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Bulgarian economy has been slowing down, government untie the purse-strings

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Where is the Bulgarian economy heading for? This is a question that many Bulgarian and international institutions, such as the World Bank, the International Monetary Fund, the European Commission, the Bulgarian National Bank /BNB/, the Ministry of Finance, etc. have been trying to answer. Now is the season of the autumn estimates and assessments, which are considered to be far more plausible than spring forecasts.

The Bulgarian Ministry of Finance estimates that economic growth will reach 3.4% this year. The BNB is much more optimistic, forecasting 3.7%; the World Bank expects 3.2 % while the forecast of the European Commission is 3.6%. It is yet to be seen which of the forecasts will be closest to reality but it seems that the forecasts of the Treasury, which is directly involved in the management of the economy and which has the latest economic indicators, should be the most accurate.

This is also evident from the ministry's draft budget for 2020, published by the ministry on Friday. The document states that "economic growth will reach 3.3% in 2020, driven by consumers and investments." This slowdown has already been observed in some of Bulgaria’s largest European economic partners, such as Germany.

The slowdown, however, does not prevent Sofia authorities from projecting significantly higher public spending next year than the central budget, which will amount to 24 billion euros in comparison to 22.4 billion euros this year - an increase of 7%. The government has reiterated the promise of increasing public sector wages by 10%, devoting more public funds to health care and updating pensions of all senior citizens in the country by mid-2010 by 6.7%. There will also be an increase in the salaries of teachers in primary and secondary public and municipal schools. It is also expected that military spending will be brought close to 2% of GDP, as required by NATO. When it comes to income policy, the draft budget also envisages an increase of the minimum wage from 1 January 2020 to 312 a month, which is more than 8% above the present level.

State financiers are very keen on specifying that the 2020 budget will be balanced, i.e. there would be neither a surplus as it is now, nor a deficit. The country will take on just over EUR 1 billion of new government debt, which will remain below 20% of Gross Domestic Product and will place the country once again among the top three in Europe. It is very important to point out that there will be no tax increases in 2020 and inflation is not projected to remain at around 2%.

The government will spend more money next year, in line with the opinion of a number of experts and financiers, including former ECB chief Mario Draghi, who urged governments to untie the purse and spend more to stimulate consumption and growth. Speaking of consumption, it must be acknowledged that there is still much to be done in Bulgaria in this regard. Because, according to the Bulgarian Chamber of Commerce, the purchasing power of Bulgarians is just 50% that of the average for Europe and incomes of the citizens of this country are still far lower than the EU average of 14 739 euros per person annually. And if the government also managed to solve the problem of the 200,000 unemployed and uneducated adult Bulgarians and at the backdrop of lack of employees, this would also stimulate consumption and economic growth.

English: Alexander Markov

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