The debate over financial stability and risk management practices has never been that intense on a global scale. Of course, this is due to many factors and events such as the heavy hit of the global financial crisis, the increasing need of assurance and expert advice to investors and their planned undertakings, the concern regarding the uncertainty and the inconsistency of the nowadays economy environment (e.g. Greece, Portugal, Ireland). In order to maintain a high market confidence and high rates if direct domestic and foreign investments, governments are nowadays obliged to ensure working risk management practices and to request a regular feedback from investors, audit firms, financial institutions, industry associations and other stakeholders on their practical experiences as users of the resulting disclosures or in implementing the risk disclosure recommendations. As the Financial Stability Board advices, based on its last report on Risk Disclosure Practices, countries should most of all focus on their economic risk management and the level of the public risk disclosure.
Based on the above mentioned we are going to discuss here the Financial Stability Pact, which is expected to be discussed and included into the Bulgarian constitution by the end of June this year. The three main pillars of this pact are planned to be forced into action so that a further fiscal stability is reached through the highest country law – the constitution. Most certainly, this amendment, together with its consequences, will mostly influence the foreign direct investments rate by providing a high level of insurance and additional guarantee for financial stability.
As an idea and an investment assurance tool, the Financial Stability Pact is planned to deliver the following outcomes. It will ensure that limits of the allowed budget deficit are in place, which having the nature of a law will definitely contribute to preventing a probable deep financial crisis, regardless of the government in charge. It will also restrict the ability of the state to redistribute public funds as a percentage of the GDP and last, but not least, it will ensure that no changes of Bulgarian tax rates will be accepted unless two-thirds of the Parliament members submit their vote for this.
These government measures are aimed to secure that the budget deficit will not exceed 2% of the country’s GDP and that the tax environment, being famous as the most favourable in the EU, will not easily and unjustified change. According to the Bulgarian financial minister, the Financial Stability Pact is certainly going to “cement” Bulgaria as having one of the strictest fiscal policies in the European Union.