Author: Nikolay Vassilev, Minister of Economy of Bulgaria from 2001 to 2003
In this article, I will try not to mention the names of parties and individuals, because I would like to positively encourage political forces to form a regular government and save the ship from sinking.
The New Disaster – Budget ’25 of the Service Cabinet
Once again, a parrot budget is being introduced with a mechanical increase in spending, without new policies and vision. What is this budget for – civil servants’ salaries? I can’t think of anything else. Without having analyzed all the details yet, here are some of the problems:
1) We will spend 46% of GDP (!) instead of 39% or 36%
Where did I get these lower numbers from? During most of the transition years, budget spending was thirty-something percent. During one of Videnov’s (left) years, we even fell to 29%. Under the Triple Coalition (allegedly left), the first sentence in the coalition agreement limited spending to 40% of GDP. GDP growth (the denominator of the ratio) was so high that spending could not manage to grow and fell to 36%. Under Borisov-3, it was 37-39%. And for 2025 we offer 46%! This is no longer the same country and the same social contract. This is not even communism, but waste and carelessness. This is not the same Ministry of Finance, which I know as the most professional institution in the country. Let me spare myself the epithets.
2) In billions – expenses are growing at a breakneck pace
The not-so-distant 2020 began with a budget of 42 billion. Each subsequent year, expenses grew by about ten billion. For 2025 – an increase of 20 billion or over 25%! With inflation of 2% and meager growth below 2%. Do we have any sense left at all?
3) The deficit is again -3%. And for 2026, 2027, 2028… 2100.
I have had so many articles and interviews on this issue that I am not comfortable repeating the same arguments. I propose that we completely change the budget chip:
The “normal” thing is to have a balanced budget, i.e. with a zero deficit. (By the way – a former prime minister said that “the budget was balanced at -3%. It’s as if the football team had achieved a draw with a score of 0:3).
In “good” years – when there is no war, natural disaster, migrant crisis, recession, pandemic or alien landing – there should be a surplus of +1, +2, +3%. The triple coalition had surpluses on a cash basis of +3%. And what’s wrong with the current years? Only the chip of governance in the new era of chaos and timelessness is bad.
In “bad” years, a deficit can be allowed. Such was the distant 2009 with the global financial crisis. Attention – even in the pandemic years of 2020 and 2021, the budgets were in surplus until November. We ended up with deficits only because of the December greed and irresponsibility of the rulers worth 7-9-10-11 billion.
4) Attack from civil servants’ salaries!
In Budget-25, the most memorable is the unprecedented growth in public sector wages of about +36%. With inflation of 2%. For the Ministry of Interior +51%, SANS +61%, DATO +71%. The former Minister of Finance was also outraged by these figures.
Cuts and optimization in the entire public sector – zero. With a decreasing population – why? I am not saying that wages in Bulgaria and in the public sector are high. But I believe that growth should correspond to the capabilities of the economy. And the public sector is too bloated. So wages can increase at the expense of reducing numbers.
5) Multi-billion subsidies for electricity for how long?
In December 2021, the freezing of electricity, water, and heating prices began. Supposedly for a short time, until an analysis and strategy are made. When? There are none to this day.
Until what century does the state plan to pay everyone’s electricity bills with taxpayers’ money? The perverse thing about this policy is that rich citizens and companies receive a huge subsidy, while the poor receive almost nothing. If a company or household saves electricity, introduces new technologies, they receive little. If they waste electricity, they receive a lot. It looks to me like the careless communism of the Brezhnev era with a clear end.
6) What amnesty, what 4 billion?
It will be interesting to see how the idea that delinquent payers will contribute 4 billion at a rate of 15% will work. If it happens, bravo. But if it fails? A wonderful example of the frying pan and the fish in the sea. I wonder how they didn’t think of offering 12 billion in revenue from the amnesty, so that the budget would even be balanced…
7) Has anyone heard of concessions?
With the failed budgets, we will build and modernize highways, bridges, tunnels, airports, ports, water supply facilities, railway lines in what century? All the aforementioned nouns can be concessioned. Private investors will invest tens of billions and we will have a completely different infrastructure. There will be no politicians conducting huge public procurements and we may even improve our place in the corruption rankings.
8) The Development Bank will once again be a reservoir for a parallel budget
I have been saying for a long time that there is no need for a state bank. We know what it did before. Now it will give loans to troubled companies to pay their taxes. Few people can figure out the accounting trick:
the capitalization of the bank is “below the line” of the fiscal reserve – it is not counted as a budget expense
the payment of taxes is budget revenue
so optically the deficit decreases, although the money in the fiscal reserve is the same
“Voodoo budgeting.”
9) New extraordinary taxes?
We did not become a country after a war or a devastating earthquake in order to impose extraordinary strikes on banks or mining companies. If a bad precedent is allowed, this will unleash other similar mischief – this is exactly the trend in recent years. If we punish profitable businesses, they will either leave Bulgaria or try to hide future profits. Stupid.
What do I propose?
If there is no regular government, the budget should not be adopted at all. Because there is a real danger that once again the deputies will inflate the expenses to infinity in the pre-election period. Let’s see what the proportion will be between the requests for more new expenses and the statements about austerity. My forecast is 10:1.
If there is a regular cabinet, it should ritually tear up this draft budget and prepare a new one in the following way:
0% deficit. Or even a surplus of +1% – to show a clear new direction.
Expenditures up to 40% of GDP. With a tendency to decrease to 39-38-37% over the next few years.
Significant optimization in the state administration and the entire public sector. Starting with the number of ministries (there may be at least 3 fewer) and the thousands of vacant positions.
Reducing capital expenditures for those facilities that can be concessioned within months – all highways (the entire Hemus, the entire Black Sea from Romania to Turkey, to Ruse, to Vidin, to the Macedonian border), airports, ports, water and sewerage and railway facilities, etc.
Stopping electricity subsidies for legal entities.
So far, dear readers, we have already reached a large surplus. Nice, huh? Now politicians will be able to practice which expenses should still increase in 2025:
salaries by sector
social spending
investments in municipalities
kindergartens – although they can also be private, at least some of them
many others
The last 4 years – every budget step is further down the abyss
The avalanche does not start today. In the summer of 2021 The caretaker governments found themselves with a budget surplus, spending at 37-39% of GDP, and a country that had just been admitted to the Eurozone “waiting room.” In one joke, the astronaut was supposed to “feed the animals and not touch anything.” If we had followed such instructions, we would probably have adopted the euro on January 1, 2023. And we wouldn’t be talking about budget catastrophes every day, but about new factories, highways, stadiums, kindergartens, and an increase in the birth rate. Also, if we hadn’t wasted years correcting the supposedly imperfect initial Recovery and Resilience Plan (RRP), we could have implemented it by now.
And the politicians screwed up everything they touched
They constantly incited budget updates – once every few months. Not in the direction of savings and reforms, but towards more and more handouts, of course.
They renounced a quarter century of financial discipline (which led to high growth and wealth), calling it the “Latin American model of development”. And they invented a “European model of development”, “to live with European incomes”: deficits at max, debts at max, social spending at max, and no reforms. Hey, how clever! How could we not have thought of it earlier? I call this “Voodoo economics”.
They shifted the scale of normality: the right thing to do was no longer to have balanced budgets and even surpluses in good years, but the normal thing was to have a -3% deficit by 2100. And it was a pity that it was “only” -3% because of the “bad” Maastricht criteria. If they had not existed, the normal thing would probably have been -6%.
The PVE almost died, so for it it was either good or nothing.
The public debt was twenty-some billion four years ago, today it is around 50. Next year – 60. By 2028 – over 80.
The deficit of the National Social Security Fund has grown from 3-4 billion 5 years ago towards 12 billion.
The entire energy policy is also “Voodoo”.
Our “achievements” are described with many zeros
Foreign investments are few, and most of them are undistributed profits of foreign companies in our country. New factories that we can remember – zero.
Increases in our credit rating – zero.
Number of finance ministers after 2005 who have heard that there are capital markets and have done something about them – zero. The stock exchange in Skopje is now bigger than ours.
Optimizations in the state administration and the public sector in general – zero.
New highways, bridges over the Danube, kindergartens, a national stadium, a children’s hospital – something like zero.
There would be a consolidation of universities – I supported this publicly. Zero.
Any successes of state-owned companies? The post office lost about -73 million last year. BDZ? District heating – Sofia is losing billions. Bulgargaz – with or without the contract with a neighboring country – the same. Should I say zero or minus infinity for the skills to manage state-owned companies?
Efforts to break away from the last place of our students in PISA for functional literacy – zero.
Everything in PVU – from zero to minus several billion.
We boast of an increase in the birth rate of >600 children in 2023 after a decline of tens of thousands before that. How big of a “success” should we count that?
I am glad that I have not been alone in my criticism for a long time – but this means that things have become very bad
For the first time, a public consensus has been reached against the budget. Even with the participation of the BNB and the former Minister of Finance. So society still has some resistance forces.
In 2021, there were few people like me who did not approve of the formula “updates – deficits – debts – social spending – no reforms”. Most economists and politicians still did not see the avalanche that was coming. In 2022 Many economists, including leftists, did not approve of the government’s populism. Even the unions (!) expressed concern about budget stability.
In 2023, most experts were already worried. In 2024, everyone was. In December 2024, even the former finance minister criticized the scandalous budget submitted by the caretaker government. A good right-wing economist (I promised not to mention names above) and a former MP on December 12 gave an interview titled “They propose mind-boggling expenses in the 2025 Budget, and the revenues are rosy dreams.” Absolutely true. Interestingly, I have also repeatedly used the same word – “mass insanity of all MPs who have blindly supported wasteful budgets for years.” The aforementioned former MP was one of them and supported these budgets and updates about 7 times. ☹ But what he is saying now does him credit.
I don’t like the movie line: “Didn’t I tell you all along?”
*The opinion expressed in the article is entirely personal. The author Nikolay Vassilev has been a member of two governments of the Republic of Bulgaria, successively holding the positions of Deputy Prime Minister and Minister of Economy (2001-2003), Deputy Prime Minister and Minister of Transport and Communications (2003-2005) and Minister of State Administration and Administrative Reform (2005-2009).
Previously, he was a Senior Vice President at Lazard Capital Markets – London (2000-2001), as well as an Associate Director at UBS (UBS Warburg Dillon Read) in the company’s offices in Tokyo, New York and London (1996-2000), where he worked in the field of equities and emerging markets. He also worked as a tax consultant at Coopers & Lybrand – Budapest, Hungary (1993-1994).
Nikolay Vassilev holds a Master’s degree in International Economics and Finance from Brandeis University (USA) with an exchange program at Keio University (Tokyo, Japan), as well as bachelor’s degrees from the State University of New York (USA) and the University of Economic Sciences in Budapest (Hungary). Since 1999, he has held the CFA (Certified Financial Analyst) designation. He is fluent in English, Hungarian and Russian, and has basic knowledge of French, German and Japanese.
He is a member of the Board of Directors of the Bulgarian CFA Association. He is the author of four books – “Energy” (2009), “Menu for Reformers” (2014), “Career or Not” (2018) and NEXT.BG (2023).
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