Bulgaria's outgoing finance minister rallies for reform
Petar Chobanov spent little more than a year as Bulgaria's finance minister before the government resigned and he had to step down from his post. He describes the reforms that he started during his tenure and explains why it is important for the new government to continue this work.
Q. You and your government resigned on July 23, dissolved parliament and called for new elections on October 5. Why?
A. Our government was a minority government with the support of 119 out of 240 members of parliament. It was not easy to work in such an environment. The vast majority of ministers, as well as the prime minister himself, were technocrats. And, after the European elections, it became clear that one of the two parties that backed the government, the Bulgarian Socialist Party [BSP], couldn't achieve much public support and that the government should resign.
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Q. During your 14 months in office, what fiscal policy strategy did you follow?
A. We needed some fiscal impulses, so we eased fiscal policy a little – but on a case-by-case basis. There were some arrears related to returning VAT credit to businesses, which we managed to clear, but that meant that [we needed] a slightly higher fiscal budget deficit for 2013. But we finished the year below our initial projection of 2%, at 1.8%.
We stimulated investment and created, as part of the 2014 budget, the so-called Public Investment Programme. Before this, we relied on European funds only for capital expenditures of the government, but now we are also using national money. We increased some social expenditures, focused on vulnerable groups and, to address the regional disparities, allowed municipalities to create investment projects themselves.
Only the first phase [of the Public Investment Programme] will be fulfilled this year, and then additional money will be needed to implement the whole project.
Q. Before the government was dissolved on August 6, you worked on an amendment to the budget law. Why was it important to do this before the caretaker government took over?
A. We decided to propose the amendments to increase the fiscal buffers, because during the term of the caretaker government there is no parliament, so there is no fiscal flexibility. We [had experienced] several shocks to the economy in the [previous] two to three months so we decided to be cautious and create more fiscal room, mainly through a higher debt ceiling.
The BSP did not agree with the proposal, so the final amendments approved by parliament only allowed the redistribution of expenditures: healthcare expenditures were increased by Lv225m [$153.7m], and those of other ministries were decreased by the same amount.
The amendment that was approved requires very strong fiscal discipline and a reduction of expenditures. I hope that this will be done by the caretaker government without the accumulation of arrears.
Q. What will be the most important reforms for the new government to make?
A. Healthcare needs additional investment. We started with this, but we are at the very beginning. The quality and efficiency of public expenditures in this system needs to be improved and the system needs to be modernised. We have a lot of hospitals in the country and some of them should be closed, but in their place we need some good-quality emergency centres and regional hospitals.
In terms of education, we invested an additional Lv100m this year – about 0.1% of GDP – which was dedicated to special programmes in education to improve the quality and the link between education and business. One of the main priorities is to bring education closer to the labour market. We should think about how many universities we need and how to support these universities [so that they can] produce high-quality students, who will then more easily find jobs and work in the fields in which they have studied.
Q. What is your position on Bulgaria joining the eurozone?
A: Before joining the eurozone or the Exchange Rate Mechanism II [ERM II] , we should do our homework. It is very important to implement all the needed reforms in order to show that we have a consistent and stable growth model. Before the crisis, we had very good growth rates – on average 6% over several years – however, there were some questions about the model.
We have to have one or two consecutive years with good rates on a stable basis, so without big current account deficits or things that could be regarded as macroeconomic imbalances, before joining the ERM II and the eurozone.
