The World Bank offers for public discussion our understanding of the necessary economic actions and their implementation in the budget. Bulgaria has only two possible paths for our future development. One is right-wing and with a good result, the other is easy and with a sad ending.
Here is what "Blue Bulgaria" is offering:
The first is the path of the right. This path implies rethinking economic policy and undertaking deep reforms.
This means attracting private investment in infrastructure and downsizing and optimizing public administration. Ending the administrative determination of incomes and limiting the preemptive increase in expenses, Ending price subsidies and replacing them with care only for those truly in need.
This is the only path that will lead to sustainable income growth, economic growth and effective social care for the sick and the elderly.
The second path is the path we are taking today. The path of irresponsibility. A path on which we all behave like at a gypsy wedding, refusing to think that we will have to pay the bill for this madness, and that tomorrow!
The practice of high spending without the necessary reforms is already leading to things that we see in official statistics - a growing deficit, an increase in government debt and a deepening of structural problems. In this scenario, public sector wage and pension costs continue to rise without coverage and on loan, relying on short-term and unrealistic sources of revenue. This will deepen economic instability, drive away private and foreign investment, and deprive the country of the opportunity for sustainable growth.
In the end, we will all be significantly poorer together!
The choice between these two paths is critical for the future of the country.
Unfortunately, Bulgaria has taken several steps down the foolish path. This is because there is no right-wing political alternative in the parliament, ready to raise the important issues and fight for real solutions.
The proposed budget is proof of this.
The WB offers for public discussion our understanding of the necessary economic actions and their implementation in the budget.
We are convinced that the budget should be a tool for implementing set political goals.
Here are the major goals according to the WB:
Economic growth ahead of the EU average
Means to achieve:
Annual investments of between 25% and 30% of GDP (50-60 billion leva for 2025). We are currently at a level of about 15% of GDP, 80% coming from the private sector. This means attracting an additional 20-30 billion leva per year above the current level, which can only come from large foreign private investors. There is no such capital in the private sector in Bulgaria, nor are there such reserves in the state budget. The part intended for investments from European funds (including under the PVP) is about two billion leva per year. However, foreign investments will not come quickly in such volumes if we do not stabilize politically, do not enter the eurozone, do not keep taxes low and flat, and do not quickly build a modern infrastructure. Budgetary policy must be consistent with these goals. Therefore, the state must allow private investment in the construction and maintenance of public state and municipal infrastructure and attract private investment in state-owned companies (from strategically large international companies) and stop playing the role of a large trader and investor, because 1) there is no money for this, 2) the little money that is available for this is stolen and wasted, and 3) where there is a lot of state, there are not many private investors.
Rapid construction of quality and modern infrastructure
Means of achievement:
Construction and maintenance of large public infrastructure at the state and municipal level with private capital on a concession basis. This includes construction and completion of all highways, modernization of main railway lines to increase speed to 160 km/h and more (with liberalization of passenger railway transport and admission of private investors there), construction and modernization of water supply and sanitation cycles of large cities, including construction of new reservoirs and dams, where necessary, construction of waste processing plants and landfills, construction of tunnels under the Stara Planina Mountains at Shipka and Petrohan, construction of new bridges on the Danube River, modernization of the ports in Varna and Burgas (including relocation of the port in Varna from the city center to Lake Varna), modernization of the international airports in Plovdiv and Gorna Oryahovitsa (after termination of the existing unfulfilled concession contract there), modernization of railway stations and the areas around them in large cities, etc. These are projects worth a total of well over one hundred billion leva, which our society has an acute and urgent need for, but which the state will not have not just soon, but for a generation to come. At the same time, these capitals can be invested in Bulgarian infrastructure by large foreign operators of similar facilities and thus our country will receive a modern infrastructure at an average European level in one mandate, and not in one generation. The volumes of annual foreign direct investments in infrastructure construction will also lead to the fulfillment of the goal of raising the total amount of investments in the economy and achieving overtaking economic growth. In fact, there is simply no other way for this to happen. The state's exit from its role as an investor and repairer of infrastructure will free up scarce financial resources for other important budget priorities and will drastically reduce the large-scale corruption, which is mainly fueled by these state expenditures.
Achieving effective and accessible education and healthcare systems
Means for achieving education goals:
Guaranteeing modern infrastructure, a quality learning environment through solutions based on public-private partnerships, targeted use of available resources and strategic planning
Promoting private investment and PPPs through long-term contracts with private companies for the construction and maintenance of school infrastructure. Foreign or local investors can build new schools or campuses, with the state and municipalities paying in installments through guaranteed revenues from future budgets.
Private investment in technology and facilities. Companies specializing in technology should be attracted to build digital laboratories, innovation centers and modern learning spaces in exchange for tax breaks.
Immediately guarantee funding under the National Recovery and Resilience Plan for projects related to the digitalization and modernization of schools.
Administrative and regulatory measures to ease investment procedures in education: Reducing bureaucracy for investors.
Building innovation and technology laboratories that create an environment for practical training in real time.
In the healthcare sector, the goal is to provide more, better quality and more efficient healthcare services against the annually increasing costs of society for healthcare.
Means to achieve in healthcare:
Maintaining effective and equally accessible outpatient care, ensuring active prevention and prophylaxis of diseases, early diagnosis and timely treatment for all Bulgarian citizens. A 4-year state-funded program for opening GP practices in settlements where there are no or insufficient such practices, in accordance with the National Health Card. Financial support for the implementation of the goals set out in the Concept for the Development of Emergency Medical Care of the Council of Ministers of 2014. Effective and financially supported programs for prevention and early screening of socially significant diseases, guaranteeing better health outcomes for less money spent by society.
Optimization of hospital care, allowing the huge funds that are now spent on hospital services to be invested in the real health needs of people, and not in financing the business interests of certain structures. Termination of contracts with the NHIF of hospitals whose activities do not correspond to the health needs of the population in the relevant region. Active state policy for stabilizing the existing structure-defining hospitals and opening new structures where there are none, in accordance with the National Health Card. Transforming some of the beds for active treatment into those for long-term treatment and palliative care.
Guaranteeing affordable drug treatment at the lowest possible price. Introducing a centralized state platform for electronic auction of drugs for the needs of hospitals. Introducing a payment-for-result mechanism for expensive innovative drugs financed with public funds. Tying the payment by the NHIF for new drugs to a guarantee of maintaining the effective drugs already on the market from the same manufacturer.
Stopping the pro-inflationary policies that are deadly for the poorest segments of the population
Means:
Containing total budget expenditures in the area of social payments, pensions and salaries of public sector employees. Reformatting social programs with an emphasis on supporting only people in need, using objectively measurable poverty criteria, including comprehensive income and property status. Setting reasonable time frames for access to assistance programs. Changing the scope of social programs with a focus on food assistance, household energy, basic transportation services, and childcare and education. Following the Swiss golden rule when increasing pensions. Reducing the number of public sector employees and limiting wage growth there within the framework of inflation in the medium term.
Ending price subsidies and replacing them with social programs to support only truly poor people in need.
Achieving a conditionally balanced budget within one mandate.
Rapidly improving the social and technical infrastructure of the abandoned regions.
Means:
State commitment to investments in the poorest and most depopulated regions of Bulgaria by redirecting funds from the construction and renovation of large infrastructure projects, which will be implemented by private investors on a concession.
Decentralization of budget revenues with a concession of up to one third of VAT to municipalities (the poorest municipalities will receive the largest percentage of VAT, and the richest the smallest). This will not replace the state's commitment to investing in social and technical infrastructure in poor municipalities.
Sufficient, fair and timely social assistance to the truly needy categories of citizens.
Means:
Separation of social payments from income policies and the way pensions are formed.
Clear criteria for which groups of citizens should be subject to social assistance using objectively measurable poverty criteria, including comprehensive income and property status.
Defining reasonable time frames for access to assistance programs.
Changing the scope of social programs with a focus on food assistance, household energy, basic transport services and childcare and education.
Adhering to the Swiss golden rule when increasing pensions.
A new system for TELK
Income tax refund for children
Guaranteeing an environment for a competitive economy
Means:
Labor market – reducing the number of employees in the public sector (respectively increasing the number of available human resources for the private sector), limiting wage growth in the public sector, decoupling the minimum wage from the average wage
Low flat taxes
Equal VAT
Ending price subsidies
Privatization
Introducing the euro
Ensuring access to investment financing through a larger state guarantee fund
Guaranteeing national security and the capacity to counter crises
Means:
Generating a fiscal reserve to meet crisis situations, such as migrant waves, natural disasters, pandemics, global recessions, war.
Investments in defense and reformatting the current budget limits in this area
Investments in border security
In contrast, the proposed budget for 2025 lacks set goals. Instead, we are presented with a set of numbers that include all election promises. A budget that deepens existing problems and creates new ones.
According to the World Bank, here are the problems with the proposed budget for 2025 by the Council of Ministers:
A huge increase in spending by over 20 billion leva is envisaged, which has not happened since Videnovo's time. This will lead directly to an increase in debt and serious inflationary pressure.
The state will redistribute over 46% of GDP – an absolute record in our recent history – at a time when there is no economic recession, no war or natural disasters, no migration crisis or pandemic.
Dramatically increased fixed costs - for salaries of public sector employees, for pensions and for subsidies - are being covered by one-off and unrealistic schemes (such as the fictional “tax amnesty“). In addition to the fact that such one-off “revenues“ will not happen, the problems with increased fixed costs will remain in the coming years, when there will be no reserves for one-off revenues. And there are none now.
The planned revenues are at least 8 billion leva (about 4% of GDP) above the realistically achievable ones, which will lead to a huge budget deficit of over 7% of GDP.
An increase in the tax and social security burden is planned (higher maximum social security threshold and higher social security rates). New specific taxes are also planned, such as the one on the extractive industry. This will further cool the economy and reduce the appetite for investment from both foreign and domestic investors. The slowdown in investment and growth will lead to a slowdown in income growth for all Bulgarian citizens and a deterioration in tax revenues in the medium term.
No participation of private investors in the construction and maintenance of public infrastructure is envisaged. At the same time, the state does not have the financial resources, administrative capacity and “moral compass“ to cope with these tasks. After the suspension of all capital programs of the state and municipalities, in the last few years there has been an urgent need for investments in public infrastructure to deal with water crises in a number of cities, waste management, accidents on the railway infrastructure and increased mortality on the roads. The proposed budget does not show how this will happen.
No optimization of the administration, which has only grown in recent years, is envisaged. Wage increases there are planned by 25-30% with expected inflation of about 2.5%. This will create additional pressure on the labor market, from which Bulgarian business will suffer. The average salary in the public sector is well ahead of the average salary in the private sector, which will attract qualified people to the public sector, given the already serious shortage of personnel in the country's economy. This will further limit the opportunities for economic growth (state officials produce nothing) and will raise the cost of business salaries, which will worsen its competitiveness.
No measures are envisaged to stimulate private investment and to facilitate access to financing for innovative companies, businesses with high added value and small and medium-sized enterprises.
No privatization of state-owned companies is envisaged, and at the same time, no funds are envisaged to recapitalize the drained state energy sector (for which billions will be needed) and to cover the losses in state-owned companies, such as BDZ and Bulgarian Post.
Overall, the budget constructed in this way is unrealistic in its revenue part, inertial and non-reformist in its logic, and harmful in essence. It will lead to a deficit well above the Maastricht criterion of 3% of GDP and will cause high inflation again. Thus, we will violate two of the criteria for joining the eurozone and once again miss the opportunity to complete the country's European integration.
Blue Bulgaria expresses its concern that the public debate on the budget is being conducted “in pieces”, in separate parts of it and is dominated by sectoral lobbying disputes.
We call on the parliamentary parties, employer organizations, unions and the entire non-governmental sector to debate and reach agreement on the political goals, the instrument of which will be the 2025 budget.