site.btaBusiness Community's Expectations of New Government Highlighted on BNT's "Referendum" Show

On Tuesday evening, the Referendum weekly talk show of Bulgarian National Television (BNT) asked a group of businesspeople and economists about their expectations of the new regular government. The panel consisted of: Krassen Stanchev, founder of the Institute for Market Economics; Dobri Mitrev, Chair of the Managing Board of the Bulgarian Industrial Association; Krassimir Dachev, Deputy Chair of the Managing Board of the Bulgarian Chamber of Commerce and Industry; and Vassil Velev, Chair of the Managing Board of the Bulgarian Industrial Capital Association.
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Asked by the moderator Dobrina Cheshmedzhieva about how he would describe the profile of the new cabinet, Dachev said that over 90% of its members are top-class professionals and an excellent pick. He predicted that the cabinet will serve out its full term of four years. According to Stanchev, the government will last more than the expected minimum of 18 months.

An opinion poll conducted by the Alpha Research sociological agency among BNT website visitors was cited as indicating that 33% of Bulgarians expect the new government to last up to six months (until the local elections), 29% expect it to last up to a year, 16% up to 18 months, and 8% more than 18 months. The remaining 14% of respondents admit they cannot say.

Taking a question about how the present political situation, so rife with conflict and mistrust, affects the economy, Velev said that insecurity is the biggest problem for business. Many reforms have been delayed, suspended or even reversed, which, of course, has had an adverse effect on economic investment and the business climate, and has slowed economic growth, Velev said. According to Mitrev, the present government configuration will prove short-lived and the instability will continue if Bulgaria's accession to Schengen is postponed again.

The moderator said that, according to some sources, a new version of the state budget scheme for 2023 will be ready in a matter of weeks, projecting a 3% government deficit (instead of the 6.4% estimate by the caretaker government). Velev said a lower deficit apparently implies expenditure cuts, which are an unpopular measure requiring broader backing from Parliament, and are necessitated by the national priorities of joining the Schengen area, the eurozone and the Organisation for Economic Co-operation and Development. Dachev expects that the 3% deficit will be achieved through reduced capital expenses.

Stanchev believes that a 3% government deficit is feasible. He advised against following up the policy of automatic increase of the minimum wage, because it requires more state budget spending and is unfair to self-employed persons. This applies to pensions as well, he added.

Velev warned that it is not a good idea to rely entirely on capital expense cuts, because this type of spending is related to EU funding, including an advance payment received under the National Recovery and Resilience Plan.

The leaders of the three employer organizations went on to discuss the possibility of increasing wages under the new government. Velev noted that in 2022 Bulgaria had the highest wage increase rate in the EU and was one of two member states where wage increase surpassed inflation. In the first quarter of 2023, wages in Bulgaria increased by a further 17% year on year. Regrettably, this is not linked closely enough to an increase in labour productivity, but is rather due to a shortage of human resources, be they high-skilled, medium-skilled or unskilled, he said.

Doing business in Bulgaria at present is a complicated endeavour, according to Dachev. He said that working with the caretaker government was surprisingly easy, although there were some inconsistencies, such as in the price control policy. According to Mitrev, the caretaker cabinet did not exert pressure on companies. He expressed hope that the new government will follow the example of its predecessor and will promote partnership and dialogue with the corporate community.

Discussing state aid to businesses (which, according to Velev, is grossly overstated), Stanchev called for abolishing the special VAT rates for some economic sectors such as the hotel and restaurant business.

Concerning the judicial system, all panellists agreed that legal insecurity alienates investors. Stanchev argued that there is something fundamentally wrong about a system in which the chief prosecutor determines who wins and who loses. He noted that agreements are an essential element of business, and when the judicial system does not work, business suffers. The schedule of charges in the judicial system has remained unchanged for many years, and if there is a surge in bankruptcies, for example, the system will stall, Stanchev warned.

Another question was what the government can do to boost economic investment. According to Stanchev, it is not the government's job to look for investors. Mitrev said the business environment is what really matters. When the business environment improves, investors will come without being asked to. Velev drew attention to the fact that the investments attracted through the efforts of government ministers are just a small fraction of the total investments in the national economy. Similarly, Dachev said foreign investment is between 7% and 9% of total investment, which also includes investment from domestic sources. He wondered why no one talks about domestic investment.

Velev said attracting foreign investment is very important, particularly if it is associated with high technology. However, the government's role is not limited to bringing a few international investors - it should create an investment climate which prevents Bulgarian capital from flowing out of the country, he added.

Stanchev voiced his disapproval of the fact that between 65% and 67% of the money under the National Recovery and Resilience Plan is distributed by government institutions. Another flaw of the Plan is that it allows too many donations, which will inevitably foster corruption. In addition, some projects under the Plan are unreasonable, Stanchev said. He finds that the parts of the Plan which should be renegotiated concern mainly energy. He also sees enough arguments supporting the call to extend some deadlines.

Amid the war in Ukraine, Stanchev sees an anti-Kremlin group taking shape in the Bulgarian Parliament which can support the government. It is up to the government, he said, to provide stability, which means good prospects for businesses. These good prospects can come in the form of concession contracts and/or through the stability of the banking system, lower public administration costs and lower compliance costs.

Mitrev said that, on a positive note, the new government has the potential, through mutual control among its constituent forces, to speed up the procedures for obtaining funding via various EU mechanisms. This means an inflow of considerable resources, which can eventually boost Bulgarians' incomes and welfare benefits, give them better roads, and make them feel like real Europeans, Mitrev said. Dachev countered by saying that this is impossible. First of all, there is no capacity, he claimed. Bulgaria has lost two years, the remaining time is even shorter and the capacity is shrinking, Dachev argued. He said the country will be unable to absorb all the money.

Asked about the "glue" which can keep the government together, Stanchev said that, most importantly, the new government should keep away from the governance style of the four-party coalition (December 2021 - August 2022). Each of the parties in that coalition controlled a separate segment of the public administration while the Finance Minister surprised everyone with his projects, Stanchev recalled. For his part, Velev said the "glue" ought to be the national interest, but he doubts that this will be the case.

Mitrev finds it difficult to predict whether the new incumbents will work as a team or not. He knows that some of them are accommodating people who appreciate the power of dialogue. Dachev noted that the two coalitions which worked out the deal for the new government, GERB-UDF and Continue the Change - Democratic Bulgaria, have very similar political programmes, the same goals and interests, and therefore there should be no dividing lines between them. According to Velev, however, there are problems between the members of the ruling alliance and within the individual parties, but if they pursue the national priorities, this will be a good enough reason for them to work as a team. He is not optimistic that the necessary reforms will be implemented successfully.

Stanchev sees President Rumen Radev and the nationalist pro-Russian Vazrazhdane party as the main opponents of the new government. Dachev singled out populism as the main hurdle: without it, he said, everything will be easy.