Bulgaria’s government on 11 November adopted a draft budget update, raising the deficit target to up to 3.7% of projected 2014 GDP to provide for increased spending and lower-than-planned revenue.
The centre-right minority coalition cabinet, which took office last week, also withdrew the budget update drafted by the caretaker government led by Georgi Bliznashki that had projected a budget gap equivalent to 4.0% of GDP.
Finance Minister Vladislav Goranov told reporters after cabinet meeting that the shortfall projected in the budget revision could lead the European Commission to launch an excessive deficit infringement procedure against Bulgaria.
The government is fully aware of that risk but it will explain to the Commission what the reasons for increasing the budget gap had been and will try to bring the deficit below the ceiling of 3.0% of GDP allowed under EU rules as soon as possible, Goranov said.
According to preliminary figures released by the Finance Ministry on Monday this week, Bulgaria’s consolidated budget deficit for the first 10 months of the year totalled BGN 1.775B equivalent to 2.2% of projected 2014 GDP.
Revenue projections in the 2014 budget bill made by Oresharski’s government have proved overly optimistic, as expected, Goranov said. Full-year budget revenue is expected to be BGN 1.06B short of target, equivalent to 1.3% of projected GDP.
The minister also warned a lower deficit would cause huge delays in payment to businesses.
In view of increased deficit projections the government plans to take out new debt worth up to BGN 4.5B by the end of the year. The planned new debt financing includes providing a loan to the Bulgarian Deposit Insurance Fund and liquidity support to banks in the amount of BGN 2.9B.
Increased government borrowing will require raising Bulgaria’s debt ceiling to BGN 22.5B as of end-2014 equivalent to 28.4% of projected GDP, according to Finance Ministry estimates.
The proposed budget update has to be approved by Bulgaria's parliament to take effect.