Bulgaria’s finance minister denies state at risk of bankruptcy

Bulgaria’s finance minister denies state at risk of bankruptcy
Finance Minister Rositsa Velkova gives an interview to broadcaster BNT on March 16. / Bulgarian finance ministry
By Denitsa Koseva in Sofia March 16, 2023

There is no risk of state bankruptcy, nor that has already happened, Bulgaria’s caretaker Finance Minister Rositsa Velkova said on March 16.

A day earlier, a leaked government document was published by local media. In the document, Velkova made such a prognosis. That was seen as an attempt to cause panic among people ahead of April 2 snap general election, with speculation she was trying to help the former ruling Gerb party gain more votes.

“We pay regularly the budget payments, obligations, pensions – this is not a bankrupt state,” Velkova said in an interview with state broadcaster BNT.

“Next week we shall repay a BGN3bn debt, after which the fiscal reserve will be around BGN10bn,” Velkova also said.

She commented that the leaked document was a report for the government including two scenarios.

“One [scenario] is that if we continue with those policies, which are under the acting legislation, the deficits in the next four years will be between 6-7% [of GDP],” Velkova said.

She added that such high deficits could threaten the country’s fiscal stability.

To avoid that scenario, the caretaker government of Prime Minister Gulub Donev decided to propose a draft budget for 2023 with a 3% deficit instead of the initially planned deficit of 6% of GDP.

However, in order to achieve the 3% deficit, the government proposes tax hikes.

Bulgaria has not adopted budget for 2023, as the caretaker government refused to do that, saying it should be made by a regular government. However, President Rumen Radev dissolved parliament in February as no party managed to form a ruling coalition and a government.

Velkova said on March 15 the caretaker government will propose restoring the 20% VAT rate in most sectors where it was reduced during the coronavirus (COVID-19) pandemic, as well as a one-off tax on excessive profit tax due in the second half of 2023.

According to the leaked document, in case of a higher budget deficit Bulgaria would be forced to borrow from the International Monetary Fund (IMF) and would be sanctioned by the EU. Moreover, the EC would stop payments and the country’s credit rating would be downgraded. The document also says that the fixed course of the Bulgarian lev to the euro could be changed.

The central bank has already said the latter is not possible as there is no reason for such an action and that the claims made in the document were “incompetent and irresponsible”.

Economist Evgenii Kanev commented on Facebook on the leaked document, suggesting it was a deliberate attempt to cause panic among voters and force them to pick Gerb, which says it will restore stability. He also commented that the currency board has survived over four major economic crises so far and it being destabilised now is unlikely. Moreover, Bulgaria has a high fiscal reserve, currency board reserve and record-high exports.

Kanev also claimed Velkova was trying to accuse the former government of Kiril Petkov of increasing social payments in order to hide the much lower tax revenue for January.

It accused Donev’s cabinet of regularly trying to cause panic and fear among people. Last summer, shortly after taking office, the government started active attempts to restore talks with Russian Gazprom on the renewal of gas supplies, and the government’s spokesman Antoni Kutev said that the winter would be tough and people could die of cold and hunger. None of these has happened.

Another threat was that, by providing weapons to Ukraine, Bulgaria is entering the war. Kanev also accused the government of remaining completely passive amid the ongoing campaign against Bulgaria’s planned adoption of the euro by far-right pro-Russian Vazrazhdane.