04/04/2023 - 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 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.
Note to Editors:
The Paris-based OECD is an international organisation that promotes policies to improve the economic and social well-being of people worldwide. Working with member and partner countries, it provides a forum where governments can work together to share experiences and seek solutions to economic, social and governance challenges.
The OECD’s 38 members are: Australia, Austria, Belgium, Canada, Chile, Colombia, Costa Rica, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Türkiye, the United Kingdom and the United States.
On 25 January 2022, the OECD’s governing Council decided to open accession discussions with Bulgaria and five other countries (Argentina, Brazil, Croatia, Peru and Romania). On 10 June 2022, the Council at Ministerial Level adopted the Roadmap for the Accession Process of Bulgaria, setting out the terms, conditions and process for Bulgaria’s accession. In accordance with this Roadmap, 25 OECD technical committees, composed of expert policymakers from each of the 38 OECD member countries, will conduct an in-depth assessment of Bulgaria’s legislation, policies and practices against OECD legal instruments and OECD best policies and practices covering multiple areas of government policy, including economic policy but also labour market and social policy, education, and health.
The overarching objective of the accession process is to promote convergence of Bulgaria with OECD standards, best policies and best practices, resulting in better outcomes for OECD members as well as for Bulgaria and its citizens. Throughout the accession process, the OECD will work closely with Bulgaria to support the adoption of long-lasting reforms for this purpose. Bulgaria is also actively engaging with the OECD South East Europe regional programme and participates in statistical reporting and information systems, benchmarking exercises, publications and policy reviews.
The Survey was discussed at a meeting of the Economic and Development Review Committee (EDRC) on 7 March 2023. The cut-off date for data used in the Survey is 24 March 2023. Publication of the Survey, and the analysis and recommendations contained therein, do not prejudge in any way the results of the review of Bulgaria by the EDRC as part of its process of accession to the OECD.
News on Bulgaria and the OECD: www.oecd.org/countries/bulgaria/
Download the Roadmap for the OECD Accession Process of Bulgaria
See an Overview of the Survey with key findings and charts(this link can be included in media articles).
For further information, journalists are invited to contact Catherine Bremer in the OECD Media Office (+33 1 45 24 80 97).
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