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Bulgaria next? Budget under investigation

by Unicredit reserch

Abstract

Following the Greek difficulties and the comments by some Hungarian officials regarding the week status of Hungary’s public finances, this week the Bulgarian budget was at center stage. To avoid sustainability of its fiscal position being called into question, the Bulgarian government already implemented a number of austerity measures, but the European Commissioner Rehn is considering sending a missionto the country.
To avoid sustainability of its fiscal position being called into question (during the first month of 2010 a deterioration of public finances was visible), the Bulgarian government already implemented a number of austerity measures, with a mix of revenue increases and spending cuts. With belt-tightening measures worth 2% of Bulgarian GDP, Bulgaria can enjoy a very solid fiscal position, we believe.
Indeed, Bulgaria has a public debt of 16.1% of GDP compared with around 35% on average for the EEMEA countries and close to 80% for the eurozone.
However, the tribulations related to Bulgarian fiscal accounts should not be underestimated. First, uncertainty (and revisions) over budget figures is something we regard as very negative, and misinterpretation among the government, investors and EU officials must be avoided. Second, the apprehension about the Bulgarian budget numbers should not be
considered the cause of the renewed market tensions that are affecting Central Eastern Europe, rather they represent another clear symptom of market nervousness, in our view.
In 2009, the Bulgarian economy felt the effects of the recession and GDP dropped by 5% (slightly better than the Central Eastern European region) and the budget also started to deteriorate. In 2010, belt-tightening proved necessary, as it became clear that revenues in the initial 2010 budget plan were overestimated.
What’s more, the 2010 budget deficit target is likely to be raised from 0.7% of GDP on a cash basis, under the initial fiscal plan, to 4.8% of GDP, under the budget revision, which at the moment is in the final stages of approval in the National Assembly. Importantly, the budget deficit on an accrual basis is thus estimated to reach 3.8% of GDP, lower than 3.9% posted in 2009.

Original title: Bulgaria next? Budget under investigation

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