The government plans balanced budgets in 2009-10 according to Finance Minister Simeon Djankov. Mr Djankov said GDP is forecast to shrink by 6.3% in 2009 and by 2% in 2010. Salaries in the public sector and pensions would be frozen until June 2010, but could be revised if the economy recovered faster than expected. Tax rates would be left unchanged but social security contributions would be cut by 2 percentage points to reduce businesses non-wage labour costs. Mr Djankov also reiterated that the government would leave any decision about a possible IMF loan until next year.
The budget plans look ambitious at first glance, in particular in the light of the negative GDP forecasts for 2009-10. However, we believe that Mr Djankov has limited room to manouevre and announcing a budget deficit could have done more harm to the new government's fiscal credentials than aiming for a difficult target. This, on the other hand, means that the government could be forced to consider additional spending cuts in order to ensure that the balanced budget targets can be achieved.