The budget deficit for this fiscal year is likely to reach 2%/GDP (BGN 1.7bn) against a current target of 1.3%/GDP (BGN 1.1bn) as the government is looking for additional BGN 500mn (a slight drop from the previously discussed figure of BGN 511mn) to cover unexpected costs, finance minister Petar Chobanov announced in an interview for the Bulgarian National Radio. Thus, after the revision, Bulgaria's budget gap will still adhere to the Maastricht criterion for a 3% of GDP ceiling on government budget deficits.

The extra funds will not be used for an increase in social expenditure but to cover gaps resulting from overly optimistic revenue forecasts of the previous government, Chobanov noted. The additional funds are also need to repay outstanding liabilities to businesses and to speed up the process of VAT reimbursement (unpaid reimbursements currently amounting to BGN 315mn).

We remind that on July 5, finance minister Chobanov announced government's intentions to issue BGN 1bn (EUR 511mn) in new public debt by the end of the year in order to cover the higher than initially projected budget deficit.

In a recent op-ed piece by Desislava Nikolova, chief economist of the Institute for Market Economics, a Bulgarian think-tank, an argument is made that the government is facing problems not with the revenue but with the expenditure side of the budget. Public expenditure on wages has grown by 8% for the first five months of 2013, while a 4% rise was planned for the whole year. Similarly expenditure on maintenance has grown by 7% for the first five months, while the planned growth was just 1% for the whole year.

Following a regular staff mission to Bulgaria, the IMF said on July 3 that the 2013 budget deficit target is achievable. The Fund welcomed the planned increase in targeted social protection but only within the existing budget envelope. The country should continue with the fiscal consolidation, as described by the EU's Convergence Program, according to the IMF.

According to latest budget data, the general government budget this year is falling only slightly behind last year's performance. The budget posted a BGN 45.5mn surplus at end-May versus BGN 67.4mn at end-May 2012.