Bulgaria
Economic Overview
In 2004 and 2005 Bulgaria registered a serious economic progress, partly as a result of the implementation of key structural reforms. Among other factors accounting for economic growth were the successful finalisation of certain privatisation deals, the steady development of the banking sector, and the improvement of the regulatory environment.
The positive economic developments were recognised by the 2005 European Commission (EC), in which it was concluded that Bulgaria is a functioning market economy, capable of coping with competitive pressure and market forces within the Union, provided that it manages to sustain its current reforms tempo.
In the period 2004-2005 economic growth remained mainly driven by strong domestic demand. GDP growth in 2004 reached 5.6%, increased to 6.2% in the first half of 2005, but then lost momentum in the third quater of the year. The slowdown can be explained with the floodings from the summer of 2005 and the rise in oil prises. Trade deficit increased to 15.7% of the GDP in the second quarter of 2005, while current account deficit widened to 9.6% of the GDP in the first half of 2005. The imports of capital goods and energy grew by 19% in the third quater of 2005, while export rate increased by barely 0,9%.
The unemployment rate dropped to 10% of the labour force in the second quarter of 2005, compared to 12% a year earlier as a result of incresed employment opportunities in the private sector, and of several government-sponsored initiatives targeting the long-term unemployed. According to National Statistical Institute data, nominal wages increased by 9.3% in the first quarter of 2005, compared to 5.7% a year earlier. In line with the slightly lower inflation, the rate of real wage increase accelerated to 5.0% in the first half of 2005, compared to 0.9% in 2004.
Foreign direct investment (FDI) reached a record high of EUR1957.7 mln. in 2004, corresponding to 9.2% of the GDP. In the second quarter of 2005, FDI inflow reached 6.4% of the GDP, with the declining rate to be attributed mainly to the slow down of the privatisation process where a number of privatisation projects could not be finalised because of the parliamentary elections of June 2005.
Following a higher than expected revenue performance in 2004, the general government balance achieved a surplus of 1.3% of the GDP. The pattern of revenue over-runs continued in the first half of 2005, with the accumulated budget surplus reaching 2.7% of the GDP . Public debt continued falling from above 100% of GDP in 1997 to 38.8% of the GDP in 2004. At the end of March 2005 it constituted 34.65% of the projected GDP. Further, in March 2005 the government-guaranteed debt was EUR 7,320 mln., including EUR 1,400 mln. of internal debt and EUR 5,920 mln. of foreign debt.
Relations with International Financial Institutions
In February 2002, the IMF governing board approved of a two-year Standby Agreement valued at USD 337 mln. in support of Bulgaria’s comprehensive economic programme. A new 25-month Standby Agreement was signed in August 2004 to the amount of about USD 146 mln. to support the government's economic programme for the period 2004-2006.
In May 2002, the World Bank adopted its three-year assistance strategy for Bulgaria, which provides for the disbursement of three adjustment loans worth USD 150 mln., each for a balance of payment support, and USD 300 mln. for assisting reforms in areas, such as education, administration, local government, agriculture, forestry, and social welfare.
The European Bank for Reconstruction and Development (EBRD) is investing in a considerable number of projects in Bulgaria, aimed at supporting the private sector development in energy, telecommunications, banking, agriculture and industry fields.