The general government budget surplus increased by 33.8% y/y to BGN301m in July, according to the finance ministry’s revised data. The cumulative budget surplus in Jan-Jul amounted to BGN2bn, up by 2.2% y/y and representing 1.9% of GDP for 2018.
Total budget revenues rose at a slowing rate of 11.4% in July alone. Tax revenue growth moderated to 10.9% y/y. which we still consider it a solid increase, supporting the budget execution. We expect that the strong domestic consumption and tight labor market will continue to be the main factors driving VAT and income tax revenues, as well as the revenues from social and health insurance contributions, in the next months. Non-tax revenues also posted a 33.3% y/y increase, while grant revenues fell by 16.3% y/y.
Total expenditure growth picked up to 9.6% y/y in July. The acceleration was on the back of a stronger y/y increase in capital expenditure, subsidies, wages and salaries and social expenditure. Social expenditure and wages were the biggest expenditure items and their y/y growth was underpinned by the increases of the pensions and minimum pensions in 2017 and Jul 2018, alongside with the teachers’ wage hike as of Sep 2017. Capital expenditure growth should reflect the gradual resumption of EU fund absorption and is therefore likely to continue speeding in the next months, in our opinion.
The fiscal reserve amounted to BGN10.8bn at end-July, including BGN 10.0bn as deposits in BNB and other banks as well as BGN0.8bn of receivables from EU for certified expenditure.