Bulgaria’s caretaker government will not present a draft 2023 budget to parliament, finance minister Rositsa Velkova said on Tuesday, potentially leaving its successor with the tough choice of either breaching EU fiscal rules or slashing spending.
Speaking to lawmakers, Velkova said the caretaker government would propose extending the 2022 budget into the new year until a regular government can be appointed. That’s a change in position from the finance ministry, which unveiled a 2023 budget draft on Thursday with a fiscal shortfall of 6.6% of economic output and new debt of about 16 billion levs ($8 billion) and said it would put it to parliament.
“A new government could work on our base scenario for a budget with a fiscal deficit of 6.6% and decide how to modify it according to its priorities,” Velkova said. Bulgaria, rocked by political instability, is facing lengthy and difficult talks to form a government after the Oct. 2 general election, the fourth in less than two years, produced a deadlocked parliament. A new snap election can’t be ruled out.
The political impasse poses a threat to Bulgaria’s plans to adopt the euro as of January 2024, economists say. The gloomy budget prospects and the political deadlock are already weighing on the country’s ability to raise new debt on the local market. The finance ministry called off an auction for bonds maturing in 2026 on Tuesday after investors demanded 5.8% yield, up from 4.5% two weeks ago and 3% in mid-September.
The caretaker cabinet will not present a draft budget to parliament that would seriously breach European Union’s fiscal stability rules and would threaten Bulgaria’s plans to join the euro zone, Velkova said. It will also not propose a draft within the EU’s deficit threshold of 3% of economic output because it would require major spending cuts.
The high deficit target for 2023 is a result of big increases in state pensions and cuts in value added taxes on bread and heating earlier this year, while economic growth is expected to slow to 1.6% in 2023 from 2.9% in 2022, according to the finance ministry. Bulgaria’s small and open economy is expected to end 2022 with a fiscal shortfall of 3.4% of GDP.
The reformist We Continue the Change party, whose government drafted the 2022 budget, has contested the caretaker government’s estimates for 2023 and argued the 2023 budget could have a smaller deficit without cutting social spending.
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)