April 12, 2023

Bulgaria’s steady economic progress and post-pandemic recovery have been disrupted by the global energy crisis caused by Russia’s war of aggression against Ukraine. Further policy reforms would help to boost growth and accelerate Bulgaria’s convergence to OECD income levels.

The latest OECD Economic Survey of Bulgaria also says that fiscal policy will need tightening to help tackle inflation. Ongoing support to cushion the impact of high energy costs should be more carefully targeted to minimise inflationary pressures. Improving the tax system and reducing labour informality would help to strengthen public finances, while creating a better business and investment climate would help to boost growth and living standards.

Bulgaria 2023“Bulgaria has achieved two decades of solid economic progress, with per-capita income rising from 30% of the OECD average in 2000 to over 50% today,” OECD Secretary-General Mathias Cormann said, presenting the Survey in Sofia alongside Prime Minister Galab Donev. “As Bulgaria grapples with the implications of the global energy crisis, ambitious reforms are needed to boost productivity as the major driver of growth in recent years and to improve public finances in order to guarantee the necessary and essential services for its citizens into the future and be able to address the challenges posed by a shrinking and ageing workforce.”-

Bulgaria is in the process of accession to the OECD, the overarching objective of which is to promote convergence with OECD standards and best practices in government policy. This will also facilitate convergence towards OECD income levels.

The global surge in energy and food prices has pushed inflation in Bulgaria to levels not seen since the late 1990s, complicating the timing of its adoption of the euro currency. Harmonised consumer price inflation peaked at 15.6% in September 2022 due to second-round effects from higher food and energy prices, strong private consumption and robust wage growth, but is starting to gradually decline to 8.2% in 2023 and 4.4% in 2024. The Survey projects GDP growth to slow somewhat this year to 1.9% before rebounding to 3.2% in 2024.

To lift government revenues, the Survey recommends enhancing tax efficiency and improving tax compliance, as well as raising environmental, property and inheritance taxes. Reducing the high level of labour informality, digitalising transactions and increasing incentives to declare wages should be priorities. Meanwhile an overhaul of the welfare system could help to improve social support in a country where half of all taxpayers are registered as earning the minimum wage.

Bulgaria’s shrinking workforce due to population ageing, a low birth rate, high mortality and emigration is a drag on the country’s growth potential. There are also significant imbalances in the labour market with an employment rate of over 90% among workers with tertiary education but only 42% among those with only lower secondary education. The Survey recommends improving the quality of educational outcomes and adult skills, including more workplace-based vocational training, enhancing the quality of jobs, better supporting immigration and putting in place more and better-quality childcare.

Growth is also constrained by weak investment. While public investment, at 3.4% of GDP, is in line with the OECD average, Bulgaria’s overall level of investment is relatively low at 20% of GDP. Streamlining procedures to establish and close a business would help to attract private capital. So would intensifying efforts to fight corruption, for example through more rigorous systems of detection and investigation.

A heavy reliance on fossil fuels means Bulgaria’s emissions have remained at the same high level for two decades. Despite a sizeable decline in the use of coal, it remains a major source of energy and there is currently no roadmap to phase it out. The Survey calls for a far-reaching strategy to reach net-zero emissions and urges renewed investment in renewables, in upgrading the power grid and in expanding energy storage facilities.

Source: OECD
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