BURST BUBBLE: Property development plans worth billions of leva were shelved in 2009 as the flow of cash from foreign buyers and readily-available loans from local banks dried out. Prices fell by about 30 per cent, according to foreign property consultants, but local brokers were adamant that the fall was not that steep. Several large-scale developments, including the 200-million euro Serdika Mall (pictured), continued on schedule, having secured full funding long in advance.
FROZEN OUT: Bulgaria, which relies exclusively on Russian gas, was unprepared for the sudden halt to gas supplies, and heating utilities took several days to switch to alternative fuels, leaving many people with little or no central heating in the middle of a cold snap.
TO-DO LIST: Regional Development Minister Rossen Plevneliev said that finishing three motorways – Trakiya, Maritsa and Lyulin – would be one of the new Cabinet’s top priorities throughout its four-year term. In 2009, Bulgaria has officially opened five km of Lyulin highway (pictured), as tenders for Trakiya motorway had to be scrapped twice.
QUOTE OF THE YEAR: ‘I don’t know why everyone is thinking that when the bride’s veil is lifted, we will find that she has a moustache.’
Former economy and energy minister Petar Dimitrov on the topic of the current gas
delivery contract with Gazprom, which the
socialist-led cabinet refused to make public
Looking back at Bulgaria’s economy in 2009, one is tempted to break the year into two slightly unequal halves, depending on which government was in charge. But the differences between the policies pursued by two different cabinets were similar inasmuch as neither found an adequate response to minimise the impact of the economic recession or to revitalise Bulgaria’s economic recovery.
The chickens came home to roost in 2009, as more than a decade of economic growth came crashing down with a bang and the excesses that fuelled the boom, their potential drawbacks being paid little heed, could not be ignored any longer.
But while it is easy to point a finger at the missed opportunities during the decade of sustained growth, the year 2009 brought further proof, if any was needed, that Bulgaria’s economy was not an island, of stability or otherwise. The same opening of borders that led to strong growth after the 1997 crash has left the country’s economy vulnerable to the current recession, but also will be largely responsible for the recovery.
Head in the sand?
Without doubt, Bulgaria’s economy was not helped by the poor planning at the end of 2008. Despite a hasty redrawing of the 2009 Budget, it still set unattainable goals for economic growth and revenue collection.
The tripartite government of socialist prime minister Sergei Stanishev envisaged 4.7 per cent economic growth in its 2009 Budget and was roundly criticised for being unrealistic both at home and abroad. Somewhat incongruously, however, that was not the figure used to draft the Budget spending, a more cautious 2.1 per cent estimate being used instead.
The use of this conservative figure won the government a small amount of praise from the International Monetary Fund (IMF) and the European Commission, both of which were moderately optimistic early in the year that Bulgaria would avoid a recession and post mild economic growth.
The ruling coalition, however, gave no satisfactory answer to why it had used two figures in the first place. Although Stanishev and government ministers maintained for several months their mantra that Bulgaria was an island of stability, largely untouched by the unfolding global economic and financial crisis, the transcripts of cabinet meetings showed that in private the cabinet discussed the crisis more candidly than ministers did in the open.
However, the government did little to reduce the tax burden, keeping the high target of Budget revenue despite early signs that it would be missed and putting its hopes of alleviating the impact of the recession on its ambitious public spending programme, which exceeded 5.1 billion leva.
Even after shrinking revenues forced the cabinet to set aside 10 per cent of the funds allocated to each ministry in a move described as "creating a buffer" against the looming prospect that revenue targets would not be met, the ministries were left to manage their spending individually, instead of a centralised push to eliminate excesses in any specific areas.
Ministries were thus able to sign contracts reportedly worth more than a billion of leva for which they did not have the money to pay, as the new Government of Prime Minister Boiko Borissov quickly found out after taking office in July.
Debts piling up
Leaving aside the question of to what extent the flurry of these contracts amounted to a concerted effort to cripple the ability of the incoming Government to pursue its own policies and how much of it was due to incompetent management decisions, there can be little doubt that the Stanishev cabinet’s attempts to put a positive spin on the economy in the final months of its term did more harm than good.
Early in the year, reports surfaced claiming that as much as half of the 900 million leva of the Budget surplus recorded in January, which appeared to vindicate the cabinet’s Budget calculations, was due to delayed value-added tax (VAT) refunds. The money boosted the Budget revenues and bottom line, masking the deficit, but also made it increasingly difficult for businesses to meet their business plans.
By the end of June, with tax authorities reportedly putting no stop to the practice, the Budget surplus had shrunk to 173 million leva, while delayed VAT refunds had reached 700 million leva, according to new Finance Minister Simeon Dyankov.
Dyankov took office saying that Bulgaria faced a Budget deficit of 2.5 billion leva at the end of 2009. He immediately cut 15 per cent of the ministries’ budgets to save 1.16 billion leva and targeted 1.2 billion leva in additional revenue from improving excise duties collection.
By the end of the year, the Cabinet managed to halt the slide, posting small surpluses in October and November – December data will be available at the end of January 2010 – to reduce the consolidated Budget deficit below the 500 million leva target the new Government set.
Just like the numbers announced by Dyankov’s predecessor, Plamen Oresharski, this figure tells only part of the story. The Government’s short-term debt to the private sector has ballooned over the second half of the year, with different estimates placing the figure at between one billion and two billion leva, a debt that Borissov vowed to begin repaying in January and February 2010.