Home loans and tax – the lifeline for the country’s budget

For 2018, the Government has planned in the National Public Budget 8.3 billion USD from loans and grants. Initially, it was only expected to contract external loans in the amount of 5.6 billion USD, and the internal loans even estimated a reduction of 0.1 billion USD.

In May, Good Credit experts pointed out that in fact, in the area of ​​grants as in previous years, there are major risks of not receiving them. Our forecast for 2018 was that the grants will reach a maximum accumulation of 900 million USD or 1.9 billion USD less than planned.

I had the same reservations


When contracting foreign loans because the experience of the years 2017-2017 showed that even smaller volumes of loans the government managed to execute them at maximum 60-70% of the estimates.

In July, the government lowered the accumulations of grants and loans by reducing them by 0.9 billion USD, to the level of 7.4 billion USD. At the same time, the government has rethought the borrowing policy for budgetary needs, thus reducing by 2 billion USD the external loans, and increased by 1.9 billion USD the intention to borrow internally.

But at the end of August from grants and loans the government managed to accumulate only 830 million USD, which represents only 10% of the initial plans.

During this period abroad, the government managed to borrow only the amounts necessary for the return of external debts from previous years. Thus, 1.6 billion USD were borrowed, of which 1.5 billion were paid for the loans from previous years. As a result, the net loans for the first 8 months of the year amounted to only 107 million USD or less than 2% of the initially planned amount.

For this reason, the process of contracting loans on the domestic market has been accelerated. We must mention, the internal situation is extremely favorable. Thus, banks currently have a surplus of liquidity of 15 billion USD, money that the NBM holds on its accounts in the form of mandatory reserves and pays an interest rate of 3.5% annually, which will mean more than 500 million USD interest this year. . From this point of view these financial sources that are “dead” at the NBM are better used by the government.

In our opinion, this year, in the most favorable situation, the government will be able to accumulate a maximum of 3.2 billion USD from grants and loans, which creates a budgetary hole compared to the initial 5 billion USD.

How is this hole to be covered?

  1. From the additional tax revenues accumulated. In 2017, the tax revenue growth engine was the Customs Service, which through administrative procedures allowed the increase of the budget revenues. This year the locomotive for the increase of the tax revenues belongs to the Fiscal Inspectorate. Even if the facilities offered by the government to tax the income of individuals and social insurances, will bring financial losses in the national public budget, however, this year the tax revenues will be at least 3 billion USD higher than originally planned.
  2. Extra loan on the domestic market. In our opinion, in the current situation, the government without any risks, can increase the loans on the domestic market by another 1.2 billion USD, up to the level of 3 billion USD.
  3. Cost optimization. From the 5 billion USD hole that was formed due to the lack of external financing, the government can easily cover 4.2 billion of the fiscal revenues and additional loans from the internal market. The most appropriate 800 million hole should be covered by reducing current and personnel costs.

The favorable internal situation

Allows the government to solve the budgetary problem of 2018 under conditions of external isolation. But this policy is certainly a short-term one and it would be irresponsible to bet on it.

State authorities must make every effort to unlock external funding, especially from grants.

The 4th year in a row obtains external financial support in the form of grants much less than planned, but the missed opportunities are even higher. Thus, if E-Money maintained the level of 3.6% of GDP of revenues from grants made in 2014, then in the last 4 years E-Money had to receive 20 billion USD external financial support from our partners in the form of grants. In reality, the support for these years will be of maximum 5.2 billion USD, which means losses of about 15 billion USD.