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Simeon Djankov: 2012 budget to prioritize increase of incomes of socially disadvantaged, sectoral policies

For the first time, the 2012 budget will have state subsidies for vegetable producers, bee keepers, poultry and pig breeders

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13-09-2011 08:29:00
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Increasing the incomes of the socially disadvantaged and developing sectoral policies to enhance the opening of new jobs will be prioritized in the 2012 budget, Deputy Prime Minister and Finance Minister Simeon Djankov states in an interview for BTA. In Djankov's opinion, pensions will hardly be increased in the beginning of next year, but opportunities will be sought with the budget for 2012.

 

An increase of public sector salaries will only be discussed when all other items in the revenue policy make progress. In the last two years salaries in the public sector have gone up to exceed the inflation rate and that was made possible by streamlining the jobs in the individual ministries, Djankov comments. He underscores that next year's policy on incomes will not focus on salaries and pensions alone: the government will look where it can have a more active policy so that incomes can increase.

 

"For example, in the sphere of cultural and historical tourism investments have increased over 12-fold in 2011 compared to 2009. These investments generate more jobs in tourism - and tourism is a sector where there are plenty of small and med-size enterprises where a large part of the Bulgarian population works. This is a good policy," Djankov says.

 

Agriculture is another case in point. For the first time, the 2012 budget will have state subsidies for vegetable producers, bee keepers, poultry and pig breeders - and vegetable growing is strong in some of the economically backward areas. "This is what I consider good policy. When you see the draft budget for 2012 you have not only to look at the social items, but also at the new sectoral policies. I am waiting for the [October 23] elections to pass so that no one could say that this or that sector is receiving money as a campaign trick. That is why the work on the budget will be done right after the elections."

 

In contrast with the current picture of household expenses outgrowing incomes, Djankov expects that the third quarter of 2011 will see incomes increasing much faster than expenses, because there are traditionally strong sectors like agriculture, tourism and the extraction industry which do better in the summer. "So that one has to look at the entire year, not at individual quarters. While inflation was an issue in the first quarter of 2011, it decreased drastically in the second quarter, but then too bad news started coming from Europe."

 

Djankov blames the shrinking domestic consumption on fears due to bad news coming both from the United States and Europe. Eurozone Djankov is adamant that there will not be a second recession in Bulgaria. "Nor will there be a second recession in the eurozonme, although, unlike the end of last year when as a whole analysts were quite optimistic that Europe was finally coming out of the downturn, in the second quarter of 2011 there were quite a few negative comments and these continue in the third quarter - particularly about Bulgaria's southern neighbour.

 

The subject of whether Greece will have enough money to pay pensions and salaries in a month was raised just now. This appears for the fourth time within a year and is a cause of concern across the EU." In Djankov's opinion, although this is something the eurozone worries about, it is not a threat to its future. "I am convinced that the eurozone will be strong and the euro will become stronger than the dollar and the Japanese yen with time. The institution of the eurozone will overcome the problems, will learn from them and become even stronger. The eurozone will continue to exist. No member state has left the eurozone. But the crisis shows that the institutions around the eurozone are not sufficiently strong and therefore something should be done."

 

Financial Stability Pact Including in national legislation what Bulgaria calls the Financial Stability Pact is the way to give foreign analysts certainty that future European governments will not do what the Greek, the Portuguese and the Spanish government did, Djankov says. He is adamant that the only way to ensure stability for investors is to have governments working within the framework of a conservative fiscal policy. In the opinion of the Finance Minister, the passage of the second part of the Financial Stability Pact, which involves revisions of the Constitution, will give Bulgaria the last weapon it needs to join the eurozone. According to Djankov, this has to happen by the end of this year.

 

"With this step we can declare before the European Central Bank and the European Commission that we have fulfilled all criteria and want to join the eurozone. This can happen next year or the year after, depending on how the eurozone itself is developing." As of this year Bulgaria meets the inflation criteria. Its inflation now is below the EU average, its debt is much lower than the average in Europe, the budget deficit is within the limits, and this country covers all criteria, says the Minister.

 

Privatization There has been no serious privatization since 2005 while this year Bulgartabac Holding has already gone private, following leading project designer and metal installation works company Montazhi EAD, Djankov says. There are several more companies for which the procedure is to begin now - engineering and construction company Technoexportstroy, and the minority state shares in the country's three electricity distribution companies, which will be sold through the exchange.

 

The freight arm of the BDZ railway system is also being prepared for privatization but the procedure will take six to ten months, so this is not expected to happen by the end of the year. Djankov hopes that the government's minority shares in at least two of the three electricity distribution companies will be sold by the end of the year, thereby meeting the Privatization Agency target of 450 million BGN in receipts for this year. The money from the deals will go to the Silver Fund which is designed to guarantee the security of the Bulgarian pension system.

 

The privatization of the Electricity System Operator and the Bulgarian Energy Holding (BEH) is also in the pipeline. By the end of September the Ministry of Economy, Energy and Tourism should decide finally how BEH will be restructured but whatever the decision it will not influence the privatization deal itself - up to 20 per cent of BEH will be sold. This, too, will take six months. Energy Priorities Djankov believes that whatever the priorities in the energy sector, what really matters is to have more transparency there.

 

"For at least 20 years, there has been a debate about what our energy policy should be. Until two years ago it was all dictated by Russia - government after government complied fully with the Russian interests rather than with what was important for Bulgaria. But we put an end to that, even though it was quite hard and continues to be hard. It allows one to ask a question which was has never been asked before: Does Bulgaria need more energy generating capacities or it should focus instead on energy efficiency in its various forms, from projects to make buildings energy efficient to energy saving technologies in production and diversification of the energy sources of Bulgaria. One of the things this government can claim credit for is that this question is being asked now." Djankov is an advocate of energy efficiency rather than of new energy generating capacities, and believes that Bulgaria should focus on energy saving and the ample opportunities offered in this area of the EU-funded programmes.

 

"Here we are of the same mind with [Economy, Energy and Tourism] Minister Traicho Traikov and former [Regional Development] Minister Rosen Plevneliev who, I believe, will pursue such a policy in his capacity as the next president [of Bulgaria]. To me, this is the future of Bulgaria", says Djankov. Of the project for the construction of an N-plant at Belene, he says that consultant HSBC is expected to produce a report in late October or early November.

 

Of the Bourgas-Alexandroupolis oil pipeline project which has reached the stage of environmental impact assessment with a report awaiting approval, his own position is that it is not profitable for Bulgaria. Public sector and security systems Djankov says that the optimization of the public sector goes well and close to 30 agencies have been closed down. He, however, is aware that people expect more and says that more can be done.

 

"Such [administration reduction] processes are currently underway in the area of agriculture, in transport with the new Transport Minister Ivaylo Moskovski. [Optimization in] Security remains a big issue - not just the Interior Ministry but the whole security sector. There, as in the energy sector, we can now ask the big question: Who makes us feel insecure, who are we protecting ourselves against? I am talking about defence, about the State Agency for National Security, the intelligence and counter-intelligence.

 

What exactly their functions are, provided that the Cold War is long gone and we are surrounded by allies, NATO and the EU, " asks the Minister. He goes on to say that unlike the successful reduction of the central administration, the administration in municipalities has expanded by 2 per cent in the last couple of years. "I hope that after the local elections we will find much more perceptiveness and interaction on this matter," he comments. Tax Revenues and Social Insurance Contributions The Finance Minister expects that the National Revenue Agency (NRA) will achieve its target this year.

 

"The economy indicates this, even with the bad news coming of late from the outside," he comments adding that in the past two months the revenue administration has been offsetting by 40-50 million BGN each month the 250 million BGN deficit which built up earlier in the year. The collection of social insurance contributions as projected remains questionable which the Minister blames on poor planning. The shortfall in the receipts from social insurance contributions is some 160 million BGN and is expected to reach 300 million by the year's end, and one of the topmost tasks of the new director of the National Social Insurance Institute is to try bring down the deficit. Djankov expects the October presidential and local elections to be a heavy battle. He believes that ideology prevails when voters make their minds about whom to vote for, and that the winning ideology at present is the Centre-Right like GERB's - because Left parties have proven capable of starting crises but not of dealing with them.


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