Банкеръ Weekly

Briefs

ON THE EDGE OF DEFICIT

A budget deficit of 0.7% of the gross domestic product (GDP) that the Bulgarian Government has been stipulating for three years in a row is significantly lower than the deficit in Central European countries, the Ministry of Finance announced. In Hungary, the 2003 budget deficit was 9.2%, in the Czech Republic - 3.9%, and in Poland - 4.9 per cent. Of course, this comparison may be examined in two ways and will hardly delight people who support the idea for taking encouraging measures by the state. It's more curious that exactly when the Bulgarian Government approved that deficit, professor Joseph Stiglits, adviser of the Bulgarian President, published a biting article in the Guardian newspaper. The professor accused the rich countries of showing hypocrisy, because in periods of stagnation they raised their budget deficits, too.At least according to the statistics, the Bulgarian economy is not in stagnation. The 5.3% economic growth expected in Bulgaria in 2004 is much higher than the forecast 3% growth of the world economy. But because of the long-delayed restructuring of companies that started only now, growth in Bulgaria is accompanied by a sharp increase of the import. This led to a higher deficit of the balance of payment, which is a dangerous tendency as it can reduce the currency board reserves. (In practice, however, at least for the present, BNB reserves are not decreasing. According to the Finance Minister Milen Velchev, it means that foreign currency enters the country from elsewhere.)In order to avoid any potential pressure for the Bulgarian lev devaluation resulting from the current account deficit, the Cabinet run by Simeon Saxe-Coburg-Gotha is trying to freeze this deficit which is under its control. (One possible explanation for this cautiousness is the fact that the government's money is part of the currency reserve).Under the currency board arrangement the State has limited opportunities to act upon the economy and they only refer to the fiscal policy, the Deputy Finance Minister Lyubomir Datsov explained. He added that the increased share of indirect taxes is not just a result from the European Union requirements for the excises. The aim is to reflect on the current account by increasing the savings level. In other words, the Government is trying to restrict the growth of consumption by raising taxes imposed on it (the value-added tax and excises). Between 1 and 1.5 points of the economic growth in recent years have been due to this policy, Mr. Datsov said. Government deposits that reach 1.8% of the GDP are another tool for acting upon domestic savings, he added.The Government's intention to raise the amount of the internal debt at the expense of the foreign debt aims at reducing the deficit of the balance of payment, too. The Ministry of Finance counts on attracting part of the funds that banks would otherwise use for consumer crediting by increasing the issues of government securities.Thus, the Government hopes to restrict the import of home appliances and furniture, which are the goods purchased with most of the credits drawn by individuals.According to the 2004 budget, the Government's foreign debt is expected to go down by BGN165MN, while the internal debt will increase by BGN280MN.

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