main priority of the tax policy for the period is maintaining the low tax rates for corporation and personal income taxes as an important stimulus for investment, economic growth and employment.

The lowering of the administrative burden and costs for businesses and citizens will lead to a number of positive medium- and long term effects, such as fast strengthening of SMEs, improved competition environment and acceleration of the processes of starting up new businesses and entrepreneurship. A key factor for policy implementation is the optimum absorption of EU funds, whereby programmes are financed in sectors with direct effect on growth, jobs, income, competitiveness and public infrastructure.

You can find the Draft Law on the 2014 Budget of the Republic of Bulgaria and the updated 2014-2016 Medium Term Budget Forecast here.