The costs of debt servicing have risen dramatically across the various countries that are developed economies. The stock of public debt has been increased by the rising of expenditure, falling of budget revenues and the nationalization of banks. Even though interest rates are low in most developed countries, debt servicing keep gorging into the collection of public revenues. It is being considered that the culmination of all these factors can give rise to such a situation where countries such as US, Greece, Ireland and Italy have to spend 10% of their public revenues or more for a debt relief. Countries are continuously being confronted by far reaching and potentially dangerous consequences by the rising debt servicing options.
It is understood that the problem with both private and public debt lies in the foundation of the global crisis and unsustainable economic recovery. According to the analysis of Dr. Constantine Vayenas, head of the Emerging Markets Research department at the UBS, the problem is not only with the reasons that are leading to the global debt crisis but also the way the governments across the world are trying to treat it. However, according to him, the emerging markets are in a better position in terms of debt to GDP ratio. This is because the emerging markets have gone through a number of financial crises such as hyperinflation, bank crisis or even sovereign default. Taking the example of Bulgaria, which has a low government debt to GDP ratio, it can be said that this reason leads it to having quite an amount of economic stability.
Talking about Bulgaria, Vayenas mentioned that, the debt to GDP ratio is just below 17% which means it is in a strong and enviable position as far as government debt is concerned. The strong track record of government’s fiscal policies and low gross debt in spite of the prevailing recession gives the country a solid growth prospect in the medium term. A contraction of GDP is expected in coming years. It is expected that the deficit will be maintained at 4% of GDP. However fiscal reserves will provide additional fiscal flexibility which will hold the debt to GDP ratio at about 18.5% of GDP. The contingent liabilities also remain low mainly due to the privatization and less amount of financial intermediation by the banking sector. The low debt to GDP ratio is a result of prudent fiscal policies that has led to macroeconomic stability of Bulgaria. The policy stance of the government has continuously reflected this imperative, even during the current recession.
It is however expected that the budget deficit will be maintained around 4% of GDP despite the tough economic condition the government is facing. Some of the major factors behind such difficult economic conditions are reduction in revenue inflow and continuous decline in VAT receipts. It is expected that the government will achieve lower deficit through planned spending cuts since it streamlines public services. A measure to combat such a situation includes decisions to cut public wages and also other administrative expenditure as well as considering a potential hike in the VAT rates.
