21.10.2020

The draft 2020 State Budget of the Republic of Bulgaria Act and the updated medium-term budget forecast for the period 2020-2022 which presents the arguments standing behind the bill have been published.

The updated medium-term budget forecast presents the medium-term economic outlook and priorities of the government as well as the key parameters of the budget framework for the next year. The bill preserves the new approach, introduced with the updated medium-term budget forecast for the period 2019 – 2021, to include in the content of the forecast more information in the presentation of expenditure policies, with an emphasis on key indicators for measuring their level of implementation.

The key objectives continue to be keeping fiscal sustainability and pursuing a consistent, transparent and predictable fiscal policy that contributes to improving business environment, encouraging investment and stimulating the development of the labour market in order to achieve economic growth and employment, while adhering to common EU rules.

The objectives for the budget balance laid down in the medium-term budget forecast for the period 2020 – 2022 have been preserved, i.e. reaching a balanced budget position in 2020 and maintaining it in the following years. The objective of achieving and maintaining a balanced budget has remained unchanged for several consecutive cycles of budget preparation.

The revenue and expenditure policies in the forecast continue the ones laid down in the 2020 – 2022 medium-term budget forecast; the upgrading with new policies is based on both the macroeconomic aspects and the fiscal possibilities to ensure funding for priority sectors and for implementing horizontal measures affecting the budget sphere.

Both revenues and expenditures for the period 2020 – 2022, expressed as a percentage of GDP, show a trend of decreasing from 36.9% to 35.0%, while in nominal terms the values of these indicators increase and are expected to reach BGN 50.143 billion in 2022 from BGN 46.827 billion in 2020.

The main objectives of the tax policy are to increase tax revenues, to address the shadow economy and to reduce the administrative burden and costs for businesses and citizens. The priorities of the tax policy are in line with the country specific recommendation of the Council of the European Union to Bulgaria for improvement of tax collection. In the medium term, the plans are to maintain the low corporate and personal income tax rates, which contributes to boosting economic growth and has a positive impact on labour supply and demand.

The priorities of the 2020 budget, which build on the priorities and assumptions for the development of the sectoral and horizontal policies, as laid down in the medium-term budget forecast, are: education, healthcare, defence, pension policy and income policy.

Education. In 2020 – 2022, the implementation of the measures aimed at enhancing the attractiveness of the teaching profession and the motivation of existing teachers will continue. The entry of young and highly educated people into the education system will inevitably have a positive impact on the quality of knowledge and skills that pupils acquire. Encouraging secondary-school graduates with high educational results to obtain pedagogical education and to start working in the education system is one of the priority measures whose implementation will make it possible to overcome the expected shortage of pedagogical specialists. In the “Education” sector, measures aimed at improving the social status of teachers will continue to be implemented and, to this end, an additional annual allocation of BGN 360 million will be made available to increase the remuneration of pedagogical staff. The aim is to double in 2021, as compared to 2017, the funds for remuneration of pedagogical specialists.

Healthcare. The main priorities in the healthcare sector for the three-year period are to ensure financial sustainability and availability of resources for the healthcare system, with the aim of improving the health of the population, improving and maintaining the quality of life by means of reducing premature mortality and morbidity rates as well as addressing regional imbalances and ensuring functional interaction among the different levels of medical care. The establishment of the National Healthcare Information System by means of using new technologies in the area of eHealth is among the priorities aimed at improving the quality and efficiency of processes in the healthcare system.

Defence. In the period 2020 – 2022, the policy pursued by the government in the area of defence remains a priority. 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 adopted by the National Assembly. The relative share of capital expenditures in total expenditures on defence is above the 20% NATO criterion. Defence expenditures are in line with the National Plan to increase expenditures on defence to 2% of Bulgaria’s GDP by 2024.

Pension policy. From 1 July 2020, all pensions granted until 31 December 2019 are planned to be increased by 6.7% (the percentage is determined as per the so called “Swiss rule” under Article 100 of the Social Insurance Code), and from 1 July 2021 and 1 July 2022, pensions granted until 31 December of the preceding year will also be updated according to the “Swiss rule”. For the period 2020 – 2022, the weight of one year of contributory service in the pension formula remains 1,2.

Income policy. In addition to the increase of the minimum wage (from 1 January 2020 to BGN 610, from 1 January 2021 to BGN 650, with the amount of BGN 650 being maintained in 2022) already laid down in the medium-term budget forecast from this spring, the present forecast provides for a 10% increase in 2020 of the wage bill for the staff hired under employment and service contracts, including of the funds for social insurance contributions, which will have an impact on the remuneration of employees in the public sector. Based on increased staff expenditures, this allow for increasing the individual basic monthly wages of the persons employed depending on the position occupied and the performance assessments. For the period 2020 – 2022, the social insurance policy provides for an increase in the minimum contributory income for self-employed persons, to BGN 610 for 2020 and to BGN 650 for 2021 and 2022, respectively, as well as for an increase in the minimum contributory income for registered farmers and tobacco growers from BGN 400 to BGN 610 from the beginning of 2020. The levels of minimum contributory income by main economic activities and qualification groups of professions from 2019 are maintained; adjustment is made only in respect of the positions below the amount of the minimum wage for 2020, i.e. BGN 610. The maximum contributory income for all insured persons is maintained at BGN 3 000.

The main budget relations between municipalities and the central budget in the draft 2020 State Budget of the Republic of Bulgaria Act total BGN 4.203 billion. The envisaged increase, as compared to the amounts adopted by 2019 State Budget of the Republic of Bulgaria Act, is by BGN 456,8 million, out of these: the general subsidy for state mandated activities – by BGN 418.8 million; the equalizing subsidy – by BGN 13 million; the transfers for winter maintenance and snow cleaning – by BGN 5 million; and the target subsidy for capital expenditures – by BGN 20 million.

The 2020 budget provides for changes in the mechanisms for allocation of the target subsidy for capital expenditures as well as of the transfer for winter maintenance and snow cleaning of municipal roads. The equalizing component, which ensures that the amount of the target subsidy for capital expenditures and of the transfer for winter maintenance and snow cleaning in the preceding year is reached, is removed in order to achieve an objective match between the funds and the natural indicators for each individual municipality.

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

Based on the assumptions, with an estimated positive net debt financing for the period 2020 – 2022, the downward trend of the government debt to forecast GDP ratio is maintained  – from 18.6% at the end of 2019 to 17% at the end of 2022. In the context of the budgetary policy pursued and the forecasts for the GDP growth rate for the period 2020 – 2022, the level of the consolidated general government debt is expected to continue declining, being in the range from 19.8% to 18.2% of GDP or around BGN 25.1 – 26.1 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.