The Political Predicaments of Bulgaria: There and Back Again

As of July 25 it has been 42 days of protests in Bulgaria and it seems like not a step of progress has been made on the quest for political integrity. Just a few weeks after the new Oresharski government took office and less than four months after the February unrest that overturned the center-right Borisov administration, thousands of Bulgarians came out anew on the streets of the capital Sofia with demands of resignation.

What started as a spontaneous outcry against the rash appointment of media mogul Delyan Peevski as head of the State Security Agency did not subside after the candidacy was withdrawn by guilt-ridden politicians. Instead – it evolved into a wave of discontent against the country’s entire political system plagued for years by scandals of corruption, lack of transparency and unwholesome dependence on major business interests.

For the 34 days of the protest Oresharski’s government, sustained by the shaky parliamentary majority of the socialists, the ethnic “Movement for Rights and Freedoms” and the nationalists from “Ataka”, turned a deaf ear to the buzzing streets, playing down the number of protesters and seeing behind them retaliation of political rivals. A series of decisions with dubious or openly negative economic effects, coupled with further controversial political appointments, if anything, made it worse for the governing few and created an environment conducive to social dichotomy.

Just a brief review of these freshly devised resolutions reveals the government’s populist and undeniably myopic approach to policy-making.

As a starter, one of the first steps that the newly appointed cabinet decided to undertake was to revert to the reform of the country’s pension system, which was implemented by its political predecessor. This decision envisions the return of early retirement and a halt to previously initiated retirement age increase.  Why it is unsustainable becomes clear by simply looking at the enormous, and constantly rising, deficit of the state pension system. The data shows that the pension fund’s revenues are already going well below expenditures, despite the 12 per cent state contribution that was instituted in 2009. Moreover, if the state subsidy is not considered, the pension fund’s deficit will surge to about 60 per cent of spending. Therefore, the abandonment of the reform will only accelerate the growth of the deficit in the pension system.

The proposed extended social package, providing for an additional expense of 27 million BGN, comes as a natural addition to the government’s collection of rash spending decisions. The package will lead to a surge in the number of people who receive financial assistance for heating, an increase in the amounts allocated to first-graders and a raise of benefits for the second year of maternity. This increase in spending without reforms, ostensibly directed at decreasing the number of beneficiaries, can put Bulgaria’s social system under enormous strain. In many cases, the size of the benefits discourages the recipients from seeking work. At the same time, it fails to consider certain areas that need a careful reevaluation, such as the fact that the paid maternity leave in Bulgaria is five times longer than the average for EU countries.

Soon after taking office, the government saw as another priority the implementation of an effective ban on the operations of a number of online bookmakers. The presented rationale for this decision was the need to prevent the outflow of capital abroad. However, following this reasoning, the ban on foreign online bookmakers to carry out operations in Bulgaria is virtually equivalent to a ban on all online retailers outside Bulgaria (such as Amazon and SportsDirect) who, in a similar way, do not pay taxes in Bulgaria. Moreover, after it was put in practice, the ban entailed a number of procedural and administrative nuisances that created technical and time constraints on foreign bookmakers that wanted to register in Bulgaria.

These decisions were accompanied by a patchwork of palliative measures (among which a state-regulated limit on the price of electricity, controversial amendments to competition regulations and further agricultural subsidies) that lack a clear economic focus and are bound to impose a further strain to the country’s budget.

That is why, despite the meager economic justification for doing so, it came as no surprise when the government proposed a budget revision which will increase the budget deficit target for this year to two per cent of GDP as well as raise the borrowing ceiling for this year by one billion BGN. In nominal terms, the new deficit target is 493.4 million BGN higher than the one currently planned in the budget approved by the former legislators.

The cabinet’s memorandum substantiates this decision through the underlying necessity to create more flexibility for financing the budget’s needs. However, the budget figures for the first five months of 2013 show that the problem is entirely on the spending side. That is, money is being spent faster than planned. In such a situation, the most reasonable solution should be to look for ways to curb spending, rather than to take the easy way and revise the budget, increase the deficit and issue more debt. By resorting to the latter, the newly appointed government is not only dodging the much needed (and politically inconvenient) recovery measures, but what is worse – it is putting at risk Bulgaria’s long-term fiscal stability, the country’s single current source of economic pride.

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Where to now?

Eurostat’s reports show that the economic outlook for Bulgaria and the EU does not look bright – the demand, both domestic and in Europe, is not forecasted to pick up within the next year. In this economic context what is of crucial importance is for countries to provide an environment that incentivizes private investment and production, and not the opposite. Amidst political instability and institutional illegitimacy, the patchwork approach to policy-making may work to temporarily alleviate the concerns of certain interest groups, but when it comes to getting an entire economy out of a slump, it is surely headed towards a painful bust.

The thousands of Bulgarians that tirelessly go out on the streets every morning and evening, and demand changes seem to be aware of that.  And while a representative poll by the National Public Opinion Centre in early July shows that the ongoing protests have not yet produced a significant political alternative, according to the same agency, about 60% of Bulgarians support protesters’ demand for the government’s resignation.

The one thing which is clear is that if the Oresharski government continues to cling to its imprudent and populist line of action, it won’t be long before we see more and more representatives of those remaining 40% out on the streets as well.