The initiation of an excessive deficit procedure against Bulgaria is a serious signal both to the financial markets and to investors. This was stated by the former Minister of Economy in the caretaker government of Galab Donev, Nikola Stoyanov, on "This Saturday and Sunday" on bTV regarding the expected report of the European Commission on the state of Bulgarian public finances.
The occasion for the conversation was the words of Prime Minister Rumen Radev, who during a government meeting defined as “bad news” the expectation that the European Commission will initiate an excessive deficit procedure for Bulgaria.
According to Stoyanov, the procedure is triggered when a country does not meet certain fiscal criteria.
„Generally speaking, it has been identified that Bulgaria does not meet the criteria. It is not only Bulgaria - the situation is like this for many countries in the European Union at the moment. I think there are ten in total. In our case, we are talking about the 3% deficit criterion, and not the one according to which the state debt should not exceed 60% of the gross domestic product“, he explained.
According to him, in June the European Commission will publish a report that will state the existence of the problem, and in July a decision will be made whether to officially open the procedure.
„Once this procedure begins, generally speaking, there will be recommendations and a deadline for implementing them - six months or three months. Based on whether the state is implementing them well and whether results are achieved, the procedure can be frozen until we see how things develop. If it is considered that we are not implementing the recommendations well, a full-scale procedure is already opened, which can bring various damages to the state“, said Stoyanov.
He pointed out that the sanctions can range from increased control to financial measures.
“Initially, they may ask us to provide more information. Subsequently, they may make us deposit a sum of money – a percentage of the gross domestic product – interest-free in the European Central Bank. Of course, there may also be fines.“
According to him, there is also a possibility of limiting investment financing. “For example, the European Investment Bank may stop financing investment projects in Bulgaria or freeze them.“ Stoyanov stressed that the fact that other countries are in a similar situation should not reassure Bulgaria.
„We are not alone, but for each country the situation is individual. This is how it is also viewed by the European institutions. Individual recommendations are given for each country. The fact that we are in a group with other countries should not warm us in any way.“
He recalled that Bulgaria has already gone through a similar procedure.
„Bulgaria is not in such a procedure for the first time. It has already been - in 2010 we entered into such a procedure, and in 2012 we exited. Then it is clear that there are many commitments made by the state that are not secured, and many contracts concluded for which there is no funding. There is a kind of hidden deficit.“
According to Stoyanov, the current situation is the result of problems accumulated in recent years. “It is the fruit of decisions made in the last five years. Bulgaria had political instability and I, like many other experts, have said that outrages are being committed. Now we are simply reaping the fruits of these outrages.“
He specified that the caretaker cabinets did not prepare budgets. “The caretaker governments did not prepare budgets. We simply implemented the budget as it was set. The truth is that the parties gathered in parliament and bid on who could increase spending by how much, and then they prepared for elections again.“
According to him, state spending was increased without sufficient analysis.
“State spending was brutally inflated in a rather thoughtless way.“
Stoyanov criticized the practice of the state seizing all the profits of state-owned enterprises. “Even under Assen Vassilev as Finance Minister, the practice of seizing 100% of dividends from all state-owned companies began. There are no sectors that can only be said to be working well, and enterprises can survive if 100% of their profits are taken from them for several years in a row.“
He also commented on the advance payment of funds from the banking sector. “The state can ask them. In theory, they can ask them to pay funds in advance for the next ten years.“
According to the former minister, the excessive deficit procedure has not only administrative but also economic significance. “This is a signal in many directions. To investors. It has an impact on the economy. The fact itself is taken into account by everyone.“ In his words, it does not matter whether the political dispute is about the deficit in 2025 or 2026.
“This does not matter at all. These are political talks. Is it 2025, is it 2026. In order to have such a procedure, 2025 and how things develop in 2026 are considered.“
Stoyanov believes that the government will be forced to take more conservative measures to stabilize the budget. “It certainly obliges them to consolidate the budget. I think they knew that they had to do this anyway. It is possible that with this procedure, the measures will have to be even more conservative than those they intended.“
He gave a positive assessment of some of the already announced intentions. “I think that with the appropriate measures, some of which have already been announced, and if first the expenses in the administration of all ministries are seriously reduced, these are steps in the right direction.“
Regarding the need for new state debt, Stoyanov was categorical: “New debt must be taken out, it is clear. There is no other way in the short term. All the measures that will now be taken to consolidate the budget will most likely not be able to bring the deficit back below 3% by 2026, but it is important that the medium-term framework is clear.“
He added: “This is what the Europeans want to see - the direction and that measures are being taken that work.“
At the end of the conversation, Stoyanov also commented on the effect of Bulgaria's membership in the eurozone. “From my point of view, the benefits are felt very seriously, because I work in the field of attracting investments. The interest in Bulgaria is definitely much higher.“ According to him, the country has the opportunity to use this interest to accelerate economic growth.
“There are serious opportunities before this government to strengthen the attraction of investments, which would also help the growth of the economy, and accordingly reduce the deficit.“ Regarding consumers, he admitted that they felt the price increase the most.
„For consumers, there was certainly a big shock. It's not because of the eurozone, but everyone used the topic as a motive. Since last summer, a serious price increase began. Then came the problems in the Middle East. Motives are constantly being found for price increases.“
Nevertheless, Stoyanov expects the process to gradually calm down. „Personally, I think that the increase has become so great that the market cannot absorb it and will gradually self-regulate, because people will reduce their purchases.“