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Leading Bulgarian Economists Advise Govt to Be Restrictive

Date: 15.03.2010

Leading Bulgarian economy experts known as the Macro Watch group have recommended as a whole that the government should be more disciplined in its policies.

Macro Watch, which is an Open Society Institute project, participated Sunday in public discussion entitled, “The Risks of Recovery.”

“All decisions of the Bulgarian government must be subordinated to achieving the goal of entering the Eurozone,” said Georgi Prohaski, Chair of the Center for Economic Development.

In his words, the benefits of being in the Eurozone are steep decline of the interest rates, attracting more foreign investments, releasing the money from the fiscal reserve and using it for the “Silver Fund” (a state retirement fund), and pushing forward with a retirement system reform.

Prohaski has pointed out that despite the expected economic growth of over 1% in 2010, the state revenue is not going to go up. He thinks that in mid 2010, the government has to set up a fiscal buffer, and to the state budget in case the planned revenue is not collected.

He also stated that the Cabinet has to freeze the pensions and budget sector salaries, and to give up on the ideas of lowering social security payments and the VAT. He further warned that if the currency peg in Bulgaria is somehow compromised, all economic units using credits in euro but receiving their income in Bulgarian leva, will be facing bankruptcy.

According to Lachezar Bogdanov from the Industry Watch think tank, the government has to figure out which state expenditures are absolutely vital.

He said the budget revenue is not lower than it was in 2009 but that the state spending has seen increases in all spheres.

“We don’t see any belt tightening despite all talk of Finance Minister Simeon Djankov about the meatless pizza (i.e. a metaphor Djankov used for Budget 2010 – editor’s note),” Bogdanov stated.

He has emphasized the fact that it was primarily the private sector which bore the brunt of the economic crisis by losing 160 000 jobs, and said it was time for the public sector to absorb some of the effects of the crisis.

Open Society economist Georgi Angelov said at present the Bulgarian state budget could not afford any additional expenditure. He pointed out that on the international financial markets the risk premiums for Bulgaria are being lowered, and that the interest rates of the Bulgarian foreign debt stand at about 6%, down from the peak levels of 8%. Angelov stressed that the economic processes in Bulgaria were similar to those in the Eurozone but that they came with a three-to-five-month delay.

Economist Georgi Ganev from the Sofia-based Center for Liberal Strategies forecast a recovery of the Bulgarian economy only after the middle of 2010 but pointed out that its effect will be felt only in 2011.

Economist Dimitar Chobanov from the University of National and World Economy in Sofia has expressed concern over the proposed construction of the Belene Nuclear Power Plant. He refuted the claims that the Belene NPP was essential for Bulgaria saying that in 2009 Bulgaria exported electricity for BGN 500 M even without a second nuclear plant. In his words, the feasibility of the proposed EUR 8 B investment in Belene will be doubted for a long time to come.

Georgi Ganev believes that a number of secrets with respect to the Belene NPP project have not been revealed. He said the Bulgarian state had no business plan about it, and criticized those who said that the project cannot be terminated because Bulgaria has already spent over EUR 1 B on it.

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