Estudos Econômicos
Bulgaria

Bulgaria

Population 6.9 million
GDP 10,006 US$
B
Country risk assessment
A3
Business Climate
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 4.0 -4.4 3.5 2.6
Inflation (yearly average, %) 3.1 1.7 3.3 7.0
Budget balance (% GDP) 2.1 -3.4 -3.2 -2.2
Current account balance (% GDP) 1.9 -0.3 0.3 0.9
Public debt (% GDP) 20.2 25.0 25.5 25.7

(e): Estimate (f): Forecast

STRENGTHS

  • Diversified productive base
  • Low public debt
  • Tourism potential
  • Low production costs and good price competitiveness
  • Monetary stability, the Bulgarian Lev is in a peg with the Euro

WEAKNESSES

  • Corruption and organised crime (No. 69 in the Corruption Perception Index 2020, together with Romania the most corruptive country in the EU)
  • Inefficient public services and judicial system (influence of the business community)
  • Fragmented political landscape makes the founding of a stable government complicated
  • Lack of skilled labour
  • Declining and relatively poor population (GDP per capita = 23% of the EU average in 2020)
  • Strong informal economy

Risk assessment

Slow vaccination process staggers the economic recovery

In Bulgaria, the pandemic remains the main obstacle for economic growth in 2022, as the vaccination campaign is lagging far behind.. The weak pandemic management led to three COVID-19 waves in 2021 (spring, early autumn, late autumn). During the last one, the numbers of not only cases, but also deaths, remained high. In reaction to that, the government first introduced new measures in September and implemented a full lockdown (with single shops remaining open) in November/December 2021. Looking at the spread of the Omicron-mutation, more measures at the beginning of 2022 cannot be excluded. With regard to the gdp forecast, in early 2021, GDP development decoupled somewhat from the lockdown measures, with a strong growth rate during a strict lockdown. The main causes were the increase of the minimum wage by 6.6% to BGN 650 per month in January and the strong exports of goods (70% of GDP), as Bulgaria is exporting a lot of industrial intermediate goods, mainly to the Eurozone (46.9%, Germany representing 16.1% in 2020). Bulgaria was therefore benefiting from the revival of the Western European industry. In the summer of 2021, GDP growth has been moderate, due to the reopening of the Bulgarian economy, as well as that of Western European economies. Nevertheless, because of the lingering pandemic, consumers (70% of GDP) and investors (23% of GDP) have remained cautious at the end of 2021 and in the first half of 2022. Furthermore, the growth of industry in the Eurozone has been put on hold due to supply-chain problems, which should also limit the economic growth dynamic in 2022. Public support will probably be limited in the first half of 2022, as the many COVID-19 support measures were terminated at the end of 2021. The Bulgarian government has submitted its plan for the usage of its EUR 10.7 billion share in subsidies and cheap loans from the EU recovery Fund in mid-October 2021, but it will take several months for approval, especially regarding the planning time until the programs will materialize in economic growth. 

 

Moderate public deficit in 2022

Thanks to stronger demand for Bulgarian goods, in combination with still robust services exports, the current account remained balanced in 2021 and should increase to a slight surplus thanks to a slow recovery in tourism numbers in 2022. The public balance registered a second moderate deficit in 2021, which should persist in 2022, albeit at a reduced level. Public debt will remain very low.

 

In mid-2020, Bulgaria joined the European Exchange Rate Mechanism 2 (ERM II). During this transition time of minimum 2 years, the Bulgarian Central Bank has to hold on to the peg of BGN 1.96 per Euro (+/-15%), as well as to the Maastricht budget and debt criteria, which are suspended until the end of 2022 due to the pandemic. The long-term interest rates should remain close to the lowest prevailing in the Eurozone and the inflation rate can only be 1.5 pp. above those across the three Eurozone member states with the lowest rates. In combination with the political deadlock, it is not expected that Bulgaria will be able to join the Euro this year or in 2023.

 

Three elections in one year 

Since July 2020, Bulgaria had been in a state of continuous protest against the government of the centre-right GERB, due to corruption scandals. The protests led to a new election in April 2021, won again by the GERB party. However, due to the fragmented party system, no party could form a government, which resulted into a snap-election in July 2021. In July, the populist party “There is Such a People” ITN, which had been newly founded in 2020 by a Bulgarian singer, won the election. However, due to the unprofessional behaviour of ITN in the parliament, the ITN did not get the support from the other parties to form a government. This led into the second snap election on 14 November 2021, alongside the presidential one. This time, the former caretaker Finance and Economy ministers formed an alliance (PP, 67 out of 240 seats in the parliament), which came in first in the election. The new Prime Minister Kiril Petkov formed a broad coalition with the left-wing BSP (26 seats), the ITN (25 seats) and the liberal, environmental DB (16 seats). This result calmed down the protest. The next general election should take place 2025.

 

Last updated: February 2022

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