The surpluses that the former Finance Minister Asen Vasilev talked about in the middle of the year are misleading. This was stated in an interview for BGNES by Kuzman Iliev, an economist from the Council for Economic and Public Policies. He noted that in reality the state is in surplus until the last two months of the year, but in November and December large deficits begin.
“Indeed in July we saw this big surplus of BGN 1.5 billion, but it will be melted down very quickly in the coming months because of the budget update that was done. Many generous pledges were immediately pledged. Half a billion to municipalities, raising wages in the public sector, other expenses that anyway melt these large surpluses that are not there,” said the economist.
The problem is that there are cycles in the economy.
“There are times when everything goes up and times when it goes down. We enter the cycle when the economy goes down. There are many reasons. We have a very serious external economic crisis. Germany is defacto in recession, energy, inflationary and migrant crisis, war. We have increased expenses tremendously, but revenues are starting to stagnate, and at some point they may even fall. This is the deficit that is taking shape,” Kuzman Iliev pointed out.
According to him, the caretaker finance minister warned about these huge promises, and was the bell ringer. “The big question we’re facing is whether we’re going to continue to act this populist way, breaking the chain of prudent spending and going to some very large deficit levels, or are we going to start thinking about how to melt those deficits down,” he said.
Kuzman Iliev believes that we have three options: “Let’s raise taxes to fill the hole. This is a problem because we will crush Bulgarian business further, it will become uncompetitive; we can take on more debt to fill this hole. This means again to leave the problems for the future, when we will have to raise taxes again; to optimize spending, which is the most sensible thing. The next budget should not have this record spending, but it is very painful politically.”
“There is no politician who will do this thing right now. On the contrary, floating majorities and some very vague configurations are set, which actually means that there is no one to put their head down and do the painful thing. Rather, we will slide towards taking on new debt and raising taxes – both are very harmful,” predicted Iliev.
He rejected as unfounded the claim that the large deficit of BGN 11.3 billion will be made for the purchase of cheap Russian natural gas, as claimed by “Continuing the change”.
“These claims are a joke by Asen Vassilev, who has recently shown an exceptional ability to create his own financial reality and defend it quite confidently without comparing it with the facts,” Iliev stressed.
He recalled that the MoF’s medium-term forecast very clearly explains where this huge deficit comes from.
“These are costs and commitments that we undertake with the budget update. We are surprised, because Mr. Vasilev approaches like this and cannot come out and overturn whether the pensions should really be 3.8 billion more for next year. To tell about specific facts. To say whether the amount of BGN 1.5 billion for salary increase does not really exist. This with Russian gas is a joke, some kind of political chewing gum, which at the moment the more liberal part of the Bulgarian society wants to hear about the fact that someone is putting Bulgaria in a gas orbit, and does not want to talk about the substance. This does not honor Asen Vassilev”, Kuzman Iliev is categorical.
He does not think that the words of the acting finance minister are any kind of intimidation.
“There is no intimidation, but a very timely information to the Bulgarian society. We are violating an unannounced consensus that has been happening in Bulgaria since 1999, after we have experienced all the bankruptcies and dramas of hyperinflation. This consensus reads in colloquial language like this: We drive, we keep financial stability, because we are a small open economy. In the West, when they sneeze, we cough deeply. And now the following happens. Asen Vasilev believes that financial stability prevents Bulgaria from developing. We have broken the chain of financial stability and we are already untied,” said Iliev.
He sees in the merging of business with the state a kind of economic fascism.
“It sounds bold and scary. But let’s remember what Mussolini did – the state was involved in all businesses. At the moment, Bulgarian business is forced to expect that there will be some help from the state, which will pay anything above BGN 250 per megawatt hour in the energy sector,” explained Iliev and warned: “If we do not create a predictable environment in the energy sector, if we are not we keep the belt of the fiscal cart very tight, it will intensify and fall into the abyss”.
According to him, we may not fall into a recession until the end of the year.
“The fact is that in the last quarter all economists and the Ministry of Finance expect a serious slowdown of the economy, next year even more sensitive. It is difficult to talk about a recession. But let’s not be fooled: there is no way that your main economic partners, the engine of Europe – Germany, will enter a very difficult situation, in which businesses are closing and half of the households do not know if they will be cold in the winter, and Bulgaria will not be hit very heavy,” he said.
Kuzman Iliev urged us not to fall into extreme situations, but to take measures. One of the most important is to observe financial discipline.
“If we do not observe this discipline, we may find ourselves in a state of liquidity crisis. This year alone, we have to raise a debt with which to cover the deficit and to pay due interest of BGN 10 billion. About BGN 1.8 billion has already been raised. This means that for the last quarter we have to take BGN 8 billion. But we will take it from the market at a high interest rate, because we missed doing it at the beginning of the year when interest rates were low. Asen Vassilev should have done it foreseeably,” noted Iliev and added that the approach to gas was similar, where we did not secure long-term contracts with suppliers other than Gazprom as early as March.
“The most correct thing in this environment of multiple crises is to be united, not to politicize, not to talk about how the deficit will come, because gas will be bought, and in fact we have set this deficit absolutely objectively. Common sense must return to our society. We learned some lessons in the 1990s, and those lessons are that if you are too fiscally profligate, you pay a very high price in lost generations. We have to be much more reasonable than our Western partners, because we have much less right to make mistakes,” emphasized Kuzman Iliev.