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Bulgaria's Fiscal Policy in a Global Economic Instability

This report provides an assessment of Bulgaria's economy in 2008, highlighting fiscal policy challenges, objectives, and measures to maintain stability in a crisis environment. The report also discusses the impact of the global financial crisis on Bulgaria's economy and outlines measures to support stability and encourage market mechanisms.

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Bulgaria's Fiscal Policy in a Global Economic Instability

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  1. FISCAL POLICY IN AN ENVIRONMENT OF GLOBAL ECONOMIC INSTABILITY PLAMENORESHARSKI MINISTER OF FINANCE • December 2008 • Sofia

  2. BULGARIA’S ECONOMY IN 2008 • Maintained financial stability and confidence level • Prudent fiscal policy – expected budget surplus of 3.5% of GDP • Low level of government debt – below 20% of GDP • Financial inflows covering the current account deficit

  3. CONTINUING ECONOMIC GROWTH

  4. SLOW DOWN OF INFLATION

  5. LOW UNEMPLOYMENT RATE, EXPECTED LABOUR MARKET MODERATION

  6. SIGNALS OF GLOBAL FINANCIAL CRISIS IMPACT • Lower FDI inflow • Slow down of export growth rate • Lower volume of orders to Bulgarian producers • Growth of interest differentials compared to Euro zone countries

  7. ASSESSMENT OF RISKS FACING THE BULGARIAN ECONOMY • Higher than expected slow down of growth rate of key trade counterparts and lower external demand • Risk aversion to emerging markets and lower capital inflows • Higher credit costs and slow down of credit growth • Limitations on investment and consumption financing • Lower economic activity resulting from lower domestic and external demand

  8. FISCAL POLICY CHALLENGES IN THE EVENT OF RISK MATERIALIZATION • Lower domestic demand and economic growth • Higher unemployment • Underperformance of budget revenues • Constraints on the attainment of planned fiscal targets

  9. FISCAL POLICY OBJECTIVES IN A CRISIS ENVIRONMENT • Maintaining fiscal stability • Supporting the stability of the financial system • Improving the flexibility of the economy • Encouraging market mechanisms and competitive environment

  10. MEASURES TO MAINTAIN FISCAL STABILITY • Maintaining positive consolidated fiscal programme balance • Maximum budget expenditure within 40% of GDP • Provision of a fiscal cushion of 10 per cent of non-interest expenditure and budget transfers • Improving tax compliance

  11. MEASURES TO SUPPORT THE STABILITY OF THE FINANCIAL SYSTEM • Preserving the Currency Board Arrangement at the same exchange rate • Conservative management of the fiscal reserve and the FX reserve • Enhanced coordination mechanisms between the MoF and BNB • Readiness to take further measures to guarantee the liquidity and capital adequacy of the banking system where necessary • Introduction of new European deposit guarantee requirements

  12. MEASURES TO IMPROVE THE FLEXIBILITY OF THE ECONOMY • Capital expenditures under 2009 CFP to the amount of 7% of GDP • Setting up of a state owned company to build business parks • R & D promotion through increasing financial resources and improving effectiveness • Better administrative services to businesses and simplification of regulatory regimes

  13. MEASURES TO ENCOURAGE MARKET MECHANISMS AND COMPETITIVE ENVIRONMENT • Ensuring access of SMEs to credit resources via increasing the capital of Bulgarian Development Bank AD • Ensuring better conditions for local governments to prepare and implement EU funded projects • Maintaining favourable tax environment • Improving the work of regulators and enforcement of the new Competition Protection Law

  14. THANK YOU! PLAMENORESHARSKI MINISTER OF FINANCE

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