March 24 (BTA) - While most countries have already announced generous economic packages for businesses and households, Bulgaria's Government has opted for stability and launches rather timid ideas without clear estimates of their costs. It is too early for an accurate assessment of the impact of the crisis, but the budget nevertheless has clear parameters with buffers that can be used, experts told the press.

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The crisis found Bulgaria in a relatively good shape, posting successive budget surpluses in recent years which the Government has been spending liberally. The 2020 budget was planned with a 3.3 per cent growth, with GDP expected to reach 126.8 billion leva and zero deficit, while the debt is expected to be 23 billion leva or 18.2 per cent of GDP at the end of the year, low compared to other countries.

The point is how far the annual revenue target will be met, financial expert Lyubomir Datsov told the "Sega" daily. "Resources and activity are being cut, but if the level of employment is kept then a comeback will be faster. If the crisis continues until the end of the year and GDP shrinks by 4-5 percentage points, the negative growth will reach minus 1 per cent. The loss of revenue is likely to approximate 3 billion leva," he pointed out.

Speaking on bTV, Finance Minister Vladislav Goranov made the same predictions but warned that revenues could dive even deeper. Although such underperformance is significant, it is not fatal, as the revenues planned in the consolidated fiscal programme for 2020 total 46.8 billion leva. Experts are adamant that in such a situation Bulgaria should not experiment with tax holidays or other ideas to pursue social policy through taxes.

Spending Buffers

The 2020 budget is supposed to spend exactly as it collects, with a zero budget at the end of the year or even a surplus, considering the routine practice of planning buffers. Figures from previous years show that reserves were set aside on both the revenue and expenditure sides. In both 2018 and 2019 (even after an update on account of the F-16 purchase), the exchequer reported a better balance than planned, the difference being slightly over 1.2 billion leva.

If particular planned investment expenditures are scrapped, this, too, will give rise to reserves. It has already become clear that the army may have to wait for its modernization, for which 495.500 million leva were budgeted for 2020. The Government has also been urged to give up the idea to set up a new water and sewerage holding, which is to be financed by 1 billion leva transferred to the budget of the Ministry of Regional Development and Public Works. Critics of this approach argue that such spending should not be cut because its generates economic activity.

"The 1 billion leva allocated for water supply projects can go to a large number of small companies if concentration is avoided. If public procurement is restructured and rechanneled to the broadest possible range of companies, the business will pick up," Datsov said.

Another 240 million leva will be released on the expenditure side after the European Commission decided that Member States would not be required to recover unspent advance payments under operational programmes. Part of these resources will definitely be used for new measures to fight CIVID-19. It has already emerged that 20 million leva under Operational Programme Human Resources Development will be spent to give medics and other front-line responders to the pandemic a 1,000 leva supplementary pay.

The expenditure side is yet to be restructured. The Government has already announced the allocation of 500 million leva to the Bulgarian Development Bank to provide liquidity support to companies affected by the coronavirus restrictions (the amount that will be saved on the army projects). New budget spending will also be needed to pay 60 per cent of the wages of workers who risk being laid off because of the crisis in the course of three months, provided that their employees cover the remaining 40 per cent. The funds needed for this purpose have yet to be estimated, but keeping jobs is crucial in a crisis like that, and this is precisely what the Government is trying to do, Datsov said.

Budget Update and Deficit

Under the circumstances, an update of the budget and a deficit is almost a foregone conclusion, and even the Finance Minister has said this on the record. If expenditures are kept under control and the decline in revenue is limited to 3.0 billion leva, financial experts say the deficit may not exceed 2-3 per cent of GDP. The Exchequer could cover such a deficit and would not bring about a substantial imbalance. The fiscal reserve is currently in a good condition, standing at 10.7 billion leva, compared to a permissible level of 4.5 billion leva. "However, this rock bottom should not be hit because the country will then be unable to afford any extraordinary expenditures - a situation that led to the resignation of former finance minister Simeon Djankov.

Debt management also offers a certain amount of reserves. Bulgaria is far from the critical level, 50 per cent of GDP, but the situation is not right to go to external markets. Datsov expects the issues to be placed on the domestic market instead. For this year, the new permissible debt amounts to 2.2 billion leva, which exceeds maturity repayments because the Ministry of Finance has approved a programme to accumulate future reserves for 2023 for payment of Eurobonds issued in 2016. Preparations for this maturity may be spaced out for the coming two years and, if necessary, this debt may be used to finance a budget deficit in 2020. VE/BR, LG

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