Банкеръ Weekly



Parliament approved at first hearing the draft budget for 2005. Two hundred and thirty two MPs took part in the voting; 128 of them voted for, and 104 - against. There were no abstentions.It could be predicted that the Cabinet's draft would be passed at second hearing with a trifling difference in the number of votes. The date December 15, announced by the Government as the deadline for finally approving the 2005 budget, may turn out quite an optimistic intention. The voting at second hearing will probably take place a few day later in order to close down the entire parliamentary cycle, through which drafts pass. Afterwards, the budgets should be blessed by the President and published in the Official Gazette. If no unexpected drama occurs till then, the macroframe that will predetermine the Cabinet's fiscal policy next year projects economic growth at 5-5.6%, average annual inflation - at 3.6%, BGN/USD exchange rate of 1.66:1, current account deficit - at 8.5% of GDP, foreign trade deficit - at 14% of GDP, and budget deficit - at 0.5% of GDP. According to financial analysts, twists in the Cabinet's budget forecast should be ruled out. Finance Minister Milen Velchev seems convinced in that too. We'll present sufficiently cogent arguments to the IMF for the changes in the expenditure side of the budget. We hope to meet their approval.In order to ensure parliamentary support Mr. Velchev several times had to redraft the initially projected expenses of the Treasury. Firstly, he earmarked additionally BGN30MN for the EU commitments of the Ministry of Agriculture and Forestry on the insistence of NMSII's coalition partner, MRF. After that another BGN135MN for the reform in education was agreed by bargaining with the former partners from Novoto Vreme. The Treasury loses potentially another BGNB65MN as a considerable part of the tax proposals, moved by the 13 MPs from Mr. Emil Koshlukov's group were accepted.The question about the encashing of the given votes is still open. This could be effected in two ways: either by revising and cutting down already set aside funds for various ministries and budget-subsidized organisations, or calculate the additional expenditures at the expense of increasing the budget deficit.From the point of view of financial logic, there is no dilemma in this case. The expansion of the deficit is a basic problem for the country's economy as a whole and is a bad signal for the international community of investors. It is a confession that the laws of the State's fiscal stability could be violated. The other option is the experts from Mr. Velchev's team to spend some sleepless nights in front of their PCs, examine their calculations and see where from some millions could be economized.The financier announced that part of the money (BGN30MN) will be taken from the structural reform reserve fund. Another BGN4MN or BGN5MN will be saved from interest expenses due to the changed exchange rate. The exact amount saved from interests will be known by the end of the current year, Minister Velchev said.There is another amount of about BGN100MN that will probably be squeezed out from items provided for other public spheres.The Government's 2005 draft budget stipulates expenses amounting to BGN16.3BN. That is nearly BGN1.6BN above the amount spent in 2004. According to experts, the financial team led by Minister Velchev has been too open-handed when distributing the 2005 budget funds. For example, expenses for the payment of salaries and social benefits to 460,000 state officials amount to nearly BGN2.4BN. That is a BGN170MN increase compared to 2004. The administration maintenance costs (materials, fuel, energy, repair works, etc.) are up by BGN300MN, too. Therefore, the treasury will pay the historical BGN2.6BN for materials and extra payments next year.The expenses of the healthcare insurance fund will grow by more than BGN100MN in 2005. The budget injection already reaches BGN863MN. The fund's huge expenses will hurt the taxpayers, since there is a proposal for raising the healthcare instalment from 6 to 8 per cent.Relief funds, compensations, and measures for intervention on the labour market will take BGN1.2BN from the 2005 budget. According to analysts, about 80% of the population receives various kinds of state assistance or tax reliefs which result in huge losses to the treasury. Expenses for fixed assets will go to BGN1.6BN next year. Part of this amount could be saved by transferring them to the private sector through the privatisation and concession of airports, ports, highways, bridges, etc. There should be political will for reforms, however, experts advise.It is well known that pouring more money into the budget spheres does not result in faster and more efficient reforms in them. Minister Velchev repeated that rule when the 2005 budget parametres were announced. Nevertheless, he agreed with the insistence of the group of Novoto Vreme and raised the funds for education saying it was a priority field. On the other hand, he demonstrated that there is parliamentary democracy in the country which allows each political force to defend its fiscal cause.

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