First in line

First in line

At their most recent meeting on June 8, EU finance ministers, known as the Ecofin council, decided to strengthen the budgetary rules and the provisions for statistical reporting on the state budgets and the budget deficits. On the same day, Commissioner for Economic and Monetary Affairs Olli Rehn announced that "the Commission was worried about the statistical performance of Bulgaria and was going to send a mission". The two events are interlinked.

Bulgarian, EU budget methodologyAs it became clear with the Budget data for 2009, Bulgaria's budget methodology,  can be easily manipulated - in a way that creates a misrepresentation of the Budget balance.For example, if the Government delays payments to companies, this according to Bulgaria's budget methodology, brings about "improvement" of the Budget; if a contract is signed, which commits the government to paying a certain sum, according to Bulgaria's methodology this is not reflected in the Budget!If the government does not return VAT due to companies, this also distorts the picture and is registered as an improvement of the Budget, and if the National Health Insurance Fund does not pay doctors, hospitals, pharmacies and suppliers - this also "improves" the Budget according to Bulgaria's budget methodology.What is more, Bulgaria's budget methodology does not just provide opportunities for the Government to distort data - it stimulates the authorities to do so. This is because by delaying one payment or another, the Government may report "improvement" in the deficit. This is a problem because it gives a wrong idea for the actual state of the Budget, reduces the pressure for reforms and increases the pressure for spending.Last year and at the beginning of this year, when Bulgaria was supposed to have a balanced Budget, there was a huge pressure for additional spending and the Government bowed to it - trade unions, lobbyist groups, professional groups, some ministers, even the President demanded more money be spent. If the real situation of the Budget was known at the time, it would have made it much more difficult to allow pressure for additional expenditures.It would have made clear that a request for more spending would be very harmful, and alternatively, there would have been much more public pressure for cutting costs and for continuation of reforms.Because of these, and an array of other reasons, the Government should adopt the European system of accounts (ESA95) and should publish the Budget data every month. If the European system is used, opportunities for Budget distortion become impossible. According to the European methodology, all due sums are reported in the Budget, regardless whether these sums have been paid. This will also remove the stimuli of the Government to delay payments to companies.In addition, in the revised Budget the Government should plan a lower Budget deficit and aim at achieving a level lower than three per cent of GDP in 2010 and to balance the Budget in 2011. If the current revision is adopted, with the much higher deficit, it is highly possible that an excessive deficit procedure will be opened. The EU now developed much stricter rules and higher penalties.Bulgaria should be careful not to become the first country to which these measures would be applied.

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