Bulgaria’s “hidden budget deficit” may dash its prospects of adopting the euro. Until recently, the main obstacle was inflation.
- Bulgarian Prime Minister Boyko Borisov says Bulgaria’s hopes for joining the Eurozone may be dashed after officials discovered a “hidden deficit “ of BGN 2.12 billion (€1.08 billion) left behind by his predecessors from the Bulgarian Socialist Party (BSP). The BSP-led administration left this gaping hole in the budget by signing public procurement contracts for projects such as the construction of the Belene Nuclear Power Plant, Borisov said March 21. Unless Bulgarian authorities declare the contracts illegal, they will drive Bulgaria’s budget deficit as high as 7% of GDP. "If we don't annul those contracts, they will make us a state like Greece, which has lied both to Brussels and its own people," Borisov said on March 29. "That means 'game over' for our euro bid."
- Joining the Eurozone was a top priority for Borisov’s Citizens for the European Development of Bulgaria (GERB) party, which replaced the BSP in the summer of 2009. The cabinet had wanted to adopt the euro before its term ended in 2014. In September, the Finance Ministry announced it had initiated unofficial talks on entering the ERM II exchange-rate mechanism, the waiting room for euro aspirants. The GERB government made enormous efforts to cut public spending in the second half of 2009 so Bulgaria could finish the year with a budget deficit of BGN 500 million (€256 million) or 0.756% of GDP
- Bulgaria appeared to have had no problem in the past few years meeting the budget-deficit limit of 3% of GDP imposed by the Maastricht Treaty, the rulebook for Eurozone entry. It now appears the deficits for 2008 and 2009 were based on faulty data because they did not include the BGN 2.12 billion in contracts, Borisov said. "This means that firstly, we should immediately go and admit to Brussels that we deceived them, which would automatically remove any hope of us joining the Eurozone now,” the Novinite.com news agency quoted him as saying March 27.
- GERB has problems of its own when it comes to fiscal discipline. The Finance Ministry’s latest budget report show the state accumulated a deficit of BGN 499.1 million in January. A half-billion leva shortfall in the beginning of the year is not so problematic, but it suggests that GERB’s populist proclivities have made it difficult for the party to maintain a balanced budget.
- The good news is that GERB is obviously taking the deficit problem seriously. In partnership with the representatives of business and trade unions, the government has drawn up a package of anti-crisis measures that are expected to save BGN 1.6 billion for the budget. The measures still need official approval by the ministerial council.
- Until recently, inflation posed the biggest problem for Bulgaria’s euro bid. Bulgarian consumers suffered a record-high spike in prices during the years of rapid economic growth that preceded the global financial crisis. Inflation was more than two times higher than the Maastricht criteria allow, climbing to nearly 12% in 2008, according to the Bulgarian National Statistical Institute. The recession cooled things off considerably, with inflation sinking to 0.6 % for 2009, the lowest annual rate since 1994. In February 2010 inflation was 1.8%, meaning Bulgaria finally managed to fulfill the monthly inflation criteria for Eurozone aspirants, which was 1.83% for the month.