EKIP– Expert Club for Economics and Politics A Different Opinion
Today, the Bulgarian parliament approved the government's budget update proposal in first reading. The bill envisages an increase in the deficit from the current 1.3%/GDP to 2%/GDP and raising the ceiling for issuing new debt this year from BGN 2 billion to BGN 3 billion.
It is clear to everyone that only protests could have prevented the adoption of this bill. Unfortunately, a vote was held and the result is not surprising. However, the vote was preceded by an almost two-month campaign aimed at convincing citizens of the need for this update.
However, the majority of the people who will pay for the financing of a larger deficit doubted the motives behind the proposal. This is a very good reaction and hopefully it will continue - every intention and decision of every government should be questioned, no matter how noble it may seem at first glance.
Skepticism has not stopped Finance Minister Petar Chobanov and Prime Minister Plamen Oresharski from trying to convince us that if the deficit doesn't increase, the economy will collapse. Yes, as absurd as it may sound, this argument is also present in their repertoire - how if the state doesn't spend an additional hundreds of millions of leva, Bulgaria's economy will resemble that of Detroit.
The financial luminaries Chobanov and Oresharski had not even bothered to coordinate their versions, so that they presented equally erroneous figures and facts in their public appearances. One could hear talk of an additional deficit for the year of 2 billion leva, and the other - "additional stimulation of the economy" of about 1 billion leva.
Subsequently, both revised these numbers downwards - and only about 10-15 times. There was even a revision in the short time between the public announcement of the draft update by the Ministry of Finance and its approval by the Council of Ministers.
Still, they chose some numbers - according to them, there will be a revenue shortfall of 207 million leva from the target, and expenses will be 286 million leva more than planned. Thus, the deficit is expected to increase by 493 million leva.
The arguments that the luminaries put forward in favor of their thesis for a larger than expected budget ranged between:
- we will pay off business (by business we mean the shady business in Bulgaria, the property of the state and which exists only because of corrupt government orders)
- we will use the money for our social program
- we will not use the money for our social program
- because we care about stability, but we care more about growth
The validity of each of these "mainstream" arguments is obvious. But today in parliament Chobanov managed to present the ultimate defense for the increase in the deficit and the accumulation of new debt.
According to him, since the cabinet plans to accumulate only 1 billion leva of new debt by the end of the year, this is not actually debt accumulation, because even with such new obligations, the level of consolidated state debt will remain slightly below the ceiling of 14.6 billion set in the GERB budget.
The second brilliant argument expressed by Chobanov today is that the new debt will not actually be debt, but an increase in government savings, because the funds attracted by the issuance of "non-debt" will be held in the fiscal reserve.
After all, it's no surprise that socialists want to spend more foreign money, not less. That's why they're socialists. The pressure for more spending will grow. The socialists promise it, and the various special interest groups are waiting for the benefits.
I am very interested in which bank they will put this 1 billion leva new loan in... I know that the fiscal reserve is mainly held in the BNB, but considering the government's close ties with a private bank, I wonder what the legal possibilities are for them to keep the money in it.
It simply has no other meaning than this 1 billion leva, which they are about to take half a year before the beginning of next year, when it is expected that there will be new payments that will possibly threaten the level of the fiscal reserve. And why exactly a full refinancing of the 800 million leva bonds, and not, for example, a partial one to increase liquidity.
Still, keeping borrowed money in a bank checking account leads to interest losses of millions on this 1 billion loan. And our banking system has shown that it can absorb even an extraordinary loan like this February's for agricultural subsidies for 800 million quite quickly.
Otherwise, the other things... The excise taxes that Oresharski promised to raise by some billions during the election campaign are being adjusted downward by 195 million and this is almost as much as the VAT, although the VAT will be returned and the "growth situation" is bad for VAT. That is, I expect that the excise taxes, especially for fuels, will sink into Lukoil, because the government is fighting monopolies very actively.
The expenses are also totally unclear and fall into the reserve for structural reforms, from which the government can spend them as it wants. The explanations were about some hospitals with mold, about some trains that were interfered with by some radio frequencies, and some figures here and there, which in total explain less than half of the new expenses according to my rough calculations. Well, it looks to me like we are simply nailing down a 2% deficit with new expenses and taking out what we will not collect as revenues. Now we are waiting for the big growth to come because the fiscal policy is no longer "ultra-liberal".