The Finance Ministry will be able to collect the planned state budget revenues by the end of this year, but no overperformance is expected, caretaker Finance Minister Rossitsa Velkova told BTA in what was her first media interview after taking office on August 2.

Velkova noted that it will take maximum effort from the National Revenue Agency (NRA) and the Customs Agency to implement the revenue side of the state budget.

By the end of July, Bulgaria had a state budget surplus of BGN 1.5 billion. "Performance is very good, but we should note that the July figures do not take into account the effective tax cuts adopted with the latest budget revision. The effect of the cuts will be felt in August," Velkova said. She added that the budget revision also entailed an increase in labour costs, which will be effected in August at double the approved rate.

Velkova also discussed inflation and GDP dynamics, the preparations for Bulgaria's planned Eurozone entry, the work on the state budget for 2023 and future debt issuance.

Following is the full interview:

Q: What is the state of public finances as of mid-August?

A: It is difficult to say that in the middle of the month, but I could tell you how it looks as of the end of July. We ended the month with a surplus of BGN 1.5 billion, which means that revenue exceeded expenditure. This is a very good implementation of the budget. We should have in mind, though, that the reduced tax rates that were adopted with the budget revision were not yet seen in July and the effect will be felt in August. We also have increased personnel costs from the July budget revision. 

By the end of the year, we will be able to collect our revenues, but at this time we do not expect an overperformance in tax revenues. 

The two revenue administrations – National Revnue Agency and Customs Agency – need to do their best to secure revenue collection.

We will do our utmost to ensure the first payment of BGN 2.6 billion under the National Recovery and Resilience Plan (NRRP). The intention is to submit an application at the end of August. Normally, the European Commission's assessment takes two months, so we could expect the payment in early November. As November-December are the strongest months, there is a significant amount of expenditure.

Q: Do you expect revenue collection by the NRA and the Customs Agency to increase after the change of their directors? What was actually the reason for their change, since they were reporting a steady improvement in results? Will there be other personnel changes in the coming weeks?

A: These are key administrations. Every government makes decisions on the team to be responsible for revenue administration, as failure to fulfill the revenue side of the budget, especially in the second half of the year, would result in an inability to cover the expenditure voted by the National Assembly. And we are seeing an increase in the revenue that is declared but not paid. At the beginning of the year, the difference between declared and paid revenue was BGN 210 million, and in the middle of the year it was BGN 600 million. A difference between declared and paid revenue is also seen in the VAT account and in social security contributions.

I count on the new directors of the revenue administrations to make every effort to increase collection.

I do not plan any other staff changes at this stage. If there are systemic breaches and non-compliance with obligations, there could be more, but I believe that the teams currently in place will stay as they are. 

Q: How are the Finance Ministry's preparations for the forthcoming parliamentary elections in October going, including the supervision of the printing of paper ballots?

A: At the very first meeting of the Council of Ministers, the budget plan for the elections was adopted. The funding for the elections have been secured, and if necessary, additional funds can be made available.

At it meeting this week, the Cabinet will consider the rates for campaign coverage by the Bulgarian National Radio and the National Television.

There is currently a public consultation on the repeal of the decree amending the Finance Ministry's Rules of Procedure, which has been adopted and comes into force on September 1, to abolish physical control of ballot papers. The public consultation will be completed before September 1 and the repeal will be submitted to a Cabinet meeting so that there is strict control over the entire process of printing, storing and delivering the ballots, as has always been the case with the Finance Ministry.

Q: You have already said when funding will start coming to Bulgaria under the Recovery and Resilience  Plan, but is there a risk of loss of funding?

A: For the first payment under the Recovery Plan, there is no risk for the money not to come.  There has been some delay in the Interior Ministry project for the Tetra communication system, but I hope that by the time the application is submitted and the evaluation period is over, the delay will be overcome so that the first payment is received.

There is some backlog in State aid notifications for certain projects, but arrangements are in place to catch up. 

Q: How are Bulgaria's preparations for the euro changeover progressing? What do you think is a realistic date for the adoption of the single European currency?

A: We are working hard for the adoption of the euro. The target date is January 1, 2024. An inter-ministerial working group has been set up to prepare a bill for the adoption of the euro. The communication strategy for the changeover is expected to be adopted in the coming weeks. Work is also underway at technical level together with the central bank regarding SEPA payments. All stakeholders that we need to work with in the process of the euro adoption, have been identified. These are all public institutions with financial information.

Q: Do you expect inflation to fall and GDP growth to weaken following the decisions of the European Central Bank (ECB) and the US Federal Reserve to raise interest rates? Will Bulgaria's economy go into recession in the coming months?

A: I expect inflation levels to hold, but by the end of the year it will still be in double digits. I also expect a decline in the annual GDP growth rate. These are also the expectations of international institutions.

Notwithstanding the ECB's interest rate increase, which is a first in more than 11 years, the Finance Ministry does not expect this to lead to a significant fall in inflation because it is driven by high energy and food prices and disrupted supply chains.  

Q: How is the preparation of the draft budget for 2023 going and is it possible, if necessary, in the event of  ecession or extremely high energy and commodity prices, to revise the state budget once again in late autumn?

A: We will issue instructions in early September and follow the budget procedure. However, since ours is a caretaker government, we will prepare a baseline budget that will reflect the decisions taken by the National Assembly, without putting any policies in the base scenario. Various scenarios and alternatives will be developed. They will just be calculated, and the regular government will decide which ones to include and exactly how to implement its policies through the budget.

Rough estimates of the commitments for next year show a significant increase in expenditures, in the range of BGN 6-6.5 billion. We can hardly expect revenue growth of this magnitude. This raises the question of seeking a solution to restructuring expenditure so as not to go for a change in tax policy. If we were to increase the debt or the deficit, we would be in breach of the European Commission's criteria and this would inevitably be an obstacle to the adoption of the euro.

As an expert, I would not recommend raising taxes. I recommend optimising the expenditure side of the budget.

An update of the current budget can only be made if we expect a revenue overperformance. Given that there is no such overperformance in sight at the moment, we need to raise the debt and the deficit for an update, and we would not go in that direction. We can only look at restructuring to finance additional expenditure.  

Q: You have already announced that the Treasury will issue debt on the domestic and international markets. When do you expect this to happen and for what volumes?

A: The limit set by Parliament for new debt is BGN 10.3 billion. Of this, BGN 1.8 billion has been issued on the domestic market so far. By the end of the year, we will issue debt in both the domestic and external markets, according to market conditions.  

Q: What is the state of the fiscal reserve?

A: The fiscal reserve position at the end of July was BGN 8.6 billion, which is a good position.