Bulgarian version

Business environment

The conditions for conducting business
December 1999- February 2000
Observation of the IME

To facilitate the economic policy and to cope with the external shocks, and observe the conditions for conducting business. Main criterion for evaluation is the extent to which the legal framework and the political situation for the prior period limit or encourage the competition.

Macroeconomics environment

In January the recorded inflation was 2,4 % which is the highest level for the last 6 mouths. The price of the foodstuffs increased by 3,2 % while in the services sector the increase was by 3,7 %. We have to take into account that in January and February are characterize by a high inflation while in the some time the increase of the prices in the services sector is an on-going and expected process connected with synchronizing the internal and external price levels. According to the aggregated data for the sales in 1999 the sales of food products decreased by 7 % while the sale of cars and oil increased by an average of 10 % and the sale of household appliances by 7,2 %.

Last week BNB announced the latest information about the payment balance (for the period January-November 1999):

• The reserve of the central bank increased by $ 209 million for the period.
• The foreign direct investments are more with $ 341 million from the some period in 1998.
• Together with the FDI and the export of investment instruments increased by $ 232 million compared to the same period in 1998, which contributed to the increased in the trade deficit.
• Although the trade balance was negative (- $ 925 million) it is entirely offset by the positive balance of the services and the positive financial account
• The export of the commodities decreased by $ 376 million; despite that the exports of consumer goods increased which shows an increase in the competitiveness; the share of the consumer goods of the export increased by 4,4 % while the share of the raw materials fuels decreases.

The dates from the BNB for the given credits are the following:

• The new short term credits for January are 84.6 million lv. (78.1 million belong to the private sector ) while for the first three weeks of February - 63.4 million lv. ( 52.6 million belong to the private sector )

• The new short term credits for January amount to 18.5 million lv. allocated in equal percentage to the population and the private companies while for the first three weeks of February - 21.5 million lv. were allocated in equal percentage to the population and the private companies.

Compared with the figure form the last quarter on 1999 the new credits are approximately two times less. On the other hand statistics of BNB shows the usual decrease of the credits in the first quarter of the year; for the first quarter on 1999 short - term credits given are 68,9 million lv. And long-term are 24,4 million lv.

The calculations on the productivity in the industry (according to the NSI) show positive tendency. However now it is difficult to estimate additional research- to what extend the improvement is due to cutting on the unnecessary labor resources (closing down enterprises and activities making losses)……..

The table down present aggregate index on productivity:

Source: NSI, calculation on Georgi Ganev from Center for liberal strategy

National Employment Bureau declared that the end of January registered unemployed are 657 000 while in December the unemployed were 610 000 in June 1999 they are 488 000.

Explanations are probably following:

• Decrease of the seasonal employment in the winter period
• Laying off people form the public administration sector
• An increase in the laying off human resources caused by change of the base for payment on social compensation

• According to the law of Health Insurance the contributions of an unemployed people should not be pay by the working members of their families but by the government. This creates incentive for the unemployed people, which were not register before that to register.

While the first two explanations are connected with the usual economic process the last to are caused by flaws in the pension fund and health reforms.

Government policies and environment

At the end of January the IMF mission to Bulgaria and the Bulgarian Government come to an agreement for an increase of the minim salary in year 2000.The mission was strongly recommending an increase up to 70 BGN and a subsequent increase up to 72 BGN while the government suggested a hundred lv. And the Trade Unions requested an increase up to 120 BGN.At the end the increase in the minim salary was 75 BGN. The effect from the increase of the minim salary on the income in the Bulgarian economy is insignificant but it is used for determining of the social and health insurance contribution due to the government. Each increase in the salary leads to an increase of the social contribution burden to the private sector.

The table below demonstrates the tax burden on the sole proprietors (the largest portion of the entrepreneurs).

Source: Calculation on the IME

In the end of February the Minister of Finance issued an order, which introduced a form of the "Payment account" and a "Personal income Certificate", base on Paragraph 38 of the Law of

Taxation on the Income of Physical Persons. In the form introduced by the above order one has to declare specific details such as the personal income from the beginning of the year and the income which is a base for social security and health insurance contributions. We consider that the inclusion of such declaration in the given form is above the rights of the minister according to the Law of Taxation on the Income of Physical Persons.Besides that the new Tax Code guaranties the right of the tax payer the confidentiality of the "Nature source and the amount of the income and the respective expenditures."It is obvious that the introduction of the duty of the taxpayers to disclose the source of their income to persons different to the tax authorities eliminates the duty of the tax administration to keep the information about of the source of the above income as confidential information.

A committee chaired by the Deputy Prime Minister and the Minister of the economics Peter Jotev submitted to the council of ministers its report on the licensing procedures in Bulgaria. The deferent ministries and government agencies reported 545 procedures out of which the committee reviewed 282. The main recommendations which could lead to minimizing the costs for conducting business are the following: the government regulation should be limited up to securing the health and the life of the Bulgarian citizens, the social order and the national security.

The licensing procedures should be introduced only after enacting of a specific law.

The appendixes to the given laws should not introduced bigger limitations than those specified in the law itself which is the base for their issuing

The coordination between the institutions, which are included in the given licensing procedure, should be improved by specifying a single institution, which should be addressed by all the applicants for a given license.

The introduction a new license procedure should be well supported by the given explanations and should be agreed to the legislation council. The recommendations of the report are in line with the filoficy of the IME for limited government intervention law start - up costs for conducting business and clear administrative procedures.

Unfortunately the end result is insignificant - the group suggested that 39 license procedures should be limited which means that the group was not reviewing the licensing procedures according to its own recommendations. An example for increase of the intervention of the administration is the way of enforcing Order ¹ 4 for the uses of cashier registration devices with fiscal memory. The order allows the retailers, which are selling their own agricultural products not to uses cashier registration devises.

According to the guidance of the tax administration and the Ministry of agriculture and woods Require that the retailers provide an evidence that there are the producers their for the producers should register in the municipality and the registration card should be authorized by the head of the municipality. In that case the different institutions create themselves opportunities for control and intervention in the public life.

At the end of February the Law of Privatization (ZPPDOBP) had its 19 the amendment in a row. According to the amendment the price offered by the Management-Employee Companies (MEC) should not be discounted by 10 % but by an annual discount rate of 10 % according to a method approved by Privatization Agency. The new amendment to some extends set equal conditions for all the candidates, which should pay as of the moment of the deal and the MEC's, which can get a ten-year grace period. Another effect is the decrease of the judgment on the part of Privatizing Agencies, which as of the moment have to make additional (non price) judgments when they have to choose between a hire nominal price but with a payment at a later period and a lower price paid in cash.