Assoc. Yosif Avramov, Chairman of the Management Board of the Consulting Center for European Programs, in an interview for the Audiocast of "Focus“ "This is Bulgaria“
Does the implementation of the state budget meet the economic realities and our goals?
In general – Yes. Fears that the budget will not be met, ie. there will be a deficit greater than 3%, as the requirements of the Maastricht criteria are unfounded, categorically unfounded. There is a buffer in the budget, which is in the planned 11.2 billion BGN capital expenditures. And it is not a problem to transfer a part of the capital costs to other parts of the budget if necessary. And this can be done in two ways: one is with an update of the budget by the new government, the other can be done with a decree of the Council of Ministers if there is no government. Because it is not 100% certain that there will not be new elections in the fall, but I am confident that there won't be any sooner and the budget will be fulfilled and we will fit into the projected 3 percent deficit.
As for the adoption of the euro, in no case should you believe the Eurosceptics, who are almost certain that we will enter the Eurozone at least one or two years later than the set date of January 1, 2025. I was more than a month ago at the business of Pascal Donahue. This is the finance minister of the Republic of Ireland or Eire, who has been the chairman of the Eurogroup for three or four years. The Eurogroup is made up of 20 countries, i.e. all members of the Eurozone. The Bulgarian minister, regardless of the fact that Bulgaria is a member of the ERM II currency mechanism and the Banking Union, is not always invited to a meeting of the Eurogroup, and if he is invited, he is responsible for implementing the decisions of the ministers in the Eurogroup. And this is one of the minuses for Bulgaria at this stage, that in practice we are given what they judge, we do not participate in decision-making.
After a few months or after the year it will be a fact. This is very important – there, decisions on all economic issues are made and presented to the European Commission, which confirms them almost always one to one. And it is very important that Bulgaria participates in making these decisions. If our finance minister is in the Eurogroup, he can fight so that our farmer does not receive subsidies of about 50 percent of those received by the French farmer, the Belgian farmer, the Italian farmer, and that they should be 75-80 percent at first. after 2-3 years 100 percent. Bulgaria is a full member of the European Union, but for now we are not a full member, because we are not a member of the Eurozone, we are not a full member of the Schengen area, but only by water and air – it happened this year on March 31st, and unfortunately we are still not members of the Organization for Economic Co-operation and Development (OECD), which we were assured would be until the end of next year.
But to bring you back to the budget. What is the status of the implementation of its revenue part and what is happening with the expenditure part? Is it true that the expenses are more like commitments than what is written in the budget?
Now, expenses are generally made when there is a need to make them. And there is a slight excess of expenses over income, for example compared to last year 2023, but this is not fatal. Further, with the passage of time and with the payment of the corporate tax by the companies, and a part of the personal income tax on the income of natural persons has not been paid in full, things will settle down. There is no fatal lag between income and expenditure. And something I forgot to say is that the current team of the Ministry of Finance, headed by the Deputy Prime Minister and Minister of Finance Ludmila Petkova, declared that the financial policy of the front team is continuing, which gives a guarantee that the budget will be implemented within the planned .
I also omitted to say something else that is important: the government, headed by acting Prime Minister Mr. Glavchev, denounces or annuls a decision of the previous government, namely the 1.6 billion BGN that was given to the Bulgarian Energy Holding ( BEH) for repayment of the debts of "Toplofikatsia Sofia", were canceled and this money is again available in the budget. Which also guarantees that the budget will be fulfilled.
However, you mentioned that an update might be coming. When and in what direction?
There will be an update if the next government and the next finance minister re-evaluates the revenue and expenditure side and it is judged that some costs are higher than anticipated and could possibly be adjusted. I am sure that the revenue part, regardless of the fact that inflation has decreased, which means less revenue in the budget, will be fulfilled. Politics continued – something that is also important, regarding the merger of the two revenue units of the Ministry of Finance, namely the Agency "Customs” and the National Revenue Agency (NRA). I am convinced that if this happens in October 2024, the collection will increase.
Was the recommendation of the Bulgarian National Bank (BNB) reasonable in the opinion and on the draft budget for this year, in which it was stated that there should be considerable synchronization between monetary and fiscal policy? Aren't we finding the discrepancy now, after the fact?
Now, there was indeed such a view that was expressed at a meeting of the Budget Committee that I attended in November or early December of 2023 when the budget was passed that there was too much spending in some spheres, including the social sphere. And something that pumps up inflation is if incomes rise. Incomes rose in quite a few budget units, including the Ministry of Internal Affairs, the state administration, and the municipal administrations, which perhaps should not have happened from the New Year, it should have happened a little later. But there was reason to raise the income – incomes in the state administration, including the police, the army, lagged behind those in the private sector and it is not much of a problem.
But the BNB is obliged to warn the government, the then government of Academician Denkov, that excessive "waste” the budget pumps up inflation and there is a divergence between fiscal and monetary policy. However, this was not reported and eventually the income rose. It was even planned for the Bulgarian Army and those serving in the Ministry of Defense, but from January 1, 2025, note that the salary increase will be even greater, by 30%. This also has a reason. Given that there are several thousand vacancies and no one wants to become a regular soldier, almost no one, of course, has some reason to.
There should be competitive remuneration in the public sector with those in the private sector, and in the leading industries. Because an IT specialist who works in the structures of the Ministry of Finance or the Ministry of e-Government earns at least 2-3 times less than the one who works in the private sector. He should be incentivized in some way to stay there, as he is a very valuable employee, tens, sometimes hundreds of thousands of leva have been spent on him, and it is good that he continues to be a public servant.
Economic growth for last year so far is around 1.8%, which is close to zero. Is it possible to achieve rapid growth in the remaining months of the year, if our main trading partner from the Eurozone - Germany is still struggling to get out of recession?
In terms of economic growth, we, I mean Bulgaria, can be said to be excellent compared to the countries of the Eurozone, because there the economic growth is 0.4%.
But from what base do you start?
We have 4 times greater economic growth. The basis, of course, in Bulgaria is different from that of the Eurozone countries. And something that is alarming: according to the data of the Association for Industrial Capital in our country, the unemployed were 70,000 somewhere towards the end of February, the new unemployed, and at the end of March they were 80,000. I do not rule out that they are now 85,000. This is not it's good And it's not good, because really our main trading partner is Germany. Germany is on the brink of recession – some quarter has a decline, some is at zero or a small plus.
And this is not good at all, since there are several hundred German companies working in Bulgaria, and since there are over 100 German companies that have displaced their parent companies in the USA, and one company that is located in the Midwest of the USA has no to use a subcontractor from Bulgaria, it will use a subcontractor from Mexico, from Canada or some other country close to the USA. This means that here the enterprise closes, the workers go to the street and to the labor offices. Those who are well qualified will find work, but the rest, especially the older ones, will find it quite difficult.
So there are some problems, but I'm sure we could overcome them, because there is no shameful work. Here, now in tourism they are "imported", in quotation marks they are imported, because it is not a commodity, workers from Bangladesh, India, Pakistan, Nepal, and I found out recently at a meeting that there were many good workers in Kenya, as most of them knew English language and were motivated to work in Europe even at our income level. I also found out that about 200,000 workers were sought in Sunny Beach, of which 75,000 will be Bulgarians, the rest – where they come from.
It's not good, but it's a backup – those who are unemployed, nothing prevents them from taking 3 months as tourism workers. This cannot always be done, of course. It will be difficult for a worker from Vidin to go to Sunny Beach to work, he still has a family, he has an environment that is difficult to leave. But we have to keep in mind that our employment does not have mobility, it is not as it is in the USA for example or in some other large European countries. For example, someone who is from Arizona, if you find out that there is a job in California with a salary of 700-800 or 1200 dollars higher, they pack their bags, their family and move. There is no such thing in our country. And maybe there should be some incentives on the part of the state to somehow compensate labor mobility for both the worker and the employer.
Let's also look at the most problematic Maastricht criterion that blocks us from entering the Eurozone: price stability or inflation. You said that inflation is coming down, but how far can it go below 2.5%, and if not, what efforts should be made to do so?
Undoubtedly, Bulgaria will continue to have problems with inflation in the future, given some disproportions in the budget adopted in December 2023, and also due to the structure of the Bulgarian economy. Here, for example, I was on April 30th at the last meeting of the Committee on Budget and Finance and it turned out that the markup on bread was between 40 and 55%, and they extended the duration of VAT on bread and flour to be 0% until the end of the year. Now, there is such a markup in some excise goods, and not in Bulgaria, in other countries. This is unheard of.
Regardless of VAT not being charged?
This means that we pump the income of the merchant, not the manufacturer. He still sells the wheat at cheap prices and almost nothing comes into his budget. And it is limited, because fertilizers, fuels and the cost of a unit of grain have also risen, regardless of what it is: whether it is barley, whether it is rye or, above all, wheat. And Bulgaria produces quality wheat, unlike that which is imported from Ukraine and other countries. And this matter is brought to the attention of our control bodies and they must deal with it. As for the inflation thing, well, look, we're not going to go in on January 1st, 2025, but there's nothing stopping it from happening on July 1st.
These other dates – March, September are not particularly relevant to me, but on the 1st of July it is quite possible, by asking for a new converged report. Croatia was compromised – excluded the closest countries for inflation. In practice, the issue has been resolved by the European Commission, by the ECB. However, inflation in our country should not be raised by such artificial invoices, as is the case with bread. And if it turns out that way, I think that for half a percent more they would make a compromise for us, as they made a compromise for the Republic of Croatia, which has been successfully dealing with the challenges of the Eurozone for almost a year and a half. And there are other methods to fight inflation.
But in this tough political environment of elections twice a year, it is not possible to control some processes to a large extent. In our country, the Agency for Consumer Protection does not have some important powers regarding prices, as far as I know, it monitors whether smoking is allowed in the establishment or not, and such some more lateral checks are made, but the authority itself has no control regarding prices , and this is not characteristic of a market economy in principle, but a matter of supply and demand. To me, inflation has run out of steam the previous two years, now it's going down because demand is just going down. People don't have enough money in themselves and quite often postpone the purchase of a product. And that's why inflation is going down. I hope it will decrease even more by the end of the year.
What gives reason to consider the financial system stable in our country, since debts are often taken: internal and external? Here, in its first days, the caretaker government with Finance Minister Lyudmila Petkova took an internal loan for 200 million BGN.
This internal borrowing is planned and within the 2.8% budget deficit. It just coincided with the calendar for the loans with the arrival of Mrs. Petkova. As I recall, it was on the 9th of April. It's okay.
Isn't it time to pay attention to social cohesion? Given that Bulgarians have 62% of the income and standard of the average European, what will be the impact of our entry into the Eurozone? According to a published working document of the European Commission, the share of the population facing the risk of poverty or social exclusion remains high in Bulgaria and income inequalities are significant?
That's right. The Gini coefficient should also be taken into account here, which in Bulgaria is one of the most unfavorable in Europe, not only in the European Union, as there are a dozen countries in Europe that are not members of the European Union. And for this reason, income should be given more attention. The government can only do this for state and municipal employees, and they are quite a few. There pay, as I mentioned before, should be competitive with that of the private sector. Ultimately, the level of income after entering the Eurozone will gradually increase.
In any case, this will be the case as it happened in the three Baltic countries that recently joined the Eurozone, and it is starting to happen in Croatia, which also became a member of the Eurozone on January 1, 2023. But unfortunately, it is observed both in these countries and in Croatia that there is a slight lag in the rate of increase in incomes than the rate of increase in inflation. This will happen in our country as well, unfortunately, and the worst will be the pensioners, since the minimum pension is BGN 526, and with the increase that is planned from July 1, it will be about BGN 580. This is extreme insufficient.
In Budget 2024, an increase in pensions by 11% was planned, including the minimum pension mentioned. It is now clear that their increase from July 1 may be 10%, and not 11%, which was set in the budget of the State Social Security. Are these games adequate with the boosts? It is increasingly difficult for people to navigate in them, and as it turns out, politicians have also faced these days?
They are categorically not adequate, and this is a decision of the Supervisory Board of the National Social Security Institute, from which about BGN 100 million will be earned, if the increase is not 11.9%, as provided for in the NISI budget, but is close to 10%, even just under 10%. My opinion is that Budget 2024 should be followed, especially the budget of the NSI, and the Supervisory Board can decide some secondary issues, and not make such general decisions, because that is beyond its powers. Here, too, the government must intervene and oblige the NOI to comply with the NOI's budget.
If necessary, the parliament should also intervene, which is not dissolved and the acting speaker at any moment, and the speaker was removed 2 days before the end of the parliament and now there is an acting speaker, he should convene the parliament and decide this question, because those who are most damaged cannot suffer when we are almost leaders in terms of low inflation. No such thing. The Supervisory Board of NOI is not the body that should decide these issues. And if a parliamentary decision is needed, the parliament until the swearing-in of the new people's representatives, which will probably take place around June 15th, or between June 15th and 20th, can be convened at any time and decide to implement the budget , which is in the State Budget Law, or the NOI Budget Law for 2024.
How do you assess the national information campaign for Bulgaria's entry into the Eurozone? Against the backdrop of political upheavals, did anyone even pay attention to her?
The campaign is ongoing. For this purpose, the European Commission allocated an additional 10 million euros to Bulgaria for its implementation. This is another guarantee that it is certain that we will enter the Eurozone. Because if it wasn't sure, they wouldn't give us that extra money. It has gone on National TV and some other information sources, but there is still much to be desired. I, for example, would foresee a specialized show that would last 3-4 months, that is, there would be 6 or 8 shows about the euro.
How did the idea of creating a single European currency come about? What were the monetary unions in the recent and more distant past, since there were such unions, for example the Latin Union. Bulgaria was not a direct member of the Latin Union, but for about 30 years the Bulgarian lev was equal to the French franc and our salaries were more or less equal, smaller of course. But then a high school teacher could go to Paris with his family for 15 days in the summer and rent a hotel, explore the city, visit a library to improve his knowledge.
Which years are you talking about?
I am talking about the years between 1900 and 1912
Oh, then Aleko Konstantinov went to Chicago.
He's gone yes, with one judge's salary, exactly.
Yes, then the gold lev was convertible.
Now, if you will allow me, I would like to say a few words about a question you have not yet asked me. Bulgaria has been a member of the European Union since 2007, and in these 17 years, a lot has been done in our country. But where we have problems, our MEPs, our European Commissioner, Bulgaria has several prominent persons in high positions in the European Commission, apart from the European Commissioner. We have one general director, the general director of Eurostat is the Bulgarian Mariana Kotseva, the former chairperson of the National Statistical Institute, for example Iliana Tsanova is the deputy general director of the "Budget" directorate, a very important position.
They must make Bulgaria's membership profitable for business in our country. The green deal is very good, but it must be upgraded with opportunities for the industrialization of the European Union, including Bulgaria. Because Bulgaria, regardless of the fact that there are some good results in industry in recent years, not only in the IT sector, we have a highly developed pharmacy, a highly developed military industry, etc., we must continue to industrialize and catch up to the level of the Asian countries - South Korea, Japan, China, India, there is no other way. Bulgaria must oppose some voluntaristic actions of the European Commission. I took a newspaper to tell your readers and listeners how the European Commission has agreed to reduce harmful methane emissions from cows by 30 percent.
This means giving each animal pills, this is what happened in Denmark, to make them release less gas and methane. And somewhere in the European Union, cows had to wear masks so they wouldn't release carbon monoxide. Well, anyone who knows animal husbandry will say that's bullshit. And our representatives in the European Parliament and in the European Commission, I have not accidentally listed them by name, must oppose these things. For the Danes to do these things, they are a very rich country, one of the leaders in terms of gross national product per capita in the European Union, they can afford these things.
But to do in our animal husbandry, which was in decline, now has a little resurgence, and to torture the animals, is an outrage. Because this is a huge animal for the scale of the planet - 700-800 kg, sometimes 1-1.2 tons, and to limit it to these things that I listed is somehow unnatural. So, the Bulgarian representatives must oppose such voluntary regulations, directives, etc. If they don't know animal husbandry well, they should come and learn about it and then vote on similar, not particularly effective proposals.
And at the end, let me ask you about a piece of news that went rather unnoticed against the background of what is happening in our country, and it concerns Bulgaria's accession to the OECD. And despite being declared a top foreign policy priority, very little is said about it. After his meeting with the secretary general of the organization Matthias Korman, acting Prime Minister Dimitar Glavchev announced that for the first time our country has a specific deadline for accession and a horizon for our acceptance at the end of next year 2025. What does this mean for Bulgaria?
This certainly means a higher credit rating for the country. And let me clarify, after all, we have been working on this issue for several years. And we are out of 45 points on which the review is being made for Bulgaria's accession to the Organization for Economic Cooperation and Development, Bulgaria has completed 24, it has 21 more to go, but we have made significant progress on most of them. And it is no coincidence that the Secretary General of the Organization, Mr. Korman, has finally indicated that next year, by the end of 2025, we have a great chance to join this organization. This automatically means that by one point at least, if not by two, our credit rating will be increased, there will be more foreign investments in Bulgaria and I hope that the welfare of the Bulgarian people will be increased.