Банкеръ Weekly



Emil Hursev, Managing Partner in Hursev Co, to the BANKER weeklyMr. Hursev, how do you estimate the 2005 country budget draft prepared by the Government?- It is good and typical for pre-election times. Many of the budget process chronic shortages seen in previous years have been eliminated here. Now there are clearly defined objectives and motives. Besides, the extrabudgetary programs accompany the budget. In practice, they are the ones to regulate the allocation of state resources, although these resources come from European funds, under programs or through loans launched by the government. The 2005 budget gives a much more realistic assessment of the revenues, too. But, of course, it is quite generous regarding the expenses of the state administration.However, the Government enforces the state's reallocating role through the budget. The opposite policy was promised at the beginning of the mandate of the ruling majority...- I have always thought that the absolute maximum the State should reasonably reallocate must not exceed a third of the gross domestic product. It is true that the Bulgarian State appropriates a part too big of the GDP thanks to the budget. But this is a problem that the Parliament should solve. The State is also master of the funds in the extrabudgetary accounts. Therefore, if we add the European funds resources that are also at the disposal of the authorities, the State share in the economy may go far beyond 50 per cent.Is it justified to pour more and more resources in nonreformed spheres such as healthcare, education, etc.? Are there tools that could help avoiding this budget trap?- Economies cannot be made on these budget items. The State has been a debtor to these sectors for a long time. They are also the most seriously hit spheres of the Bulgarian public system in the years of transition. Education, science, and culture were virtually declared useless. The problem consists rather in seeking efficiency in the allocation of the social expenses. Often there is no efficiency at all. For example, huge maintenance costs are provided to institutions that have merely representative functions. For comparison, the Governmental Hospital alone is provided with the same maintenance as the whole Ministry of Finance. It is clear that this medical and sports complex situated in the centre of Sofia is meant for consumption by the authorities. Much less money is allocated to medical institutions used by the population. It turns out that the authorities are creating luxury - something that we all criticized in the early 90s. The current number of luxurious vehicles, bodyguards, etc. exceeds many times the one registered in the communist past. According to those who put forward the 2005 budget, for the first time it contains two economic growth forecasts - 5 and 5.5%, depending on the movement of the oil prices on the international markets.- There have always been different scenarios of how the budget indicators will develop. Flashing points have always been taken into account. Yet, these scenarios have not been presented to the Parliament. The presence of two forecasts now proves that the procedure is really transparent, because it shows the budget structure as well.The higher economic growth is a function of the statistical data. The forecasts are indeed made on the basis of achievements and this sounds realistic. Should the Ministry of Finance forecast a lower growth than the businesses and market analysts expected, there would be immediate suspicions that budget revenues are thus being hidden. That was done mainly in 1998 and 1999. The difference between budget forecasts and experts expectations were considerable then - nearly one third. However, the 2005 forecasts seem adequate as a growth of the economy.Why do you think BGN38MN were provided to the Ministry of Agriculture in the last minute? Couldn't the rulers come to an agreement in advance in order to avoid the reshaping of the expenses?- That was allocation of budget credits to a sphere that feeds about 25% of the Bulgarian population. I mean not only the people directly employed, but all those working in the agriculture and earning their living from it. You must agree that BGN38MN is an absolutely ridiculous amount for this branch. Bulgaria remains among the few countries in the world that practically stopped supporting a traditionally subsidized sector. I also disagree with the comments that the money has been launched in the end. The budget process passes through different stages and it is now that the expenses should be confirmed. In the terms of representative democracy, corrections are made after the budget is presented to the Parliament and not before that.Experts commented that the 2005 budget uses the matrix of its predecessors and a surplus ranging between BGN700MN and BGN800MN for the next year can already be seen...- I don't think these calculations are precise. Figures cannot be just thrown in the air without giving an explanation about how the future surpluses are calculated. Each budget forecast normally provides about a 10% reserve. But that does not mean BGN700MN or BGN800MN. Moreover, the surplus is formed by higher revenues which distinguishes it from the reserve. Somebody may expect that Bulgaria will report a 10% growth of the GDP next year resulting in a BGN1BN surplus. I would be glad to see that happen, but it is not realistic to expect a double growth of the economy.It is true that in previous years the budget forecasts were made with lower levels than the expected ones. But I think that this is not the case now. Of course, everyone is free to bluff as much as he likes, but these are just attempts to play with economic pseudologics in light of the coming elections. Is it realistic to forecast an inflation reaching 3.6% on an annual base in 2005?- Bulgaria is a net importer of all kinds of oil products used in the country which reflects on the prices of other raw materials. However, another 25% growth in the oil prices is not probable, even though significant deviations from the forecast are theoretically possible when there is a similar import of inflation.Are the planned tax reductions sufficient?- Tax reductions are never sufficient. I think that the budget could have suffered more serious reductions of certain duties. If we square accounts, there is no real tax reduction now. Some taxes are lower indeed, but that is compensated by the raised rates of others - mainly the excise duties. This is explained with the biased fiscal harmonisation with Europe. However, Bulgaria is in a Currency Board and it is normal for the budget to be pressed so that all expenses can be covered. Besides, if we dare go beyond the deficit, we'll find ourselves in the place of a punished student. That will have a negative effect on the rating of the country as well.The budget stipulates a significant 21% increase of the capital expenses. Obviously, the cabinet intends to pour more money in the infrastructure in light of the coming elections. The Prime Minister even assured that the construction of the second Danube bridge is starting next year. What do you think about these plans?- I feel worried because of investments that have no proven return. This is just the case with the second Danube bridge, because there are no signs for increased transport flows in that direction. Therefore, this initiative is merely a demonstration. There are many other senseless and nonmarket projects - for example, the construction of highways and giving them on concession at a third of the price. Not to mention the sale of the Bulgarian Telecommunication Company (BTC) which swallowed huge resources earlier. As to the Belene nuclear power plant, the investments are reasonable, because electricity accounts for a quarter of the country's net export.Aren't all these problems related to the weak economic policy?- I don't think the economic policy is weak. I'd rather say it has no focus and is too passive. In fact, the budget policy is passive, too, but that's a good thing. Conservativeness is positive when it comes to budget. However, being passive in the economic policy is not a winning strategy. It is true that the Bulgarian governments (the present one included) operate actively for the interests of the foreign capitals in the country, but do not care about the destiny of domestic producers.

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