An Emerging Budget Deficit

The main task of the new government was to balance the budget. Measures for cutting down the expenditures as well as for raising the budget revenues (administrative measures mainly) have been adopted but from today's point of view balancing the budget seems like an unreachable goal. The data regarding the budget implementation as at the end of October has recently been published and the conclusion is more than clear – the consolidated fiscal program deficit amounts to more than half a billion levs. Indeed on a monthly basis the deficit might have been tamed, yet it is not clear how the deficit accumulated in the previous months will be overcome. How did all of this happen…

In the first five months of 2009 things were going well. The consolidated fiscal program showed a surplus worth half a billion, accumulated chiefly due to high revenues in the traditionally strong months – January and April (tax payments are made during these months). Afterwards the elections drew nearer and the budget collapsed out of the blue – June and July entirely transformed the state of the treasury. Deficits worth over 370 million levs for June and over 570 million levs for July pushed the budget in the red. During the remaining three months (August, September, October) the budget was stabilized on a monthly basis with a great deal of effort but the mid-year's shortcomings could not be amended. The dynamics of the consolidated state revenues and expenses on a monthly basis are represented below.

Source: Ministry of Finance, IME

What strikes the observer of this chart is that the only months with a surplus are the ones with traditionally strong fiscal revenues – January and April – as well as the last one – October. For all other months the government has spent more than it has collected in terms of revenues. The development of the surplus/deficit on a monthly basis over the year, i.e. the difference between revenues and expenses on the upper chart, is presented on the lower graph.

Source: Ministry of Finance, IME

The taming of the monthly deficits is good news but this does not directly lead to a balanced budget. If we take a look at the data for the entire year (for the first 10 months with accumulation), things do not look as well. We might not be adding up to the deficit any longer but we are also most certainly not decreasing it. How exactly is this going to happen in the remaining two months of the year is not very clear.

Source: Ministry of Finance, IME

Traditionally, the last months of the year are rather difficult for the budget (especially December), which makes "waiting for a miracle" not very appropriate. Even if a revenue growth is attained (which was observed in the last months), we can hardly expect an additional reduction of expenditures. Moreover, we know that the government has take on a number of commitments (delayed payments and signed contracts) and even if only a fraction of those is to be fulfilled by the end of the year, that would put extra weight on the expenditure side. It would be considered a success if we could achieve even small surpluses for the last two months but those would not compensate for the half a billion deficit at the moment.

As I first stated, the new government has actually adopted measures for cutting down the expenditures as well as for stimulating the revenues. However, these could have been far bolder, especially with regard to the expenditures side. The focus on revenues and the recovery of the cash flows from the European funds into the country drew the attention away from the major problem, namely – the reduction of the huge and highly inefficient public spending. While talking about the wastefulness of the prior government, the new one was supposed to drastically cut down the expenditures – for example, all programs proclaimed as inefficient (concrete examples of misuse were pointed out by the officials) should have been closed down, instead of restructuring them and making them more "efficient". Now it is too late. Now we must think about Budget 2010…where expenditures are once again reaching record highs…and another deficit is expected.


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