The general government budget surplus fell by 0.4% y/y to BGN 1.7bn in Jan-Jun, the Finance Ministry’s preliminary data showed. The surplus represented 1.6% of the GDP projected for 2018 compared to the budget law target for a balanced budget for the year. In June alone, the budget posted a surplus of BGN 317.4mn, rising four-fold y/y.
The y/y Jan-Jun budget surplus decline was on the back of an 11.0% y/y growth in total expenditure. Total spending represented 44.5% of the full-year target but we consider their execution slightly ahead of schedule since spending has been generally concentrated in Nov-Dec. The finance ministry commented that the increase in spending was due to both higher national budget and EU programme financing. The base effect related to the pension and teacher wages hikes in 2017 continued to boost social and health insurance payments. The new 3.8% increase of pensions as of Jul 1 will continue to exert an upward pressure on the budget social spending in H2, in our view. Capital spending has been also on the rise. Bulgaria’s contribution to the EU budget from the central budget amounted to BGN 576.3mn in H1.
Total revenues rose by 10.1% y/y and accounted for 50.3% of the annual target in Jan-Jun. Revenue growth was driven by a 10.3% y/y increase in tax and non-tax revenues, while grant revenue was approximately at the same level as in Jan-Jun 2017, the finance ministry said. We think that the strong y/y growth of tax revenues is likely to continue in H2 on account of the high domestic demand as well as due to higher employment and rising wages. Grant revenue should also pick up as the EU fund absorption process seems to have gradually gathered speed.