Political instability remains an issue for the long-term economic growth prospects, while corruption and red tape still hamper the business environment.
Some political instability remains
After the snap elections held in March 2017 Boyko Borisov from the centre-right GERB party became Prime Minister for the third time. He heads a coalition government of GERB and the nationalist “United Patriots” party, with just a slim majority in parliament (122 of 240 seats).
The snap elections became necessary as the previous government under Borisov had resigned after Rumen Radev, a socialist–backed pro-Russian won the November 2016 presidential elections.
Political discontent remains high, especially over the slow progress in combating graft and corruption and social welfare issues. While the incumbent government pursues a pro-EU policy, the socialist party and President Radev favour closer political and economic relations with Russia.
Solid growth expected in 2019 and 2020
Economic growth is expected to accelerate in 2019, driven primarily by stronger exports and growing domestic demand. The economic expansion is forecast to lose some momentum in 2020, as exports, private consumption and investment growth are expected to slow down, while financing conditions are getting tighter. Job creation is expected to lose some momentum and unemployment to increase modestly in 2020.
After a slight surplus in 2018, fiscal consolidation should lead to marginal budget deficits in 2019-20 and surpluses thereafter. Public debt remains sustainable, at 20% of GDP in 2019 in 2020.
After a banking crisis in 2014 the sector has made big improvements. The IMF’s 2016 banking sector assessment and a stress test made by the Central Bank show that the sector is well-capitalised and more resilient to shocks. However, more than 10% of total loans are still non-performing, which continues to be a threat to bank profitability.
Bulgaria’s monetary policy framework is strong with a solid commitment to its currency board arrangement (the lev is pegged to the euro), which supports foreign investor confidence. However, this arrangement limits Bulgaria’s ability to combat external imbalances. The peg is maintainable due to large international reserves (more than eight months of import cover) and current account surpluses.
Political instability remains an issue for Bulgaria´s long-term economic growth prospects, while corruption and red tape still hamper the business environment. The high level of emigration (about one million Bulgarians live abroad) and a shrinking and ageing population (the United Nations expect Bulgaria’s population to decrease from 7 million to 5.2 million by 2050) add to the woes of the labour market and reduce the potential for long-term growth. Lack of skilled staff has already started to impact growth prospects of businesses.