Fighting Crisis by Decision Avoidance

Most European Union member states entered recession at the very beginning of the second quarter of 2008. This made the government (the Triple Coalition at that time) think that Bulgaria would be left isolated from the world processes and it would become something like an island of stability amongst the ocean of sinking economies. Such an approach to problems shows that the government administration is not prepared to adequately access the running processes. Apart from following this tendency, GERB, the ruling party, also made many wrong decisions. The government left the business to cope with the situation on its own, without undertaking any adequate measures against the negative consequences of the crisis.
During the autumn of 2008, the government prepared the state budget for 2009, based on incorrect forecast. The forecast for the economic development of the country for 2010 and 2011 were made under the conditions of an already started crisis and there is no excuse for the differences between the forecast and the actual growth.
The budget deficit, instead of the expected 3.8% at the end of the year, declined to 3.2% – marginally above the threshold of 3%, which made Bulgaria one of the best performing Member States of the EU with regard to the undertaken fiscal consolidation measures. This provoked the Financial Minister and the Prime Minister to publicly express their pride about the achieved results and to be as confident as to advise other Member States on the issues regarding their public finances.
When speaking about achievements in the field of fiscal discipline in the country, one should bear in mind that the main reason for the good results is the drastically contracted government investment expenses, especially in 2010.
Given the continuing budget underperformance due to the incorrectly planned growth, the cabinet concession to the demands of unions and other interested groups increased the costs for current expenditures. At the same time, the government delayed payment of its liabilities to the private sector, which further aggravated the business environment in our country.
This gives rise to the following question: could the state have had a more active approach to managing the unpleasant economic situation in the country and what kind of measures it should undertake.
The use of fiscal stimuli for supporting the Bulgarian business would have incurred a significant increase of the state budget deficit, which would have further seriously questioned the fiscal stability of the country. This could have lead to a drop of the credit rating as well as additional EU sanctions, and such a measure wouldn’t have been of long-term benefit for our economy.
The government, however, avoids finding solutions on the grounds of its optimistic forecast for economic growth and unrealistically high revenues. Last year, a number of international institutions showed that the cabinet forecast for economic growth are unreasonably high; nevertheless the parliament majority adopted a budget with an inadequate expenditure part, counting on the assumption that if it comes to this, it will be compensated on account of the investments again.
As per December 2010, the government’s capital expenditures were implemented to 76.4% of the planned in the budget, while the implementation of the current expenditures was 92.2%. As per the end of August 2011, we witness a similar picture with the capital expenditures being implemented to 36.8% of the planned ones. At the same time, the current expenditure implementation is 58.7%.
Unlike the years preceding the crisis, when the government deliberately forecasted lower tax revenues in order to allocate the budget surplus at the end of each year without the supervision of the National Assembly, currently we witness the opposite tendency. The cabinet deliberately forecasts higher growth, which implies higher budget revenues expectations, with the sole purpose to afford itself greater expenditures.
However, the revenues underperformance evokes pressure over the National Revenue Agency and other tax collection authorities, such as the Customs and the National Social Security Institute. This pressure directly influences the business, since tax authorities, striving to fulfill their assigned objectives, subject the companies to unprecedented inspections and audits and very often impose fines no quite legally.
Concerning the EU funds, there is some progress only regarding the funds, designated to infrastructure development projects. The acquisition of the funds, designated for the business, considerably drops behind. The problem with this dropping behind, even though it may be compensated at a certain moment, which is highly unlikely, is that for the past period, the business would have already suffered in full the negatives of the present crisis and many companies would have irreversibly left the market, which is measured with hundredths and thousandths of ruined lives.
The possible measures, which could be undertaken in this situation, are several but there are also some measures, which are fundamental and must be undertaken, otherwise any effort to improve the economic situation would be fruitless. Firstly, this is an unconditional improvement of the state administration capacity in the country and a fundamental administrative reform. Currently, a great part of state officials are people with inappropriate education or qualification.
In Bulgaria, there is a serious and widespread misunderstanding regarding the meaning of the work of the state official. In principle, political decisions should be made based on different alternatives, prepared and presented by the experts. Once these alternatives are being reviewed by the higher management of the relevant institution, one of them should be selected, which is to be become an official position. In Bulgaria, this process is turned upside-down with politicians giving the experts the positions that is to be defended and the latter are only expected to prepare a well-substantiated argumentation. This turns the expert into a common operative clerk. Independent thinking and creativity in the work turns to be not a positive and required quality but a burden for growing in the career.
In order to cope with this problem, it is exigent that the politics correctly understand the administration’s management. Such an approach, however, currently looks like a utopia due to the ruling party attitude, who does not seek qualified experts but obedient executors of their political will. This is why the state administration reform consists of mechanical cutting down the stuff, while it has been proven that such an approach, first, would not lead to any significant fund savings, and second, would not help dismiss the unqualified officials.
The second fundamental measure, which the government should apply, is full revision of the legislation and a fundamental improvement of the business environment in Bulgaria, which remains unfavorable as compared to the other EU member states. The tax burden level may be an enticing indicator for foreign investors but as the development of Bulgaria during the last years showed, this is definitely not a sufficient factor for the choice of such investors.
Bulgaria has an exceptional need of significant rise in competition on the local market, which would lead to higher creativity and initiative of the local business. Currently, all laws that regulate the relations between the administration and the business are designed in such a way as to facilitate the state officials, instead of the companies. Each procedure requires piles of documents with information, which is already available to the state administration in a certain form and the only reason for this administrative burden is the reluctance of the different institutions to communicate between each other and exchange information. Each administrative act, prepared by a separate administrative structure, considers the relations between this given structure and the business totally independently and isolated from the other state institutions and therefore, approval of a simple case turns into long months of harrowing of Hell, with no guarantee that the end will be positive. This almost repressive attitude of the administration towards the business is the greatest obstacle before the economic prosperity. Today, in Bulgaria, there are many monopolies, oligopolistic structures and cartels, which flourish due to their close relations to influential state officials and politicians.
The main question is whether the ruling party realizes the origin of the problems in the economy of our country and do it has the will to undertake the required reforms.
So far, the answer is kind of negative.