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Legal ceiling for budget deficit

The deficit of the consolidated fiscal programme (CFP) cannot exceed 2 per cent of the Gross Domestic Product

3E news
15-06-2011 06:53:46
Parliament Wednesday passed at first reading amendments to the State Budget Procedures Act connected with the Financial Stability Pact put forward by Finance Minister Simeon Djankov. Under the new provisions, the deficit of the consolidated fiscal programme (CFP) cannot exceed 2 per cent of the Gross Domestic Product (GDP), while the ceiling of the expenditures in CFP cannot be more than 40 per cent of the forecast GDP.



The amendments are expected to become effective on January 1, 2012. The amendments were passed in a 105-16 vote with five abstentions. The bill was supported by the ruling GERB party, MPs of the right-wing Blue Coalition and independent MPs.



The left-wing Coalition for Bulgaria and some Movement for Rights and Freedoms (MRF) deputies voted against the amendments. The far-right Ataka party did not take part in the vote. Chairperson of the parliamentary Budget and Finance Committee Menda Stoyanova said that the purpose of the bill is to introduce two more fiscal rules: about the balance of the budget and about expenditure, on top of the existing rule concerning the sovereign debt.



Stoyanova said that the need for such rules was revealed by the economic downturn. She refuted claims that similar fiscal rules do not exist anywhere else in Europe. "They are absent only in Greece, Cyprus and Malta," she said, adding that Switzerland, Germany, Hungary and Poland have rules for the balance of the budget in their constitutions while 18 other countries have fiscal rules in other acts.



Fifteen of them have budget deficit ceilings, combined with another fiscal rule, Stoyanova said. "This shows that Bulgaria is not the first, but rather the last country to introduce these rules," she said. Socialist MP Dimcho Mihalevski said that the examples listed by Stoyanova are not pertinent as the countries in question do not have a currency board mechanism as does Bulgaria.



In his view, the targets sought by the amendments can be achieved by reducing the ceiling of the sovereign debt. MRF MP Aliosman Imamov said that an analysis is absent into the impact of the suggested amendments to the economic growth and incomes, more specifically, how long will the latter remain frozen. Co-chairman of the Blue Coalition Martin Dimitrov said that Bulgaria needs restrictions on its budget deficit. In addition, it is a good thing to have a cap on expenditure, for the incumbent as well as future governments, he said.

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