The current budget situation is strikingly reminiscent of that of three years ago. The state budget for 2023 was adopted with a deficit of exactly 3% of GDP, after the regular government of Academician Nikolay Denkov managed to completely reshape the basic project of Galab Donev's caretaker cabinet. In April 2023, Galab Donev's government shocked the financial sector by developing a macro framework with a record deficit of 6.4% (nearly 12 billion leva) and a new debt of over 13 billion leva. After the formation of a regular government, Finance Minister Assen Vassilev radically reduced spending and eliminated unspecified buffers in order to bring the country into the Maastricht criteria for the eurozone.
The Initial Plan: Galab Donev's Conservative Approach
The caretaker government defended its version on the grounds that it only reflected current legislation and legacy expenses. According to Prime Minister Galab Donev, his cabinet has deliberately not implemented changes in tax policy, leaving it to the political parties in the 49th National Assembly to decide for themselves which expenses to cut.
- Risks: The 6.4% deficit project condemned Bulgaria to an excessive deficit procedure by the EC and froze membership in the Eurozone.
- Capital expenditures: Large-scale buffers were planned, which the regular government later determined to be artificially inflated.
Assen Vassilev's financial correction
Immediately after taking office, Finance Minister Assen Vassilev announced that the budget with a 3% deficit was completely realistic and feasible. The correction happened within less than a month as follows:
- Maintaining social payments: Spending on pensions, public sector wages and social benefits was not reduced.
- Removing "hollow" expenses: Large-scale capital expenditures for ministries that did not have ready and scheduled projects were cut.
- Increasing collection: A 100% dividend from state-owned companies and tighter fiscal control were set.
Here is the full justification of Assen Vassilev from June 20, 2023, quoted from the website of the Ministry of Finance:
„The budget we are developing for 2023 is feasible. It provides a good basis for the next few years, as it is calculated according to extremely realistic parameters – 1.8% GDP growth, 7.8% average annual inflation and 3% deficit“, said the Minister of Finance Assen Vassilev at a briefing. At the briefing, he presented the progress in preparing the country's budget for 2023 after the meeting with the members of the Budget and Finance Committee of the 49th National Assembly.
Assen Vassilev announced that there are several major changes compared to the budget proposed by the caretaker government. The set budget deficit is 4.582 billion leva, which is a 3% deficit on an accrual basis and 2.5% on a cash basis. The country is expected to receive a second payment under the PVP within this year.
In the revenue section, it is planned to deduct 100% dividend from the profit of state-owned enterprises and commercial companies with state participation in the capital. This will provide 780 million leva in additional revenue to the budget. He also announced that he had requested the State Financial Inspection Agency to enter all companies that pay dividends in order to check whether their accounting policy meets Bulgarian and international standards. An additional increase in budget revenues by 3.526 billion leva is also planned, so that the revenue part reaches 69.321 billion leva, mainly from increased collection by the National Revenue Agency and the Customs Agency.
There is a reduction in the expenditure part of the budget by refining and reducing capital expenditures by 1.851 billion leva, which will amount to 8.87 billion leva. In this way, funds have been secured for all European programs, the payments for which expire this year, as well as capital expenditures that have a selected contractor, are in the process of implementation or are in an advanced stage of the order. There is a reduction in expenses under the item “Maintenance“ of the administration in the amount of 1.5 billion leva.
„The costs for pensions and salaries have not been touched. It is set that teachers' salaries will be 125% of the average salary, funds have been provided for increasing the salaries of assistants at universities. The NHIF budget has provided funds so that all hospitals can reach minimum salary levels of 1,500 leva for a nurse and 2,000 leva for a doctor“, added the Finance Minister. The Disaster Fund will be increased from 70 million leva to 130 million leva in view of the additional events that have occurred. So far, 60 million leva of them have been used.
The Minister announced that the tax breaks that were introduced last year and the previous years, for restaurateurs, bread, flour, gyms, books, etc., will remain until the end of the year. Only the tax rate for natural gas is being restored to 20%. “My opinion is that it is not good to touch taxes in the middle of the year. Everything related to additional tax rates must be considered from January 1, 2024, in order to have predictability for the entire business“, stressed Vassilev.
With the plan made in this way, it is planned that the debt will remain the same as a percentage of GDP as last year, announced Assen Vassilev. “BGN 3 billion of debt has already been withdrawn to return old debt. The increase in net debt will be in the volume of the deficit“. With this budget, we are fully within the parameters set by the Maastricht criteria, the minister was categorical. The budget is calculated at a GDP of 184,486 million leva. This amount was set by the cabinet.
Assen Vassilev announced that the budget is planned to be submitted to the National Assembly in the first week of July, so that it can be adopted by July 31 and enter into force on August 1. “Clarifications are still being made with some of the ministries and other primary spending authorities“, he added".
Final adoption
On July 28, 2023, the National Assembly officially voted on the State Budget Law. The law entered into force upon its promulgation in the State Gazette on August 1, 2023, guaranteeing a deficit within the framework of European requirements.