Bulgaria's finance ministry has prepared a revision of this year's fiscal plan, intending to raise the budget deficit to 2%/GDP from current 1.3%/GDP. According to the document, this year's deficit will amount to BGN 1.6bn (EUR 818mn) and not to the originally projected BGN 1.1bn as the ministry plans to issue more debt to finance it. The proposal is pending approval by the government and parliament.
The ministry explained the need for revision with a downgraded budget revenue forecast and higher than planned spending. Revenue collection is expected to fall short of the original estimate by as much as BGN 293mn, while expenditures will grow by BGN 200mn.
The biggest drop in collection is to come from 2.9% lower-than-expected VAT revenue, which is seen shrinking by BGN 229.2mn. The forecast on proceeds from excise duties will be cut by 4.5%, equal to BGN 195mn in absolute terms. The update in the estimates was explained with the weaker than expected domestic demand. However, non-tax revenue is seen exceeding the 2013's budget law projection by 15.2%, or BGN 262mn.
On the expenditures side, the ministry proposes a change only in the budget's reserve for urgent and unexpected expenses. The reserve is to grow to BGN 319.9mn from current BGN 119.5mn. We note that the funds in the reserve are not earmarked - the parliament approves only their size but not the purpose they will be spent on. In other words, this reserve provides the government with money it can spend on its own discretion.
According to the finance ministry, the government needs the money to pay the business sector BGN 160.4mn for services it has already provided to the state. In addition, it plans to spend BGN 40mn more on social welfare.
The government will finance the increase in the deficit by issuing additional public debt of up to BGN 1bn. In order to do so, the ministry will also propose the parliament to raise the ceiling for the amount of new debt the government is allowed to issue in 2013. The current ceiling is set at BGN 2bn and the government has already borrowed BGN 1.49bn worth of new debt so far in 2013.
According to latest budget data, the general government budget this year is falling only slightly behind last year's performance. The Jan-May budget posted a BGN 45.5mn surplus versus BGN 67.4mn in the like period of 2012. Five-month revenue climbed 7.2% y/y to BGN 11.8bn at end-May, equivalent to 38.6% of the full-year projection, compared to 38.3% of the year's total at end-May 2012. Expenditures (including the country's contribution to the EU budget) grew 7.4% y/y to BGN 11.7b, equal to 38.6% of the 2013 projection versus 38.3% in 2012.
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