Банкеръ Weekly

Briefs

STATE DEBT GAINING PRIORITY AHAEAD OF ALL OTHER BUDGET EXPENSES

The draft-law on the State Debt passed without any problems through the Parliamentary Economic Commission and will probably be voted at first reading by the Parliament next month. It can, however, be replaced by the more urgent laws, related to the forthcoming elections and with the political parties. So the regulations of the state debt may be postponed in time. By mid December the draft was presented by the Council of Ministers and was approved by the Commission on Budget, Finance and Financial Control. It settles in a new way the issue and servicing of state debt.
A new limit is introduced regarding the arrears of the consolidated state budget as of the end of each year as a ratio to the estimated GDP. It cannot increase the last year ratio until it exceeds 60%. However, should there is any risk of exceeding it, the Ministry of Finance may introduce in the Low on State Budget certain limits on issuing municipal debt and social investment funds debt. The draft stipulates that state debt may be issued only in the cases of financing budget deficit and specific programmes and investment projects approved by the Parliament.
The only exception will be made for the restructuring of state debt, in the cases when funding is made without any increase of the debt nominal value. Each year the Minister of Finance should define limits in the draft-law on the State Budget both for the total amount of the new state debt, which can be undertaken throughout the year, and of its value at the end of the fiscal year. Ministry of Finance is mandated in developing also a 3-year strategy for the management of the state debt, which should contain suggestions on the budget deficit financing and evaluation of the forthcoming debt servicing expences.
Issuing state debt can be handled in two ways - either through issuing government securities or through signing credit agreements. In the cases when credit agreements are designed for specific financing, the Ministry of Finance may submit the resources to state authorities, financial authorities or other juridic persons. For the further distribution of these resources to third persons, should be signed an agreement between the Minister of Finance and the final recipients, who should meet the requirements of the creditors. The third persons should submit collaterals in favour of the Ministry of Finance, covering the submitted amounts.
The new draft-law finally proclaims that municipality debts and social insurance fund debts are not guaranteed by the state and they are not a responsibility of the central government, besides in the rare cases when a special state guarantee has been issued. Bulgarian National Bank's debts are not guaranteed either. BNB on its part, however, under certain conditions agreed with the Ministry of Finance, may act as an agent for the state debt's servicing. According to the draft-law the Ministry of Finance may also authorise other local or foreign persons to act as agents on the debt.
State guaranteed debt are all financial liabilities, which are covered by guarantees issued by the Council of Ministers, and they are of equal power, no matter what is the way or form of their occurrance.
Those who perform or alow violation of this law will be sanctioned with a money or property penalty amounting to BGL1,000 - BGL10,000.
As a whole the adoption of the new Law on State Debt is an effort in line with the harmonisation of Bulgarian financial legislation with EU requirements. That ensued the priority position of the state debt servicing ahead of the remaining budget expenses.

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