Dimitar Chobanov, Chief Economist at the Institute for Market Economics: A minimum budget deficit close to zero should be guaranteed

- Mr. Chobanov, the negotiations on State Budget 2012 are entering their final phase. What do you expect from this document after its adoption?
 - The budget forecast for 2012 largely depends on the expectations for the following year and it is still difficult to say how the Bulgarian economy would develop. Both options for growth or decline are equally likely. For this reason, sticking to a conservative outlook, most of all regarding the expected revenues is one of the most important requirements that should be followed.

In 2012, the budget deficit should not exceed the allowed threshold stipulated in the Stability and Growth Pact, but the Government should also think about limiting it further. Currently, international markets are full of examples whereby analysts and investors are particularly sensitive to budget data. This means that we should be extremely cautious. i.e. the Government's priorities should be clearly stated - no matter whether we speak about internal order and security, about construction of highways or other public infrastructure or about other sectors, which are not of such high priority. The responsible bodies should be focused and consider how to reduce costs.

It is quite possible that no economic growth would be recorded next year or that we would suffer from the unfavourable impacts of inflation on revenues. Big surprises cannot be expected from the revenue part, given the foreseen maintenance of the tax rates. Overall costs can be reduced and as I already mentioned – the Government should clearly define its priorities, regarding the allocation of resources.

- Minister Simeon Djankov said that part of the funding for the Ministry of Interior would be reallocated to other spheres such as culture and education. What is your comment?
- I think that reducing the funding for the Ministry of Interior is a step in the right direction. But another question is whether part of the money should be reallocated or the total amount should be simply reduced. The key issue is to guarantee a minimum or close to zero budget deficit. Achieving a balanced budget should be the first goal and thereafter, if the Council of Ministers considers that there is an additional resource that can be spend, is should be distributed to departments and items.

- Minister Djankov also predicted a GDP growth of 2.5% next year. At the same time, we could expect some troubles originating from other European economies, which are shrinking? Is such a growth possible next year and how can it be achieved?
- It is possible of course, but I would not want to undertake such predictions yet. Both scenarios are possible - to achieve growth or record a decline. The planned growth should rather be seen as an optimistic scenario, when drafting the budget, rather than as something that is easily achievable.

Such a growth would be achievable, if we are able to restore the foreign investors’ confidence in the Bulgarian economy. I think that the data on the Foreign Direct Investment (FDI) showed a serious decline in 2011, compared to 2010, and, generally, there is no clear perspective that FDIs would return to Bulgaria. If the Bulgarian Government is able to record a budget deficit of about 2% in 2011, then it is more likely that the investments would return, and in consequence an economic growth would be achieved. Otherwise, things do not seem very optimistic.

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