Economic Policy Review ISSN 1313 - 0544

Less Spending?

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After a year of real increase of the cumulative budget expenses and in spite of the significant shrink of the incomes, July was the month that eventually gave joy to us with a real (i.e. including the inflation) decrease of the spendings compared to a year earlier. In fact, the fall off of the expenditures for the first seven months is not significant – 2.5% in nominal and 1% in real terms, but for the first time it shows a change in the perilous trend of rising expenses provided that the carrying out of the income part is far away from the planned and below the results from the past year. The better piece of news is that the decrease in the expenses in the national budget (if we do not bear in mind the cash-flows from European funds) is some 4% in nominal and 2.5% in real terms.

Although the majority of expenditure items have already recorded a decrease, the expenses which raise problems in the consolidated budget of the previous months – salaries, social expenditures and subsidies – are still higher in the new January-June data, too (respectively with 1.7%, 11.9% and 3.7% in nominal terms at an annual basis). The excuse for the social expenditures, which we have heard many times, is the pension increase before elections and in a smaller degree – the enhanced unemployment benefits along the crisis. However, we have not heard yet an explanation for the higher expenses for salaries and wages because most probably there is not such. Especially if we bear in mind that a program for optimization and reduction of state administration is in action since the mid of the previous year. The situation with the subsidies in not so much different. Although their growth comes entirely from European funds, the subsidies in the national budget remains de facto the same as in 2009 – 581 million leva for the first seven months of 2010 compared to 588 million leva for the same period past year. So here there is de facto no decrease, too.

As a result of the slight shrink of the expenses and the parallel slowdown of the income decrease, the consolidated budget finishes the first seven months with a deficit of 1,231 billion leva (1.8% of the government forecast of the GDP) or more than three times higher than the deficit for the same period of 2009. Showing the latest data, the Ministry of Finance has boasted that only for July the balance of the consolidated budget is 284.5 million leva plus. But as the very ministry pointed out that this positive balance is a result mainly from the higher incomes for July from the operating programs and funds of EU. So the government does not account for this surplus. What can be reported as a government success until now are the shrunk expenditures for current costs and capital expenditures compared to 2009.

We want to believe that the data for July shows the beginning of one long-awaited trend for a further shrinkage of the expenses and at the same time much slower decrease of the incomes. As we have in mind the revised budget, though, the statistics for July might turn out to be the only one swallow (i.e. the budget consolidation) which does not make a summer. There are 850 million leva more in the revised republic budget. Although we have not seen the data for the consolidated budget for 2010 yet, the planned consolidated deficit of 3.8% of GDP suggests that they are inflated considerably, too. So if the revised budget is followed, we could expect a new swelling of the expenditures for the months left. As the government obviously does not want to or cannot manage to reduce the expense part to required levels, the only left hope is that the economy will start to grow earlier and faster than the expected by the government and thus it will help the incomes in the budget. But this is unlikely to happen, having in mind the expectations for a new slowdown of the economic growth of the Eurozone countries and the damages in the recent months this year. So there is no exit in this direction and the ball is in the government's court, for now.