A EUR 72 million record budget deficit for May 2009



On July 2nd the Ministry of Finance published state budget statistics for May 2009 The cumulative budget surplus has decreased from BGN 675.5 at the end of April to BGN 555.4 at the end of May. The gap between government expenditure and revenues for the month of May is BGN 120 million, BGN 140 million excluding EU funds. Contributions to the state budget from taxes have decreased by 10% Year-on-Year, while the Cabinet had predicted a 15% increase throughout 2009. At the same time, government spending ahead of the parliamentary elections Bulgaria held on July 5th has increased between 5% in January and 40% in April Year-on-Year.



Analysis and forecast (↑ increasing risk)


The disturbing trend which the May 2009 statistics demonstrate is likely to deepen

before reversed. One of the main culprits for a declining stream of revenues into the state treasury – contracting exports at the rate of 40% for May 2009 – are unlikely to reverse in the short run. The industrial output indices in Bulgaria show a drastic decline in January 2009 which has not been compensated. Business environment surveys also predict a negative trend this fall. At the same time, government expenditure in June, one month before the elections, is likely to be higher than in May, which leads us to expect a higher budget deficit next month.


The reversal of this scenario in the last quarter of 2009 will be a priority of the newly elected central-right government. The party which gained the 40% of the voters’ support and will carry the main responsibility for forming a Cabinet and implementing an anticrisis policy has promised to revise the State Budget and reconsider public expenditure. Citizens for European Development of Bulgaria (CEDB) has also outlined receiving a loan from the IMF as one of its priorities. Regardless of the exact conditions of the loan, IMF will require a balanced budget. This will motivate CEDB to cut expenses and stimulate business production and consumption. The extent to which CEDB and their potential coalition partners will apply the conservative economic policies outlined in their pre-election programs, particularly vis-a-vis levels of social security taxes, will also be determined by the state of public finances the new Cabinet will inherit when it starts work.





Bulgaria elects a center-right ruling party with 40% Majority



On July 5th Bulgaria held a parliamentary election. Votes were cast for 209 proportionally elected members of parliament and 31 MP’s elected through majority vote form each of Bulgaria’s 31 voting districts. The center-right party Citizens for European Development of Bulgaria (CEDB) gained a little under 40% of the votes, which was up to 10% higher than what pre-election surveys predicted. Five other parties will enter the next Parliament. The Bulgarian Socialist Party (BSP) with 17.7%, the National Movement for Rights and Freedoms (NMRF) with 14.5%, the nationalist ATTACK party with 9.4%, the right-wing Blue Coalition with 6.8% and conservative Order, Law, and Justice with 4.13%. The party of the energy tycoon H. Kovachki and the liberal National Movement for Surge and Stability, which is lead by the former monarch Simeon Saxe-Coburg-Gotha and is completing its second term in power, did not pass the 4% entry barrier.


In the majority vote, CEDB gained another 26 seats and NMRF gained 5. As a result, CEDB is currently estimated to have 116 seats, BSP – 40, NMRF – 38, ATTACK – 21, the Blue Coalition – 15, and Order, Law, and Justice – 10. The President of Bulgaria convened the first plenary session of the next Parliament for July 14th, by which date CEDB will have to hold talks with other political parties and form a coalition either on party level or by attracting experts from other parliamentary groups.



Analysis and forecast (↓ decreasing risk)


We can certainly say that Bulgaria’s next government will be center-right. The informal leader of CEDB and current mayor of Sofia, Boyko Borisov has confirmed that he will take the prime minister post. The scenarios for the make-up of the next cabinet are several, but it is likely that Borisov will rely on experts with local and international experience. CEDB’s overwhelming majority will complete the task of forming a government a bit more easily but the state of the country’s economy will present significant challenges for Borisov’s Cabinet.


These elections presented some shifts in the rest of Bulgaria’s political elite as well. The Socialists experienced a serious loss of confidence, which is likely to result in internal party reorganizations. CEDB was the recipient of the anti-Socialist and anti-status quo rational vote. There are speculations however, that the loss was strategic, with BSP giving up responsibility in difficult economic times. The legendary power of NMRF and especially its leader, Ahmed Dogan was also questioned and will possibly decline in the next few years. Mr. Dogan and his dubious ruling practices became a divisive issue in this year’s elections. While the NMRF voters were consolidated by this trend and their number increased in absolute numbers, NMRF’s political allies, namely NMSS and LEADER took a loss. An emotional anti-Dogan vote was also stirred which is responsible for a significant part of CEDB’s victory and the high voter turnout of 60.2%. NMRF and the Socialist will remain in opposition in the next government, but solid core constituency and presence in various state institutions will sustain both parties. The CEDB Cabinet has significant promises to deliver in order not to discredit itself and switch the balance of power between left and right again.