The Bulgarian transformative model of economy


Balkanobserver

In this analysis article, our aim is to examine briefly, with the help of the statistics, how the right reforms lead the Bulgarian economy, with the many problems, to a more stable economy with high growth and GDP rate, among the countries of Balkans.

Bulgaria is a country that had many political and economic problems throughout the years, but after the end of the communist regime, they achieved to transform from a highly centralized planned economy, to an open market-based, upper-middle-income economy, securely attached in the EU.

But what is the story behind this transformation? It all began in 1994 when GDP started to grow by 1.4% and continue to rise again by 2.5% in 1995. Unfortunately, during 1996, the economy collapsed after some major political decisions and the vital economic reforms failed to set the standards for banking and financial institutions .

Later in the 2000s, there was a steady pace of growth and budget surpluses, but the inflation came again. After some years, and with all the problems from the past years inflation, the government has managed to bring Bulgarian economy to a 22.8% of GDP rate in 2006 and with the low-interest rates guaranteed the availability of funds for investment and consumption.

Then they achieved to enter on 1 January 2007 into the European Union. By doing this they got their international trade economy more liberate, but even though, that this was not enough to boost the economy and the later crisis in 2009 had big effects on them too.

The global financial crisis started to apply downward pressure on growth and employment in 2009. The real estate market, although not plummeting, ground to a halt and growth is expected to be significantly lower in the short-to-medium run. But they accomplished to stand up again in almost 2 years after the crisis. Just after the elections of 2009, the government took some major steps to rebuild the economic growth, even though the strict financial policies that were applied to Bulgarian economy.

The fiscal corrections and the reduced budget spending proved successful enough to place the Bulgarian economy on the tracks even though it was in the middle of the economic crisis and then Standard & Poor's upgraded Bulgaria's investment outlook from “negative" to "stable" This made the foreign investors to carry on more investments in the Bulgarian soil.

Now, another step to this huge reform, was the Foreign Debt. Bulgaria seems to do a very good job only to the debt of the public sector. The Public debt had a decrease by nearly 60% of the GDP in the period 1999-2011 but the private debt was increased by 80% of the GDP just after the public debt was starting to step down from 2004- 2010.

The reason why the public debt is decreased is that the Bulgaria government started to do a lot of privatizations in an effort to reduce the huge amount of costs that public sector did to the national GDP. The privatization process in Bulgaria started in 1992 with the adoption of the Transformation and Privatization of State-Owned and Municipal Enterprises Act and by the setting up of the Privatization Agency. Later on, the model of Privatization and Post-Privatization Control Act (PPCA) was adopted and brought even more stability. Some examples of Bulgarian big state-owned privatizations are the following:

  • “Kremikovtsi”- Sofia
  • “TPP Bobov dol”- EAD
  • “Parahodstvo BMF”- EAD
  • ‘’Neftochim”- Burgas

The results of the ups and downs in debt of public and private sectors are seen below in the graph taken from the data of the Bulgarian National Bank.

Public and Private Foreign Debt for Bulgaria
Source: Cryout at the English language Wikipedia [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

Nowadays, as seen by the next statistic table which is provided from the European Commission -Economic Country Performance and Forecasts- the numbers are still pretty good as well as the expectations of the upcoming years. The real GDP is expected to grow by the end of 2.9% in 2017 and is forecast to marginally decline in 2018. Domestic demand continues to be the main growth driver over the forecast horizon. Inflation is forecast to turn positive in 2017. Unemployment is expected to continue decreasing in the coming years. A balanced budget was achieved in 2016 mainly due to higher tax revenues and reduced public investment, but a deficit of 0.4% of GDP is forecast in 2017. Risks to the growth outlook are broadly balanced.

Economic forecast for Bulgaria
Source: ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/bulgaria/economic-forecast-bulgaria

In conclusion, the model of the Bulgaria changed in an attempt to secure stable rate of growth and to attract investments in order to make more jobs available and to bring more money and development in the country.

Up until now, the economy seems to perform well enough, despite that this performance doesn’t still reflect the income of the Bulgarian workers and as seen the numbers above, we can predict that the future will continue to be good in the next years for Bulgarian economy with a hope to impact also the economies of other close countries, positive.

Source of cover picture: By Julien81 (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

Published by Athanasios Vasilopoulos