It is important that the state’s budget deficit is 3% of GDP. To be a good player in terms of fiscal discipline in the European Union a country must meet another criterion which is not that well known by the general public in Bulgaria, and this indicator is called ‘structural deficit’. According to the draft treaty on stability, coordination and governance in EMU, the latter’s maximum size must be less than 0.5% of GDP. For countries whose debt does not exceed 60% of GDP, which is the case in Bulgaria, the structural deficit could reach up to 1% of GDP.
The point here is that it is not actually that important whether the actual budget deficit is one, two or three percent. If the structural one exceeds 1%, then Brussels can trigger financial sanctions against the country in breach. And despite the government’s boasting with the fiscal stability of Bulgaria, the bitter fact is that Bulgaria does not meet enrollment criteria in the draft treaty in terms of its structural deficit. According to unofficial information, it could reach 1.5% of GDP for 2012. According to the preliminary government forecasts for 2011 its amount was 1.68% – and its exact value will actually be seen when the report on the implementation of the 2011 state budget is published. In 2010, too, the structural deficit exceeded 1.7 percent of GDP. According to experts, since the crisis began in 2009 there has been no year with a structural deficit below 1 percent. And since this indicator has been monitored for a long time by the European Commission, it is clear why officials in Brussels are rather skeptical regarding Bulgaria’s constant self-praise for its fiscal stability.
And what is in fact this exotic indicator the European Commission values so highly. It is not visible in the reports of the Finance Ministry on the implementation of the state budget act each year and can hardly be found in the detailed reports. It turns out that its calculation is based on a very complicated formula that takes into account cyclical economies and the need for structural reforms. People who know how it is done are just several in the whole country. Generally, when the economy is in a period of growth, the revenue side of the budget is reduced by the effects of the growth. If the average GDP growth rate for the past 10 years was 3%, but during the economic boom the annual increase was 6%, it then is automatically reduced to 3% and when recalculated in taxes it leads to reduced budget revenues – not in real terms, of course, but only for the purpose of reporting the structural deficit. Similar is the process when there is recession, but then what is cut are the reported costs, i.e. they are reduced by the amount of funds spent to cover the negative effects – such as welfare and unemployment costs.
It is important to know that in most countries there are independent structures that are engaged in the calculation of other macroeconomic indicators which are also concerned with calculating the structural deficit. Armed with their results, governments report to Brussels their planning and implementation of the national budgets – they argue, prove their figures and bargain. In Bulgaria such an independent structure was the Agency for Economic Analysis and Forecasting. But Finance Minister Dyankov closed it in 2010 and part of its specialists went to work in the private sector, where both the pay and superiors’ attitude meet their qualifications. Who is now tasked with this function and calculates on behalf of the state such important parameters as the structural deficit is not publicly known. Perhaps these are people from the financial ministry, but as skilled as they may be, their assessment will not be taken by Brussels as impartial. Alternatively, the government may accept unreservedly the European Commission’s estimates of the country’s structural deficit, which is also associated with risk the country to be sent to the group of offenders and, of course, fined.
