Economy

Bulgaria's economy contracted dramatically after 1989 with the loss of the market of the Council for Mutual Economic Assistance (COMECON) member states, to which the Bulgarian economy had been closely tied. The standard of living fell by about 40%, but regained pre-1990 levels by June 2004.

United Nations sanctions against Yugoslavia and Iraq took a heavy toll on the Bulgarian economy. The first signs of recovery emerged in 1994 when the GDP grew and inflation fell. During 1996, the economy collapsed due to lack of international economic support and an unstable banking system. Since 1997, the country has been on the path to recovery, with GDP growing at a 4% - 5% rate, increasing FDI, macroeconomic stability and European Union membership.

The former government, elected in 2001, pledged to maintain the fundamental economic policy objectives adopted by its predecessor in 1997, i.e., retaining the Currency Board, practising sound financial policies, accelerating privatisation, and pursuing structural reforms. Economic forecasts for 2005 and 2006 predict continued growth in the economy. The annual year-on-year GDP growth for 2005 and 2006 is expected to total 5.3% and 6.0%, respectively. Industrial output for 2005 was forecast to rise by 11.9% from the previous year, and for 2006 by 15.2%. Unemployment for 2005 was 11.5% and for 9.6% in 2006. As of 2006 the GDP structure is: agriculture 13.6%; industry 32.1%; services 54.3%.

Sectors

Agriculture

Agricultural output has decreased since 1989 but production has grown in recent years. Farming is more important than stock-breeding. The prevalence of mechanisation is higher than most other Eastern European countries but there is lack of modern equipment.

Industry

Industry is very important to the economy. Although Bulgaria is not very rich in reserves of coal, oil, and gas, it is a major producer of electricity and the most important exporter in the region due to the Kozloduy Nuclear Power Plant with a total capacity of 3,760 MW. A second plant, the Belene Nuclear Power Plant with a capacity of 2,000 MW is under construction. There is a $1,400,000,000 project for construction of an additional 670 MW for the 500 MW Maritza Iztok 1 Thermal Power Plant.

Ferrous metallurgy is very important. The production of steel and pig iron is concentrated in Kremikovtsi and Pernik. There is also a third metallurgical base in Debelt. In production of steel and steel products per capita the country is first in the Balkans.

The largest refineries for lead and zinc are in Plovdiv (the biggest refinery between Italy and the Ural mountains), Kardzhali and Novi Iskar; for copper in Pirdop and Eliseina; for aluminium in Shumen. In production of many metals per capita, Bulgaria is first in South Eastern Europe and among the first in Europe and the world.

About 14% of the total industrial production is related to machine building and 24% of the people are employed in this field.

Electronics and electric equipment production is very well developed. The largest centres are Sofia, Plovdiv and surrounding area, Botevgrad, Stara Zagora, Varna and many others. These plants produce household appliances, computers, CDs, telephones, medical and scientific equipment.

Many factories producing transportation equipment do not work at full capacity. There are plants producing trains (Burgas, Dryanovo), trams (Sofia), trolleys (Dupnitsa), buses (Botevgrad), trucks (Shumen), motocars (automotive assembly plant in Lovech). The main centre of agricultural machinery is Ruse. Shipbuilding is concentrated in Varna, Burgas and Ruse. Arms production is mainly developed in central Bulgaria (Kazanlak, Sopot, Karlovo).

The property market has been boosted recently by foreigners seeking additional homes. Buyers come from right across Europe but most are British, encouraged by relatively cheap property and air travel.

Science, Technology and Telecommunications

Bulgaria offers excellent conditions for high-tech and telecommunication industries and services with its strategic location, highly-qualified workforce, macroeconomic stability, growing domestic market and good education. This is why some multinational companies choose Bulgaria to build their regional offices and headquarters even before Bulgaria joined the EU. The most notable is Hewlett-Packard, which built its Global Service Centre for Europe, the Near East and Africa in Sofia.

Telecommunications is perhaps the fastest growing industry in the country. There are three mobile operators - Globul, Mtel and Vivatel - which provide almost 100% coverage. More than 5,500,000 Bulgarians own mobile cellular phones. Every town and many villages have a fast Internet connection. There are around 100,000 Internet hosts.

The country has some precedents for its current science industry. The inventor of the earliest known electronic computer John Atanasoff is of Bulgarian descent. Bulgaria was a major supplier of scientific and research instruments for the Soviet space programmes, was one of the first states to develop serial computer production, and has experience in pharmaceutical research and development. The Bulgarian Academy of Sciences is the leading scientific institution in the country with most of the researchers working for its numerous branches.

Economic History

Reforms of the 1990s and Early 2000s

The first round of mass privatisation began in January 1996, and auctions began toward the end of that year. The second and third rounds were conducted in spring 1997 under a new government. In July 1998, the UDF-led government and the IMF reached agreement on a 3-year loan worth about $800 million, which replaced the 14-month stand-by agreement that expired in June 1998. The loan was used to develop financial markets, improve social safety net programs, strengthen the tax system, reform agricultural and energy sectors, and further liberalise trade. The European Commission, in its 2002 country report, recognised Bulgaria as a functioning market economy, acknowledging the progress made by Prime Minister Simeon-Saxenoburgotski's government toward market-oriented reforms.

Rebound from the February 1997 Crisis

In April 1997, the Union of Democratic Forces (UDF) government won pre-term parliamentary elections and introduced an IMF currency board system which succeeded in stabilising the economy. The triple digit inflation of 1996 and 1997 has given way to an official economic growth, but forecasters are predicting accelerated growth over the next several years. The government's structural reform program includes:

• privatisation and, where appropriate, liquidation of state-owned enterprises (SOEs)
• liberalisation of agricultural policies, including creating conditions for the development of a land market
• reform of the country's social insurance programs
• reforms to strengthen contract enforcement and fight crime and corruption

In the European Union

On 1 January 2007, Bulgaria entered the European Union. This led to some immediate international trade liberalisation, but there was no shock to the economy. The government is running annual surpluses of above 3%. This fact, together with annual GDP growth of above 5%, has brought the government indebtedness to 22.8% of GDP in 2006 from 67.3% five years earlier. This is to be contrasted with enormous current account deficits. Low interest rates guarantee availability of funds for investment and consumption. At the same time, annual inflation in the economy is variable and during the last five years (2003-2007) has seen a low of 2.3% and high of 7.3%. Most importantly, this poses a threat to the country's accession to the Eurozone. The Bulgarian government plans for the Euro to replace the Lev in 2010. However, experts predict that this might happen as late as in 2012. From a political point of view, there is a trade-off between Bulgaria's economic growth and the stability required for early accession to the monetary union. Bulgaria's per-capita PPP GDP is still only about a third of the EU25 average, while the country's nominal GDP per capita is about 39% of the EU27 average.