Bulgaria February 2011

Country Report

Bulgaria

February 2011

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ISSN 1366-400X

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Bulgaria 1

Country Report February 2011 www.eiu.com © The Economist Intelligence Unit Limited 2011

Bulgaria

Executive summary 3 Highlights

Outlook for 2011-15 4 Political outlook 6 Economic policy outlook 7 Economic forecast

Monthly review: February 2011 11 The political scene 12 Economic policy 14 Economic performance

Data and charts 17 Annual data and forecast 18 Quarterly data 19 Monthly data 21 Annual trends charts 22 Monthly trends charts 23 Comparative economic indicators

Country snapshot 24 Basic data 25 Political structure

Editors: Toby Iles (editor); Gabriel Partos (consulting editor)

Editorial closing date: January 20th 2011

All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

2 Bulgaria


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Bulgaria 3


Executive summary

Highlights

February 2011

• Citizens for European Development of Bulgaria (CEDB) will continue to govern alone, despite lacking a parliamentary majority. This presents some risk to political stability, although the opposition parties are currently weak.

• The EU will keep Bulgaria under close scrutiny, continuing to demand judicial reform and results from efforts to combat corruption and crime.

• The government will not jeopardise the policy anchor provided by the currency board system as Bulgaria prepares for euro adoption, which the Economist Intelligence Unit does not expect before 2015 at the earliest.

• We estimate that real GDP grew by 0.1% in 2010, and forecast growth of 2.5% in 2011 as gradual recoveries in the labour and credit markets boost private consumption and investment.

• In 2012-15 we expect growth to strengthen to an annual average of around 3.7%, which is well below pre-crisis growth rates of around 6%.

• Annual inflation is forecast to increase to 3.8% in 2011 from 2.4% in 2010, before averaging 3.2% in 2012-15 as the economy regains vigour but oil prices decline.

• The current-account deficit will remain smaller than before the crisis. As economic growth picks up, the trade deficit is likely to widen, pushing the current-account deficit to just above 5% of GDP in 2013-15 on average.

• Bulgaria has learnt from the EU that it is not yet ready to join the Schengen area, which operates no internal borders, owing both to technical deficiencies and to EU concern about corruption.

• A political storm has broken out over wiretapping and a leaked tape, albeit of dubious authenticity, of the prime minister intervening to help a local beer producer in its dealings with the Customs Agency.

• In November there was a small budgetary surplus, of Lv36.5m (US$24.8m), following a significant monthly deficit in October, of Lv384.7m.

• Bulgaria has used only around 10% of the �6.7bn (US$8.4bn) of EU structural funds available to it for 2007-13; the government plans to increase absorption to 20% by the end of 2011.

• Higher food and fuel prices continued to push up inflation in December, with consumer price inflation recorded at 4.5% year on year.

• In November seasonally adjusted industrial output grew by 1.3% month on month, but the seasonally adjusted volume of retail demand continued to decline, by 0.6% month on month.

Outlook for 2011-15

Monthly review

4 Bulgaria


Outlook for 2011-15 Political outlook

The centre-right Citizens for European Development of Bulgaria (CEDB) won a convincing victory in the parliamentary election in July 2009. Despite being short of an overall majority by four seats, the government should retain sufficient support from the right-wing and centre-right parties in parliament�Ataka (Attack, a nationalist grouping) and the Blue Coalition, comprising the Union of Democratic Forces (UDF) and Democrats for a Strong Bulgaria (DSB)�to pass its legislative programme. However, there have been disagreements between these parties, especially on economic policy, and the CEDB will have to be adept at making appropriate compromises if it is to retain their support on some policy issues. Furthermore, the government is inexperienced and prone to inconsistent policymaking. Weaker support among the electorate, together with sharpening criticism from the Blue Coalition, will place greater pressure on the government.

The CEDB will aim to continue with its crackdown on organised crime and corruption, and to improve the management of EU funds. This is important to avoid further suspensions or losses of the substantial EU funds allocated to Bulgaria until 2013, and to retain public support. This will not be easy, given the ingrained nature of the problems, but pressure from the EU and the public will continue, and the Economist Intelligence Unit expects that some progress will be made.

Dissatisfaction with poor governance caused protests against the previous government in early 2009. Several groups protested against the government in 2010, mostly to make demands for additional budgetary funding, but these were small and short protests. The government has sought to avoid the escalation of such protests through negotiation and compromise. To some extent, this approach is helping the government to avoid a greater drop in popularity, but it will find it difficult to accommodate budget demands as the need for fiscal discipline sharpens in the early part of the forecast period.

In addition, the government and international observers such as the IMF have spoken of the need for a raft of structural reforms to ensure the sustainability of government finances in the medium to long term. Further reforms of the public sector, pensions and healthcare may bring the government into conflict with large sections of the electorate. Provided that the economic recovery gains strength in 2011-15 and the government continues to combat corruption and organised crime, such conflicts should prove manageable.

The next parliamentary election is due to take place in mid-2013. The CEDB is in its second year of a four-year mandate and still retains fairly robust support in opinion polls�27%, compared with 15% for the main opposition party, the Bulgarian Socialist Party (BSP), according to a poll in December from Alpha Research. However, this support has weakened from the high level prevailing in the immediate post-election period. The impact of the recession and

Political stability

Election watch

Bulgaria 5


inconsistent policymaking are eroding some of the party's popularity. The CEDB will be keenly aware that, since the restoration of democracy in 1989, no party in Bulgaria has been elected twice in succession as the largest grouping. However, with support for the BSP remaining low, the CEDB has a reasonable chance of bucking this trend.

Dissatisfaction with low living standards on the part of voters in the poorest country in the EU makes them liable to punish incumbent governments. Nevertheless, if the CEDB manages to make progress in cleaning up governance and if it maintains macroeconomic stability, it stands a good chance of again being the dominant force in parliament after the next election. The govern-ment's inexperience in public administration is an important risk to this forecast, and the CEDB will need to ensure that reforms of the public sector, pensions and healthcare deliver better services to the electorate. However, even if the CEDB again receives the most votes at the next election, it is unlikely to win as many seats as in 2009, making a coalition government more likely after 2013.

None of the opposition parties, or the right-wing and centre-right parties that support the CEDB, have managed to make gains in opinion polls during the economic crisis. Support for the BSP is low, and the party will be hit by ongoing criticism of its time in power in 2005-09. Although the BSP will probably regain some of its standing ahead of the general election in 2013, the main election threat to the CEDB may come from a new party. There are precedents for this, as newly formed parties took power after the election in 2001, when the National Movement for Stability and Progress (NMSP) gained office, and in 2009, when it was the turn of the CEDB, which was only formed in 2006.

Although relations with the EU have improved relative to 2008-09, the EU will continue to monitor Bulgaria closely and may impose penalties if Bulgaria fails to meet its commitments. The EU's concerns centre on broad, medium-term issues such as deficiencies in the judiciary, and on specific contraventions of commitments, such as in the case of water and waste management. The latest report by the European Commission, published in July 2010, pointed to notable achievements and to ongoing failures, including a lack of convictions in high-level corruption cases. Although the problems are widespread and entrenched, we expect some progress in 2011-15. The government has strengthened the administration of EU funds with more focused institutional oversight both in the cabinet and in the prosecutor's office. We expect absorption of EU funds to improve during the forecast period, but to remain below potential. Bulgaria is expected to join the Schengen area either later in 2011 or in 2012.

Relations with Russia have improved in recent years, but the CEDB government is proving more cautious than the outgoing BSP-led government on the question of energy dependence on Russia. Energy ties will remain close, although the CEDB will try to diversify supply routes. Bulgarian forces remain involved in NATO's campaign in Afghanistan, which is set to continue throughout the forecast period. In addition, US troops will continue to use facilities on Bulgarian soil.

International relations

6 Bulgaria


Economic policy outlook

The government will not jeopardise the policy anchor provided by Bulgaria's currency board as the country prepares for euro adoption, which we do not expect to occur before 2015 at the earliest. The currency peg is unlikely to harm Bulgaria's competitiveness to the extent that policymakers would consider changing it. Given the significant correction of the current-account deficit in 2009-10, the risks to the maintenance of the currency board have diminished. Even if Latvia and Lithuania were to give up their currency pegs, any government in Bulgaria would be reluctant to change the currency board arrangement. In the wake of an expanding budget deficit in 2010, fiscal policy will mostly be tight in 2011-15 as the government seeks to narrow the deficit. There remains a small risk that Bulgaria could require some external financial assistance from the IMF and the EU if the recovery of the global economy were to falter significantly in 2011.

As monetary policy is constrained by the currency board, the emphasis falls on fiscal policy. However, the Bulgarian National Bank (BNB, the central bank) may try to boost liquidity if the crisis in Greece hinders a recovery in lending by the Greek banks operating in Bulgaria. The government is aiming to reduce its redistributive role, to cut the public-sector workforce and to rationalise state holdings in industry. Privatisation plans focus on Bulgartabac, the state cigarette maker; the central heating company in Sofia, the capital; and share packages in a number of energy companies. The government's recovery plan also includes better absorption of EU funds, which should gradually lead to improvements in infrastructure and the business environment. This requires government co-financing and may stretch government finances. Therefore, moderate tax increases, such as in social security contributions, cannot be ruled out.

In January-November 2010 the budget deficit, using the cash-based national methodology, stood at Lv1.9bn (US$1.3bn), or 2.5% of estimated GDP for the year. The government has been implementing additional austerity measures in the second half of 2010, including cost savings at the ministries and further public-sector redundancies. However, the savings have been marginally out-weighed by additional spending increases, especially for infrastructure and social payments. We estimate that the deficit reached 4% of GDP in 2010, or 3.6% on the EU's accruals-based European System of Accounts (ESA 95) methodology. We forecast that the deficit will narrow in 2011 to around 3% of GDP, the ceiling set by the EU's Stability and Growth Pact (SGP), as revenue performance picks up, boosted by recovering economic activity and further efforts to mitigate tax avoidance. However, given the fairly weak outlook for value-added tax (VAT) revenue from consumption and imports, the government will need to keep expenditure tight. Financial strains in the healthcare sector and with respect to infrastructure projects present a risk to this forecast.

In 2012-15 revenue performance should continue to improve, in line with rising consumption and import growth. However, as economic growth is likely to be slower than before the crisis, the large fiscal surpluses of those years are unlikely to be repeated, and there is a risk of a further rise of social security

Policy trends

Fiscal policy

Bulgaria 7


contributions. We forecast that the budget will record small deficits in 2012-15, assuming that the government manages to contain public-sector pay increases.

Under the currency board arrangement, the lev is tied to the euro, so the BNB has limited discretion in adjusting monetary conditions. If credit growth fails to pick up, the BNB may try to boost liquidity by reducing minimum reserve requirements. Currently, however, the BNB probably calculates that such a reduction would not boost lending, given the weak demand for credit. Provided that the foreign parent institutions of Bulgarian banks do not run into serious financial problems themselves, we expect bank lending growth to strengthen gradually in 2011, before faster expansion in 2012-15. We expect the recovery in bank lending to be tentative, in view of the need for balance-sheet adjustments and the ongoing upward trend in non-performing loans (NPLs). More cautious lending from the Bulgarian subsidiaries of Greek banks is also likely to hinder credit growth in 2011, and remains a risk for much of the forecast period.

Economic forecast

2010 2011 2012 2013 2014 2015

Economic growth (%) US GDP 2.8 2.7 2.2 2.4 2.5 2.4

Euro area GDP 1.7 1.5 1.3 1.5 1.8 2.1

EU27 GDP 1.9 1.6 1.6 1.7 1.8 1.9

World GDP 3.8 3.0 3.0 3.1 3.1 3.1

World trade 12.4 6.4 6.3 6.7 6.7 6.0

Inflation indicators (% unless otherwise indicated) US CPI 1.6 1.2 2.0 2.5 2.8 2.8

Euro area CPI 1.4 1.2 1.5 1.6 1.7 1.9

EU27 CPI 1.8 1.8 1.8 1.9 2.0 2.1

Manufactures (measured in US$) 3.2 0.8 0.1 1.8 1.2 1.8

Oil (Brent; US$/b) 79.6 90.0 82.3 78.3 75.5 76.0

Non-oil commodities (measured in US$) 24.0 13.9 -6.2 -4.9 1.1 0.0

Financial variables US$ 3-month commercial paper

rate (av; %) 0.2 0.3 0.7 2.2 4.1 5.1

� 3-month rate 0.8 1.0 1.5 2.8 3.5 3.5

US$:� (av) 1.33 1.25 1.20 1.18 1.16 1.17

Lv:US$ (av) 1.47 1.56 1.63 1.66 1.69 1.67

Real GDP recorded quarter-on-quarter growth (on a seasonally adjusted basis) in the second and third quarters of 2010 for the first time since the fourth quarter of 2008. However, this growth was tentative and the rebound from the economic crisis remains muted. Export growth is driving this recovery, as domestic demand continues to contract. Despite renewed export demand, industrial output remains at low levels. In addition, retail trade is struggling, construction remains depressed and credit growth is minimal. Against this background, we estimate minimal growth in real GDP in 2010, of 0.1%, before growth picks up to 2.5% in 2011. In 2012-15 we forecast a strengthening of growth to an annual average of around 3.7%, which is well below pre-crisis rates of around 6%.

International assumptions

Monetary policy

Economic growth

8 Bulgaria


Private consumption continued to contract in 2010, owing to high unemployment, slower wage growth, expensive borrowing, repayment of debt and the negative wealth effect from lower house prices. Spare capacity in the economy and the painful reversal in the real estate sector is constraining investment spending. We expect a gradual improvement overall in these factors in 2011. Government consumption, however, will be unable to drive growth in 2011, given the need to limit the budget deficit. In 2011 households and companies will have worked through some of the necessary balance-sheet adjustments, and demand will start to bounce back, helped by stronger employment and better borrowing conditions. These will be the main drivers of faster growth in 2012-15, helped by higher consumer and corporate confidence. The economy should also receive some support from increased absorption of EU funds.

Trade made a positive contribution to the economy in 2010 as export growth outstripped weak import demand. However, in 2011-12 the weaker outlook for the euro zone is a limiting factor, and we forecast a dip in growth in the euro zone to 1.5% in 2011 and 1.3% in 2012. Although the euro zone economies will regain some vigour in 2012-15, growth will not be spectacular, at an annual average of 1.7%.

There are downside risks to this forecast. The crisis in Greece could have a negative effect on GDP growth in Bulgaria through reduced export demand (about 10% of Bulgarian exports go to Greece), lower investment and the negative influence of the banking sector, as Greek banks account for almost 30% of total banking assets in Bulgaria and 40% of loans. In addition, the malaise in the property market could limit the rebound in 2011, and the rise in NPLs could be above expectations.

Economic growth % 2010a 2011b 2012 b 2013 b 2014b 2015b

GDP 0.1 2.5 3.5 3.9 3.8 3.6

Private consumption -3.3 1.5 3.5 4.0 4.0 3.8

Government consumption 0.5 0.5 0.5 1.5 0.5 1.0

Gross fixed investment -7.9 4.0 6.5 8.0 8.5 8.0

Exports of goods & services 10.5 4.2 4.0 5.2 5.3 5.7

Imports of goods & services 1.5 3.7 4.9 6.3 6.2 6.3

Domestic demand -4.4 2.4 4.2 4.8 4.6 4.3

Agriculture 0.8 1.5 1.5 1.5 1.5 1.5

Industry 0.4 3.0 4.2 4.7 5.0 5.0

Services -0.1 2.5 3.5 3.9 3.7 3.3

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Although oil and electricity prices have risen, as have food prices in September-November, inflation averaged only 2.4% in 2010, owing to the weakness of domestic demand. We expect inflationary pressures from the demand side to remain weak in 2011 relative to pre-crisis years, but to strengthen relative to 2010. In addition, we forecast that the price of dated Brent Blend crude oil will rise to an average of US$90/barrel in 2011, up from US$79.6/b in 2010. As a result, we forecast that inflation will pick up to an average of 3.8% in 2011.

Inflation

Bulgaria 9


In 2012-15 we forecast that inflation will average around 3.2%. Domestic demand growth should strengthen in these years and more money will be injected into the economy through EU funds. However, wage growth and credit growth will be more moderate than in pre-crisis years, limiting the upward pressure on prices. Furthermore, we forecast a gradual decline in the oil price during these years, to US$76/b in 2015.

Political commitment to the currency board arrangement remains strong, and it is expected to stay in place until euro adoption, which is likely to be in 2015 at the earliest, with the lev fixed to the euro at the current rate of Lv1.95583:�1. Although the real effective exchange rate (REER) of the lev has appreciated significantly in recent years, concerns about competitiveness are unlikely to prompt a move away from the currency board. Some pressure of contagion would arise if Latvia and Lithuania were to give up their currency pegs, but the BNB would act to maintain the currency board arrangement. The government is aiming to bring the budget deficit in 2011 within 3% of GDP, as stipulated by the EU's SGP. On doing so, the government will want to make its application for entry into the EU's exchange-rate mechanism (ERM2), provided that inflation can be kept low enough.

The contraction of the trade deficit was the main factor behind the shrinking of the current-account deficit in 2009 to 9.8% of GDP from 22.9% in 2008. We estimate a negligible deficit, equivalent to 0.2% of GDP, in 2010, after which the deficit will expand relatively modestly during the forecast period. This forecast depends on subdued growth of imports as incomes and credit activity recover slowly and as firms import fewer goods for fixed investment. As economic growth picks up in 2011-15, the trade deficit is likely to widen, pushing the current-account deficit above 5% of GDP on average in 2013-15. The deficit is unlikely to return to pre-crisis levels, when a construction boom contributed to a surge in imports. After a slump in 2009-10, we expect foreign direct investment (FDI) inflows to start recovering. However, in 2011-15 we forecast annual inflows to average around 10% of GDP and to remain much lower than the average for 2005-08, when inflows equalled more than 20% of GDP.

Forecast summary (% unless otherwise indicated)

2010a 2011b 2012 b 2013 b 2014b 2015b

Real GDP growth 0.1 2.5 3.5 3.9 3.8 3.6

Industrial production growth 1.9 4.0 5.2 7.2 7.5 7.0

Gross agricultural production growth 0.8 1.5 1.5 1.5 1.5 1.5

Unemployment rate (av) 9.5 8.4 7.5 6.8 6.0 6.0

Consumer price inflation (av; national measure) 2.4c 3.8 3.4 3.2 3.0 3.0

Consumer price inflation (end-period; national measure) 4.5c 3.4 3.3 3.1 3.0 3.0

Consumer price inflation (av; EU harmonised measure) 3.0 3.7 3.3 3.1 2.9 2.9

Lending interest rate (av) 11.2 9.8 8.8 8.0 8.0 7.5

Consolidated budget balance (% of GDP) -4.0 -3.0 -1.3 -1.1 -0.6 -0.9

Exchange rates

External sector

10 Bulgaria


Forecast summary (% unless otherwise indicated)

2010a 2011b 2012 b 2013 b 2014b 2015b

Exports of goods fob (US$ bn) 21.0 23.1 24.6 26.7 29.1 32.1

Imports of goods fob (US$ bn) 23.8 26.8 28.9 32.1 35.0 38.5

Current-account balance (US$ bn) -0.1 -1.3 -2.0 -2.7 -3.1 -3.1

Current-account balance (% of GDP) -0.2 -2.6 -3.8 -5.0 -5.3 -5.0

External debt (end-period; US$ bn) 35.1 33.4 32.2 33.0 33.3 33.4

Exchange rate Lv:US$ (av) 1.47c 1.56 1.63 1.66 1.69 1.67

Exchange rate Lv:US$ (end-period) 1.46c 1.63 1.64 1.67 1.68 1.67

Exchange rate Lv:� (av) 1.96c 1.96 1.96 1.96 1.96 1.96

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.

Bulgaria 11


Monthly review: February 2011

The political scene

In early January Bulgaria, along with Romania, learnt from the EU that it is not yet ready to join the Schengen area, which operates no internal borders, owing both to technical deficiencies and to EU concerns about corruption. Before the decision, the interior ministers of France and Germany sent a letter to the European Commission, the outgoing Belgian EU presidency and the incoming Hungarian EU presidency. In the letter, the two ministers expressed concern that the admission in March of Bulgaria and Romania into the Schengen area would be premature, because of deficiencies in the field of security and justice related to corruption and organised crime.

Bulgaria and Romania both remain subject to the EU's co-operation and verification mechanism, which monitors progress in the judiciary and the fight against corruption and organised crime. Insufficient progress has contributed to the EU's refusal to let either country into the Schengen area, especially as both would mark a new external boundary for the free-travel zone. Technical deficiencies along the Turkish border hindered Bulgaria's application, but it seems that some EU members are tying acceptance into the Schengen area with progress under the co-operation and verification mechanism. A unanimous vote of EU members is needed for a country to enter the Schengen area. The decision angered the Romanian government, which threatened not to ratify the entry of Croatia into the EU and the protocol of the Lisbon treaty. Romania argues that entry into Schengen is a technical process, and feels aggrieved that what it considers political reasons have hampered the country's entry.

Bulgaria's response was far more restrained. Schengen entry was one of the government's priorities for 2011. The government has acknowledged the technical problems along the border with Turkey and is confident that they will be resolved by March. The government is also planning further judicial reforms, including the creation of a specialised court for cases related to organised crime, and a controversial law allowing for confiscation of property in cases where declared incomes are much lower than property ownership. Nevertheless, entry into Schengen is unlikely to occur until at least November 2011, and could drag on longer if progress under the co-operation and verification mechanism is not concerted.

A political storm has broken out over wiretapping and a leaked tape of the prime minister, Boiko Borisov, seeming to intervene to help a local beer producer in its dealings with the Customs Agency. Although there are grave doubts about its authenticity, the tape does not look good for the leader of a party elected on a platform of cleaning up fraud and corruption. Criticism from the opposition and media speculation prompted the government to initiate a confidence vote. A Gallup poll in January following the scandal indicated that Mr Borisov has lost significant amounts of electorate support, but support from

The EU delays Bulgaria's entry into the Schengen area

Wiretapping and leaked tapes threaten the CEDB's reputation

12 Bulgaria


a hardline nationalist party, Ataka (Attack), helped the government to survive the confidence vote easily.

The tape records a conversation between Mr Borisov and Vanyo Tanov, the head of the Customs Agency. Mr Borisov has claimed that the tape must have been manipulated. Forensic examinations are ongoing to determine the authenticity of the leaked recordings. Comments from the prosecutor's office ahead of the confidence vote confirm that the tape had been manipulated, although at the time of writing there were no details on the extent of manipulation. This tape and others were released by Galeria, a newspaper reported to be linked to Aleksei Petrov, who is under house arrest on charges of organised crime; there is considerable animosity between Mr Petrov and leading members of the ruling Citizens for European Development of Bulgaria (CEDB).

Economic policy

In November there was a small budget surplus, of Lv36.5m (US$24.8m), following a significant monthly deficit in October, of Lv384.7m. The accumulated deficit in January-November was Lv1.9bn (US$1.3bn), owing mostly to weak revenue performance. In January-November revenue was 5% lower than in the year-earlier period. Expenditure was slightly higher, increasing by 1.1% from January-November 2009.

In November there was a significant increase in revenue from value-added tax (VAT), which rose by 29.3% year on year, to around Lv170m. In part this reflects a marked rise in imports in November (imports are subject to VAT). Developments in domestic consumption do not explain the stronger VAT intake, given that retail demand continued to contract in November.

The 2010 budget, as revised earlier in the year, targets a deficit (on a cash basis) equivalent to 4.8% of GDP. According to preliminary information from the Ministry of Finance, the deficit at year-end was smaller than this target, probably around 4%�in line with the Economist Intelligence Unit's long-standing estimate. On an accruals basis, the ministry estimates a deficit equivalent to 3.6% of GDP, which is 0.2 percentage points below the government's target for this deficit measure.

The EU commissioner for taxation, customs, audit and fraud, Algirdas Semeta, visited Bulgaria to discuss the administration of EU funds. The European Commission president, José Manuel Barroso, had been fiercely critical of Bulgaria's inability to use its EU funds. Bulgaria is not the only country that has struggled to use, or "absorb", its EU allocation. However, it is a particularly pressing issue for a country that remains the poorest in the EU�and it is an indictment of ongoing problems with corruption and administrative weakness.

The EU froze payments in 2008 because of the fraudulent administration of funds. That helped the CEDB to win power in July 2009, promising to clean up governance and take advantage of the �6.7bn (US$8.4bn) available from the EU's structural funds in 2007-13. It reckons that the money should play a crucial

There is a small budget surplus in November

Use of EU funds improves slightly from a low level

Bulgaria 13


role in helping Bulgaria to recover from a bruising recession, which saw GDP shrink by 4.9% in 2009. If it fails to act as required, some of the money could be lost to Bulgaria. If it is not spent by 2015, the remainder could be reallocated within the EU's budget.

Bulgaria remained the poorest country in the EU in 2009, with GDP per head at just 44% of the EU27 average, according to Eurostat. That is just behind neighbouring Romania, with 46%, and well behind other former communist states such as the Czech Republic (82%) and Slovenia (88%). To catch up, Bulgaria needs to improve many things, from its business culture to its physical infrastructure. The EU's structural funds should be playing an important role here.

European Commission figures for the end of 2010 put Bulgaria as the second-worst absorber of allocated funds, ahead of Romania, managing to spend just 15.5% of its allocation for 2007-13. Only three countries�Romania, Bulgaria and Slovakia�scored below 20%. Lithuania and Estonia absorbed 34.1% and 35%, respectively.

Absorption of EU structural funds for 2007-13 (EU payments received as a percentage of total allocation at end-2010)

Source: European Commission.

10.0

15.0

20.0

25.0

30.0

35.0

40.0

EstoniaLithuaniaLatviaSloveniaPolandHungaryCzech Republic

SlovakiaBulgariaRomania

The Commission figures include advance payments to governments as an anti-crisis measure in 2009-10. Excluding these, Bulgaria's absorption rate is only around 10%, according to Tomislav Donchev, who was appointed in March 2010 to a new position in the cabinet dedicated to managing EU funds. Mr Donchev says that this represents a sharp improvement for Bulgaria, whose absorption rate was only 2.5% at end-January 2010. In recent months Bulgaria has increased the number of employees focused on EU funds, and plans to bring in experts from the World Bank, the European Bank for Reconstruction and Development (EBRD), and the European Investment Bank (EIB) to boost absorption further. By the end of 2011 the government aims to have absorbed 20% of its allocation.

Bulgaria can ill afford to waste this money. Important motorway projects have crawled along for years (with limited progress in 2010), railway infrastructure is poor, and progress with waste management and water purifying facilities has been slow. It is this failure to use funds for large infrastructural improvements that Mr Barroso criticised in December. The difference between absorbing 10% and 25% for Bulgaria amounts to �1bn, or 2.6% of estimated 2010 GDP.

14 Bulgaria


Despite his criticism, Mr Barroso accepted that the CEDB government has taken action to address important problems. Although staff numbers were cut in several ministries during the recession, the administration of EU funds was strengthened and given greater focus, with a dedicated minister in charge. Nevertheless, the bureaucratic demands of administering EU funds will continue to stretch Bulgaria's capacity to generate enough good projects and clear all the hurdles to ensure implementation.

Along with administrative deficiencies, corruption in the management of EU funds has been a problem; this led to the freezing of payments in 2008. The Heritage Foundation's Index of Economic Freedom suggests that more funds can be absorbed when there is less corruption. Bulgaria and Romania receive the worst scores (38 out of 100) for freedom from corruption among the new EU members. Estonia and Slovenia are the best (with scores of 66), and the Visegrad countries are in the middle: Slovakia scores 45, the Czech Republic scores 49, Hungary scores 51 and Poland scores 50.

The CEDB government has intensified anti-corruption activity, and the authorities know that they must be especially careful with EU funds. This is a positive change, although Mr Semeta wants to see this mirrored by a more effective judiciary. During his stay in Bulgaria, Mr Semeta said that cases referred to Bulgaria by the European Anti-Fraud Office (OLAF) are often not sufficiently followed up. Ongoing weaknesses with corruption and the judiciary will continue to hamper faster take-up of EU funds, although the situation is better than in 2008.

Economic performance

Despite the weakness of domestic demand and spare capacity in the economy, consumer price inflation has increased markedly since September 2010. In September-December consumer prices grew by an average of 0.6% month on month, compared with an average of 0.2% in January-August, which would have been lower still if not for rises in excise duties in April. Larger price increases for food and oil have been the main cause.

For example, in December month-on-month inflation was 0.4%, driven by an increase of 0.4% in the prices of food and non-alcoholic beverages, which account for 35% of the consumer price index, and by an increase of 3% in the price of fuel for personal transport (the transport category as a whole increased by 1.8% month on month).

Food prices have been rising globally following supply disruptions in mid 2010. The monthly increase in Bulgaria in December may suggest that this effect is beginning to lessen, as in September-November food and non-alcoholic beverages prices increased by an average of 1.7% month on month. Conversely, the pressure from oil prices sharpened in December, when global oil prices rose above US$90/barrel.

Consumer inflation reaches 4.5%, but food inflation eases

Bulgaria 15


Total consumer price inflation and food inflation(%, month on month)

Source: National Statistical Institute.

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0Food and non-alcoholic beverages inflationConsumer price inflation

DecOctAugJunAprFeb10

DecOctAugJunAprFeb09

DecOct2008

In year-on-year terms, consumer inflation was 4.5% in December, edging down from 4.6% in November, but appreciably higher than the 0.6% in December 2009, when the economy was still contracting and global price pressures were minimal. The average for the year was 2.4%, following an average of 2.8% in 2009. The greatest price increase was for alcoholic beverages and tobacco, owing to a leap in excise duties. Low inflation or deflation in categories considered more demand-elastic�such as clothing, household equipment, communication, and recreation and culture�reflects the ongoing weakness of domestic demand.

Consumer price inflation, 2010 (% change, year on year, unless otherwise indicated)

Weighting (%) Mar Apr May Jun Jul Aug Sep Oct Nov DecTotal 100.0 1.3 1.8 1.9 1.4 2.4 2.7 3.5 3.9 4.6 4.5Food & non-alcoholic beverages 35.4 -2.3 -2.8 -2.4 -2.8 -1.4 0.0 1.9 3.7 4.7 4.0

Alcoholic beverages & tobacco 5.6 19.5 27.5 27.3 26.9 26.7 26.2 26.2 26.3 26.5 26.4Clothing & footwear 3.7 -2.2 -2.1 -2.1 -2.4 -1.5 -1.6 -0.4 -1.3 -0.9 0.1

Housing, water, electricity, gas & other fuels 17.4 -1.4 -1.1 -1.0 -1.0 1.8 1.8 2.1 2.2 3.7 3.8Furnishing, household equipment &

maintenance 4.4 -0.6 -0.7 -1.0 -1.1 -1.2 -1.3 -1.4 -1.0 -0.4 -0.6Health 6.5 5.2 5.2 5.3 2.8 2.6 2.2 1.7 1.2 0.9 1.0

Transport 7.3 9.4 9.9 10.0 7.4 8.0 6.8 8.5 8.0 7.6 10.1Communication 5.4 -0.6 -0.5 -0.5 -0.5 -0.8 -1.0 -0.9 -0.9 -0.1 -1.2Recreation & culture 4.1 3.8 4.1 3.3 1.7 1.7 1.2 0.7 0.2 0.3 -0.9

Education 0.6 7.6 7.5 7.4 7.5 7.7 7.9 2.9 1.6 1.6 1.6Restaurants & hotels 5.9 2.3 1.9 1.7 1.8 1.9 1.6 0.9 0.6 1.1 1.5

Miscellaneous goods & services 3.8 3.9 5.3 5.5 5.0 4.3 4.0 4.2 4.0 4.0 4.0

Source: National Statistical Institute.

In November seasonally adjusted industrial output grew by 1.3% month on month, after declining by 0.6% in October. In year-on-year terms, unadjusted industrial output achieved growth of 5.5%; in January-November output increased by 1.7%. Given the impressive surge in merchandise exports in 2010, which rose by 32% year on year in January-November, this is a muted pick-up in industrial output. This again reflects the weakness of the domestic economy.

Industry improves mildly, but retail demand remains weak

16 Bulgaria


The retail sector provides further evidence of this weakness. According to the National Statistical Institute, the volume of retail demand continued to decline in November, by 0.6% month on month (seasonally adjusted), as it had been for most of 2010. In August-November this indicator deteriorated in seasonally adjusted month-on-month terms, declining by an average of 0.8%, compared with a 0.2% average decline in January-July.

The overall economic sentiment indicator�a composite indicator derived from confidence surveys across industry, consumers, retail businesses, services and construction�improved throughout the fourth quarter of 2010. However, despite improving, the economic sentiment indicator remains at a low levels, and is still below the long-term average.

Economic sentiment indicator (long-term average = 100)

Source: Eurostat.

Note. The economic sentiment indicator is a composite indciator derived from other confidence surveys, with the

following weights: industrial (40%), services (30%), consumer (20%), construction (5%), and retail (5%).

80

85

90

95

100

105

110

115

120

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulAprJan07

OctJulAprJan06

OctJulAprJan2005

The balance of the industrial confidence indicator improved modestly in November and December. This is not surprising, given that output in this sector has experienced growth (albeit mild) in recent months. More surprising is that the consumer confidence indicator has also improved, and markedly so, in the fourth quarter. This has happened despite consumers' worsening expectations for employment, and is explained by growing optimism on the part of consumers about their financial situation and the general economic situation in the next 12 months. However, confidence among businesses in the retail sector has not moved in the same direction, with the balance of confidence worsening slightly in the fourth quarter.

Construction has suffered a dreadful 2010, but in October and November the National Statistical Institute's construction works index expanded month on month (seasonally adjusted), and in November the index recorded year-on-year growth for the first time since December 2008. This is partly explained by the base-year effect, but confidence has also improved throughout the fourth quarter, and more markedly in December.

Bulgaria 17


Data and charts Annual data and forecast

Pl ea se se e g ra p hi c b el ow

2006a 2007a 2008a 2009a 2010 b 2011c 2012c

GDP

Nominal GDP (US$ m) 33,245 42,116 52,082 48,814 51,535 51,178 52,105

Nominal GDP (Lv m) 51,783 60,185 69,295 68,537 76,000 80,076 84,924

Real GDP growth (%) 6.5 6.4 6.2 -4.9 0.1 2.5 3.5

Expenditure on GDP (% real change)

Private consumption 8.6 9.0 3.4 -3.5 -3.3 1.5 3.5

Government consumption 3.4 0.2 -1.0 -6.5 0.5 0.5 0.5

Gross fixed investment 13.1 11.8 21.9 -26.9 -7.9 4.0 6.5

Exports of goods & services 50.7 6.1 3.0 -10.3 10.5 4.2 4.0

Imports of goods & services 47.7 9.6 4.2 -21.5 1.5 3.7 4.9

Origin of GDP (% real change)

Agriculture 0.1 -29.7 24.6 -2.5b 0.8 1.5 1.5

Industry 3.6 14.0 3.0 -14.0b 0.4 3.0 4.2

Services 5.6 7.5 5.9 -1.5b -0.1 2.5 3.5

Population and income

Population (m) 7.6 7.6 7.5 7.5b 7.4 7.4 7.4

GDP per head (US$ at PPP) 10,413b 11,486b 12,536b 12,096b 12,244 12,818 13,653

Recorded unemployment (av; %) 9.6 7.7 6.3 7.6 9.5 8.4 7.5

Fiscal indicators (% of GDP)

Consolidated state budget revenue 38.7 40.0 39.4 36.5b 31.7 32.3 34.3

Consolidated state budget expenditure 35.3 36.7 36.5 37.4b 35.7 35.3 35.6

Consolidated state budget balance 3.4 3.3 2.9 -0.9b -4.0 -3.0 -1.3

Public debt (ESA measure) 21.6 17.2 13.7 14.7 14.1 15.3 15.2

Prices and financial indicators

Exchange rate Lv:US$ (end-period) 1.49 1.33 1.39 1.36 1.46 a 1.63 1.64

Exchange rate Lv:� (end-period) 1.96 1.94 1.93 1.96 1.96 a 1.96 1.96

Consumer prices (end-period; %) 6.5 12.5 7.8 0.6 4.5 a 3.4 3.3

Stock of money M1 (% change) 29.2 28.9 -4.1 -8.8 7.6 7.9 8.4

Stock of money M2 (% change) 26.9 31.3 8.7 4.3 9.2 12.8 14.3

Lending interest rate (av; %) 8.9 10.0 10.9 11.3 11.2 9.8 8.8

Current account (US$ m)

Trade balance -7,028 -10,071 -12,691 -5,786 -2,873 -3,651 -4,327

Goods: exports fob 15,101 18,575 22,604 16,409 20,957 23,117 24,602

Goods: imports fob -22,130 -28,646 -35,296 -22,195 -23,830 -26,768 -28,928

Services balance 1,189 1,515 2,044 1,853 2,448 2,139 2,246

Income balance -679 -624 -2,591 -2,120 -1,721 -1,738 -1,782

Current transfers balance 844 464 1,286 1,293 2,035 1,919 1,901

Current-account balance -5,673 -8,716 -11,952 -4,760 -112 -1,331 -1,961

External debt (US$ m)

Debt stock 20,990 32,968 38,045 39,594b 35,085 33,399 32,153

Debt service paid 2,735 4,198 4,969 4,426b 6,153 5,553 5,617

Principal repayments 1,992 3,034 3,408 3,380b 5,129 4,587 4,562

International reserves (US$ m)

Total international reserves 11,758 17,538 17,927 18,526 17,233 17,206 17,842

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Source: IMF, International Financial Statistics.

18 Bulgaria


Quarterly data Pl ea se se e g ra p hi c b el ow

2008 2009 2010

4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Consolidated government financea (Lv m)

Revenue 6,465 6,400 6,555 5,571 6,496 5,171 6,018 6,167

Expenditure 9,440 5,885 6,885 6,307 6,474 6,840 5,863 6,170

Balance -2,975 514 -330 -736 23 -1,669 155 -4

Output

GDP at current prices (US$ bn) 13.0 9.5 12.0 13.6 13.9 10.2 11.0 12.8

GDP at constant prices (% change, year on year) 3.5 -3.5 -4.9 -5.4 -5.9 -3.6 -1.4 n/a

Employment, wages and prices

Employees with labour contract ('000) 2,436 2,413 2,402 2,338 2,254 2,190 2,228 2,198

Employees with labour contract (% change, year on year) 5.6 -1.5 -4.0 -6.3 -7.5 -9.2 -7.2 -6.0

Registered unemployment ('000) 221.9 252.5 264.3 290.5 321.3 374.2 354.9 338.4

Unemployment rate (% of the labour force) 6.0 6.7 7.4 7.8 8.7 10.1 9.6 9.1

Average nominal monthly wages (Lv) 549 563 588 583 606 619 640 639

Average monthly wages (% change, year on year) 20.1 16.2 15.4 11.4 10.5 9.9 8.7 9.6

Consumer prices (Dec 1995=100) 5,978 6,015 6,030 5,966 5,983 6,069 6,132 6,135

Consumer prices (% change, year on year) 9.3 6.0 4.1 1.0 0.1 0.9 1.7 2.8

Producer prices (2000=100) 132.6 125.1 124.9 125.1 126.0 130.2 135.6 137.9

Producer prices (% change, year on year) 4.7 -3.2 -6.7 -10.0 -5.0 4.1 8.5 10.2

Financial indicators

Exchange rate Lv:US$ (av) 1.49 1.50 1.43 1.37 1.32 1.41 1.54 1.52

Exchange rate Lv:US$ (end-period) 1.39 1.47 1.38 1.34 1.36 1.45 1.59 1.43

Deposit rate (av) 5.7 6.0 6.3 6.5 5.9 4.8 4.0 3.8

Lending rate (av) 11.3 11.3 11.3 11.5 11.3 11.2 11.2 11.2

Money market rate (av) 5.6 3.6 2.3 1.6 0.5 0.2 0.2 0.2

M1 (end-period; Lv m) 19,867 17,750 17,910 17,686 18,125 17,394 18,069 19,052

M1 (% change, year on year) -4.1 -10.6 -11.9 -13.8 -8.8 -2.0 0.9 7.7

M2 (end-period; Lv m) 45,688 44,842 45,497 46,387 47,634 48,275 49,117 50,245

M2 (% change, year on year) 8.7 6.2 3.6 1.7 4.3 7.7 8.0 8.3

Foreign trade (US$ m)

Exports fob 3,300 2,658 2,738 3,056 3,247 3,052 3,765 4,401

Imports cif 5,640 3,814 3,996 3,912 4,152 3,618 4,564 4,519

Trade balance -2,341 -1,156 -1,257 -856 -905 -566 -799 -119

Balance of payments (US$ m)

Merchandise trade balance fob-fob -3,078 -1,506 -1,711 -1,223 -1,335 -780 -1,007 -154

Services balance -22 -59 300 1,623 -14 9 531 1,771

Income balance -680 -560 -692 -528 -337 -532 -435 -505

Net transfer payments 55 274 429 284 303 528 564 533

Current-account balance -3,725 -1,850 -1,674 156 -1,383 -776 -343 1,645

Reserves excl gold (end-period) 16,816 14,546 15,604 16,865 17,127 15,072 13,324 15,740

a Includes local government budgets and social security.

Sources: National Statistical Institute, Statistical Journal; Bulgarian National Bank, Monthly Bulletin; IMF, International Financial Statistics.

Bulgaria 19


Monthly data Pl ea se se e g ra p hi c b el ow

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exchange rate Lv:US$ (av) 2008 1.33 1.33 1.26 1.24 1.26 1.26 1.24 1.31 1.36 1.47 1.54 1.46

2009 1.48 1.53 1.50 1.48 1.43 1.40 1.39 1.37 1.34 1.32 1.31 1.34

2010 1.37 1.43 1.44 1.46 1.56 1.60 1.53 1.52 1.50 1.41 1.43 1.48

Exchange rate Lv:US$ (end-period) 2008 1.32 1.29 1.24 1.26 1.26 1.24 1.25 1.33 1.37 1.53 1.54 1.39

2009 1.53 1.55 1.47 1.47 1.39 1.38 1.38 1.37 1.34 1.32 1.30 1.36

2010 1.40 1.44 1.45 1.47 1.59 1.59 1.50 1.54 1.43 1.41 1.50 1.47

Real effective exchange rate 2008 260.25 261.74 289.64 293.72 287.09 286.59 295.98 275.81 256.30 229.89 212.29 223.90

2009 219.83 206.62 216.23 219.81 234.89 243.74 245.15 248.94 261.96 266.26 269.49 263.20

2010 254.63 237.54 235.13 233.46 211.70 201.40 218.16 223.62 228.04 251.11 n/a n/a

Budget revenue (Lv m) 2008 2,083 1,798 2,863 2,873 2,140 2,275 2,411 2,188 2,222 2,215 2,122 2,128

2009 2,616 1,651 2,133 2,701 1,943 1,910 1,797 1,830 1,944 2,017 1,933 2,546

2010 1,749 1,349 2,074 2,322 1,865 1,831 2,325 1,788 2,054 1,878 2,122 n/a

Budget expenditure (Lv m) 2008 1,643 1,663 1,774 1,832 1,539 1,798 1,974 1,775 1,878 2,152 2,563 4,725

2009 1,709 1,971 2,206 2,540 2,063 2,282 2,367 1,923 2,017 2,011 1,886 2,577

2010 2,248 2,248 2,345 1,953 1,925 1,986 2,041 2,094 2,035 2,263 2,086 n/a

Budget balance (Lv m) 2008 440 134 1,089 1,041 601 477 437 413 344 64 -441 -2,597

2009 907 -320 -73 161 -120 -372 -570 -92 -73 6 48 -31

2010 -499 -899 -271 369 -60 -154 283 -306 19 -385 36 n/a

Unemployment rate (%) 2008 7.4 7.3 6.8 6.5 6.2 6.0 6.0 5.9 5.8 5.9 5.9 6.3

2009 6.5 6.7 6.9 7.0 7.1 7.3 7.6 7.9 8.0 8.2 8.7 9.1

2010 9.9 10.3 10.1 10.0 9.5 9.3 9.2 9.1 9.0 8.9 9.1 9.2

Average monthly wages (% change, year on year) 2008 25.4 23.1 24.7 26.4 21.2 25.0 22.2 22.1 23.4 23.4 19.4 17.9

2009 16.3 16.7 15.8 15.8 16.3 14.0 11.8 12.1 10.4 10.4 10.7 10.4

2010 9.7 10.3 9.8 8.4 9.4 8.3 10.2 9.4 9.3 n/a n/a n/a

Deposit rate (av; %) 2008 3.7 4.1 4.0 4.0 4.1 4.2 4.0 4.0 4.2 4.5 5.3 7.2

2009 6.5 5.8 5.7 6.2 6.2 6.5 6.5 6.7 6.3 6.1 5.8 5.9

2010 5.2 4.9 4.3 4.1 4.0 3.9 3.6 3.9 3.8 3.7 n/a n/a

Lending rate (av; %) 2008 10.5 10.6 10.7 10.7 10.8 10.8 10.7 10.9 10.8 11.2 11.4 11.4

2009 11.5 11.1 11.1 11.2 11.2 11.4 11.5 11.5 11.5 11.4 11.3 11.3

2010 11.2 11.2 11.2 11.3 11.2 11.2 11.2 11.3 11.2 11.1 n/a n/a

M1 (% change, year on year) 2008 24.6 22.4 22.0 22.3 20.7 14.2 14.0 10.2 7.0 2.6 -0.4 -4.1

2009 -6.2 -8.4 -10.6 -12.8 -13.7 -11.9 -15.1 -14.2 -13.8 -12.3 -7.8 -8.8

2010 -5.1 1.8 -2.0 0.5 1.1 0.9 4.8 6.6 7.7 8.7 7.5 n/a

M2 (% change, year on year) 2008 30.9 29.8 29.0 28.3 27.3 24.3 23.8 20.9 19.4 14.8 10.7 8.7

2009 8.2 7.6 6.2 5.1 4.6 3.6 1.7 1.1 1.7 4.5 6.6 4.3

2010 5.4 7.9 7.7 7.8 8.0 8.0 8.7 9.3 8.3 8.2 8.9 n/a

20 Bulgaria


Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Industrial production (% change, year on year) 2008 7.5 5.2 -1.0 7.0 5.6 4.2 4.3 -3.9 3.4 -3.3 -9.1 -8.5

2009 -19.0 -18.4 -18.3 -21.7 -23.7 -19.4 -20.3 -17.1 -21.4 -16.2 -10.7 -12.2

2010 -1.2 -10.0 1.5 0.2 0.5 4.2 0.9 5.5 7.3 2.5 5.5 n/a

Retail sales (% change, year on year) 2008 14.0 14.1 12.6 13.8 9.7 10.4 10.0 7.1 6.9 6.6 4.6 1.8

2009 -1.5 -6.1 -8.1 -9.3 -10.6 -10.7 -9.4 -9.7 -8.6 -8.9 -10.3 -12.1

2010 -12.9 -11.9 -11.6 -11.7 -8.7 -6.7 -4.8 -4.1 -4.9 -5.0 -5.2 n/a

Stockmarket index (SOFIX; end-period; Oct 20th 2000=100) 2008 1,403 1,430 1,255 1,138 1,260 1,154 1,014 1,028 792 492 363 359

2009 287 265 278 359 380 357 356 454 480 458 452 427

2010 436 424 421 417 382 373 370 389 387 355 356 362

Consumer prices (av; % change, year on year) 2008 12.5 13.2 14.2 14.6 15.0 15.3 14.5 11.2 11.0 10.9 9.1 7.8

2009 7.1 6.0 4.9 4.8 3.9 3.7 1.6 1.3 0.2 -0.3 -0.1 0.6

2010 0.4 0.9 1.3 1.8 1.9 1.4 2.4 2.7 3.5 3.9 4.6 4.5

Producer prices (av; % change, year on year) 2008 12.4 14.0 15.3 13.3 12.7 12.9 13.6 12.7 11.8 9.9 4.0 0.2

2009 -1.1 -3.0 -5.5 -6.1 -6.7 -7.3 -10.6 -10.7 -8.8 -9.5 -5.8 0.9

2010 2.9 4.1 5.2 8.1 9.1 8.4 10.1 11.0 9.6 10.2 n/a n/a

Total exports fob (US$ m) 2008 1,640 1,792 2,057 2,162 2,059 2,175 2,403 1,974 1,887 1,720 1,365 1,253

2009 1,076 1,152 1,233 1,100 1,242 1,401 1,450 1,401 1,520 1,776 1,621 1,406

2010 1,313 1,372 1,532 1,582 1,517 1,792 1,933 1,873 1,871 2,017 1,977 n/a

Total imports cif (US$ m) 2008 2,537 2,665 2,939 3,364 3,310 3,590 3,587 2,814 2,888 2,988 2,316 2,112

2009 1,518 1,592 1,857 1,723 1,845 1,886 1,901 1,768 1,925 2,181 1,995 1,961

2010 1,554 1,507 1,936 1,977 1,936 1,985 1,992 1,851 1,988 2,284 2,541 n/a

Trade balance fob-cif (US$ m) 2008 -897 -873 -883 -1,202 -1,250 -1,416 -1,184 -840 -1,002 -1,267 -951 -859

2009 -442 -441 -623 -623 -603 -485 -452 -367 -404 -405 -375 -555

2010 -241 -136 -404 -394 -419 -193 -59 22 -116 -266 -564 n/a

Foreign-exchange reserves excl gold (US$ m) 2008 16,185 16,441 17,956 18,994 18,745 19,680 20,131 20,113 19,965 17,170 17,193 16,816

2009 14,365 13,982 14,546 14,517 15,359 15,604 15,354 16,100 16,865 17,413 17,910 17,127

2010 16,113 15,094 15,072 14,511 13,485 13,324 14,589 14,236 15,740 15,638 14,744 15,421

Sources: IMF, International Financial Statistics; Haver Analytics.

Bulgaria 21


Annual trends charts Pl ea se se e g ra p hi c b el ow

Annual trends charts

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.

Budget balance(% of GDP)

GDP per head(US$; PPP)



Real GDP growth(% change)

Consumer price inflation(av; %)

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0 World East-central Europe Bulgaria

12111009080720060.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0 World East-central Europe Bulgaria

1211100908072006

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0 East-central Europe Bulgaria

12111009080720060

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000 World East-central Europe Bulgaria

1211100908072006

Principal exports fob, 2009(US$ m) (US$ m)

Principal imports cif, 2009

Chemicals, plastics& rubber

699

Other metals1,706

Iron & steel615

Clothing &footwear

1,650

Textiles1,301

Machinery & equipment 2,100

Crude oil &natural gas

3,602

Chemicals, plastics & rubber1,514

22 Bulgaria


Monthly trends charts Pl ea se se e g ra p hi c b el ow

Monthly trends charts

Price inflation(% change, year on year)

Monetary aggregates (% change, year on year)

Interest rates(av; %)

Wage growth(% change, year on year)

Foreign-exchange reserves(US$ m)

Unemployment rate(%)

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.



5.0

6.0

7.0

8.0

9.0

10.0

11.0

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

10,000

12,000

14,000

16,000

18,000

20,000

22,000

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

0.0

5.0

10.0

15.0

20.0

25.0

30.0 Nominal wages Real wages

JulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0 Lending rate Deposit rate

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0 M2 M1

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0 Producer prices Consumer prices

OctJulAprJan10

OctJulAprJan09

OctJulAprJan08

OctJulApr2007

Bulgaria 23


Comparative economic indicators Pl ea se se e g ra p hi c b el ow

Comparative economic indicators, 2009

Gross domestic product(US$ bn; market exchange rates)

Gross domestic product(% change, year on year)

Consumer prices(% change, year on year)

Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.Sources: Economist Intelligence Unit estimates; national sources.

Sources: Economist Intelligence Unit estimates; national sources.

Gross domestic product per head(US$ '000; market exchange rates)

0 20 40 60 80 100 120 140 160 180 200

Kyrgyz RepublicTajikistan

MoldovaTurkmenistan

ArmeniaMacedonia

GeorgiaAlbania

Bosnia and HercegovinaEstonia

LatviaUzbekistan

LithuaniaAzerbaijan

SerbiaBulgaria

BelarusSlovenia

CroatiaSlovakia

KazakhstanUkraine

HungaryRomania

Czech RepublicPolandRussia

0.0 5.0 10.0 15.0 20.0

TajikistanKyrgyz Republic

UzbekistanMoldova

TurkmenistanGeorgiaUkraine

ArmeniaAlbania

MacedoniaBosnia and Hercegovina

AzerbaijanBelarus

SerbiaBulgaria

KazakhstanRomania

RussiaLithuania

PolandLatvia

HungaryCroatiaEstonia

SlovakiaCzech Republic

Slovenia

-2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

MacedoniaBosnia and Hercegovina

EstoniaMoldovaSlovenia

Czech RepublicAzerbaijan

SlovakiaGeorgiaAlbaniaCroatia

BulgariaArmenia

PolandLatvia

HungaryLithuaniaRomania

TajikistanKyrgyz Republic

KazakhstanSerbia

TurkmenistanRussia

BelarusUzbekistan

Ukraine

-20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0

LatviaUkraine

LithuaniaArmeniaEstonia

SloveniaRussia

RomaniaMoldovaHungary

TurkmenistanCroatia

BulgariaSlovakia

Czech RepublicGeorgia

SerbiaBosnia and Hercegovina

MacedoniaBelarus

KazakhstanPoland

Kyrgyz RepublicAlbania

TajikistanUzbekistanAzerbaijan

1,231.8430.6

24.5

24 Bulgaria


Country snapshot

Basic data

111,002 sq km, of which 28% is arable land and 33% forest

7.61m (December 2008)

Population in '000 (December 2007)a

Sofia (capital) 1,241 Stara Zagora 356 Plovdiv 705 Blagoevgrad 329 Varna 460 Pleven 298 Burgas 420 Pazardzhik 294

a Population figures relate to planning districts (oblasts) rather than cities.

Continental

Hottest month, July, average temperature 21°C; coldest month, January, average temperature -2.3°C; driest month, April, 18 mm average rainfall; wettest month, June, 91 mm average rainfall

Bulgarian

Metric system

Lev (Lv) = 100 stotinki; the plural of lev is leva

Two hours ahead of GMT in winter; three hours ahead in summer

Calendar year

Climate

Weather in Sofia (altitude 550 metres)

Language

Weights and measures

Currency

Time

Fiscal year

Total area

Population

Main cities

Bulgaria 25


Political structure

Republic of Bulgaria

Based on the constitution of July 1991

Unicameral National Assembly of 240 members, elected by proportional representation. Following the election in July 2009, Citizens for European Development of Bulgaria is the largest parliamentary party

Universal direct suffrage from the age of 18

October 2006 (presidential) and July 4th 2009 (parliamentary). Next presidential election due in October 2011; next parliamentary election due in July 2013

Georgi Purvanov, re-elected president in October 2006

Minority government comprising only Citizens for European Development of Bulgaria

Bulgarian Socialist Party (BSP; previously the Bulgarian Communist Party); National Movement for Stability and Progress (NMSP; formerly the Simeon II National Movement, centred on the former king Simeon Saxe-Coburg); Movement for Rights and Freedoms (MRF; formed mainly from the ethnic Turkish minority); Bulgarian New Democracy (BND; formed by rebel NMSP deputies in December 2007), Blue Coalition (comprising the Union of Democratic Forces/UDF and Democrats for a Strong Bulgaria/DSB, a party made up of former members of the UDF); Bulgarian People's Union (BPU; a centre-right grouping, most of whose members were previously in the UDF); Ataka (Attack; a nationalist grouping that emerged just before the parliamentary election in June 2005); Citizens for European Development of Bulgaria (CEDB; led by Boiko Borisov, a former mayor of the capital, Sofia); Napred is a coalition of three parties: the Internal Macedonian Revolutionary Organisation-Bulgarian National Movement (VMRO-BND), the Liberal Initiative for Democratic European Development (LIDER) and the Agricultural National Alliance (ZNS); Law, Justice and Order Party (LJO)

Prime minister Boiko Borisov Deputy prime minister & finance minister Simeon Djankov Deputy prime minister & interior minister Tsvetan Tsvetanov

Agriculture & food Miroslav Naidenov Culture Vezhdi Rashidov Defence Anyu Angelov Economy, energy & tourism Traicho Traikov Education, youth & science Iordanka Fandukova Environment & water Nona Karadzhova Foreign Nikolai Mladenov Health Stefan Konstantinov Justice Margarita Popova Labour & social policy Totyu Mladenov Regional development Rosen Plevneliev Sport Svilen Neikov Transport, communication & IT Aleksandur Tsvetkov Without portfolio Bozhidar Dimitrov

Council of ministers

Main political parties and groupings

Official name

Electoral system

National elections

Head of state

National government

Key ministers

National legislature

Legal system

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Bulgaria February 2011

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