against 2011 to 6.52mn people. Significant outmigration since the start of the transi- BULGARIA Key conditions and tion period, driven by large income gaps and search for better quality of life, has challenges been the main factor behind Bulgaria’s rapid loss of population. Table 1 2021 The long-term structural challenges facing Population, million 6.9 Bulgaria include negative demographic GDP, current US$ billion 77.5 trends, coupled with institutional and gov- GDP per capita, current US$ 11276.0 ernance weaknesses. Institutional gaps Recent developments a 0.9 International poverty rate ($1.9) have been mirrored by suboptimal public a 2.6 service delivery, hindering private sector According to preliminary data for 2021, Lower middle-income poverty rate ($3.2) a 6.2 expansion and undermining inclusive GDP growth accelerated to 4.2% though Upper middle-income poverty rate ($5.5) Gini index a 40.3 growth and shared prosperity. High rates real output is yet to recover to its pre-pan- School enrollment, primary (% gross) b 85.9 of inequality of opportunity limit access to demic level. Final consumption and robust b 74.9 key public services, constraining the abili- growth of exports were the main drivers Life expectancy at birth, years ty of individuals to escape poverty and re- of the recovery. Export expansion was out- Total GHG Emissions (mtCO2e) 44.6 sult in persistently high income inequali- paced by import growth, leading to widen- Source: WDI, Macro Poverty Outlook, and official data. ty. Poverty and inequality are reinforced ing trade and current account (CA) deficits. a/ Most recent value (2019), 2011 PPPs. b/ Most recent WDI value (2019). by inadequacies in the targeting, coverage Investment, however, continued to decline and generosity of the social security sys- throughout 2021. The pandemic, combined tem, limiting its role as a redistributive with a domestic political crisis in most of Following a stronger-than-projected re- mechanism and fiscal stabilizer. 2021, increased investors’ risk aversion, The pace of convergence to average EU while the delayed approval of the national covery in 2021, growth is likely to income levels has been slower than the Recovery and Resilience Plan put addition- slow down in 2022 given higher infla- one observed in other new EU members, al drag on public investment. On the sup- tionary pressures, the war in Ukraine, and Bulgaria continues to rank last in ply side, industry, finance and IT were key and supply chain disruptions. Off the terms of GDP per capita in PPP in the sectoral drivers of growth. EU, at 55 percent of the EU average in Similar to most European countries, Bul- back of a decline in 2021, poverty is 2020. Economic growth and convergence garia saw a rapid acceleration of inflation expected to increase amidst rising food to average EU income levels across the since the summer of 2021, reaching 10.0 and energy prices. The draft 2022 NUTS-3 regions – ranging between 24 percent yoy in February 2022. Imported oil budget suggests that consolidation will percent of the EU average in Silistra to price inflation with its second-round ef- be postponed to 2023 with a continua- 120 percent in Sofia in 2019 – has been fects was the key factor behind the infla- increasingly uneven, widening in-country tionary spike. Effective mid-December, tion of support measures. disparities. As a result, some areas are regulated prices of electricity, heating and being depopulated at a rapid pace, with water were frozen until end-March, 2022, the first results of the 2021 census show- partially cushioning the inflationary shock ing the fastest between-census decline of on households. Businesses, in turn, have the population since 1985, by 11.5 percent been receiving government subsidies for FIGURE 1 Bulgaria / Real GDP growth and contributions to FIGURE 2 Bulgaria / Actual and projected poverty rates, real GDP growth and real GDP per capita in constant LCU Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 30 18000 10 16000 25 14000 5 20 12000 0 10000 15 8000 -5 10 6000 -10 4000 5 -15 2000 2013 2015 2017 2019 2021 2023f 0 0 Imports Exports 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Gross fixed capital formation Private consumption International poverty rate Lower middle-income pov. rate Public consumption GDP Upper middle-income pov. rate Real GDP pc Sources: World Bank, Bulgarian National Statistical Institute Source: World Bank. Notes: see Table 2. MPO 13 Apr 22 electricity costs since October 2021, which with Bulgaria’s GDP growth in 2022 re- decades. The fiscal deficit is likely to ex- has kept many firms afloat despite the en- vised by 1.2pp against our earlier forecast, ceed the government’s plan for 4.1% of ergy price spike. Electricity price subsidies to 2.6%. Risks remain titled to the down- GDP as the latter rests on a fairly opti- are expected to be fiscally neutral, as they side and further downward revisions are mistic official growth projection of 4.8%. will be financed out of profits of the state- likely to follow in case of a prolonged mil- A government-sponsored accommodation owned nuclear power plant. itary conflict, or new disruptive Covid programme for displaced Ukrainian na- Despite the boost in fiscal revenues in 2021 waves amidst low vaccination rates. More- tionals will also weigh on the expenditure (+18.1% yoy) on robust economic growth over, the delay in the approval of the na- side. More than 58 000 Ukrainian nationals and inflation, expenditure grew at a simi- tional Recovery and Resilience Plan and have remained in Bulgaria as of March 29, lar rate (+17.6%), due primarily to the con- the operational programmes for EU funds with some 40 000 of them being sheltered tinued support to businesses and individ- (2021-2027) jeopardizes the government’s at government-subsidised hotel accommo- uals. As a result, the fiscal deficit stood at plan to increase substantially public in- dation. In addition, a budget revision - that 2.9% of GDP. The banking sector remained vestment in 2022, further undermining the is likely to boost expenditure further - is solid, with after-tax profits rising by 74% growth prospects. Over the medium run, already planned for the summer. The CA to BGN 1.42bn in 2021, and non-perform- growth is expected to be fueled by EU- balance is expected to return to positive ing loans inching up modestly, by 1.4pp funded public investment and improved territory, albeit remain below 1% of GDP, y/y to 6% as of end-2021. private investor sentiment on the near- in 2022-2024. Amidst the recovery of the economy and term prospect of eurozone entry. On a positive note, the political crisis that continued, albeit more targeted, govern- The acceleration of domestic inflation since dominated the national landscape since ment support, poverty is projected to have late 2021 is likely to remain in place at least early 2021 has been overcome, after a four- slightly declined from 6.3 percent in 2020 to in H1/ 2022, as energy and food price infla- party coalition took office after the Nov 6.2 percent in 2021 using the upper middle tion is exacerbated by the ongoing war in 14, 2021 elections. There are high expecta- income poverty line of US$5.50 per day. Ukraine. This will result in a further ero- tions from the new government to under- sion of purchasing power, a likely increase take structural reforms in a number of ar- in poverty and a higher fiscal cost, if cur- eas, including the judiciary and the control rent measures in support of businesses and of corruption. Outlook individuals are extended beyond Q1. Overall, the draft 2022 budget suggests The ongoing war in Ukraine has provoked that fiscal policy will depart from the con- a revision of growth forecasts globally, servative stance adhered to in the past two TABLE 2 Bulgaria / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.0 -4.4 4.2 2.6 4.3 3.7 Private Consumption 6.0 -0.4 8.0 3.3 4.5 3.6 Government Consumption 2.0 8.3 4.0 4.1 0.3 0.7 Gross Fixed Capital Investment 4.5 0.6 -11.0 5.4 8.5 6.6 Exports, Goods and Services 4.0 -12.1 9.9 3.4 7.1 6.3 Imports, Goods and Services 5.2 -5.4 12.2 5.1 6.9 5.9 Real GDP growth, at constant factor prices 3.7 -4.5 4.2 2.6 4.3 3.7 Agriculture 4.1 -3.3 6.1 1.2 1.8 1.1 Industry -0.1 -8.2 6.6 2.5 5.2 4.3 Services 5.2 -3.2 3.2 2.7 4.2 3.6 Inflation (Consumer Price Index) 3.1 1.7 3.3 9.3 3.4 2.0 Current Account Balance (% of GDP) 1.9 -0.3 -2.3 0.1 0.9 0.4 Net Foreign Direct Investment (% of GDP) -2.0 -3.5 -1.3 -1.7 -1.7 -1.7 Fiscal Balance (% of GDP) -1.0 -2.9 -2.9 -4.4 -3.0 -2.3 Debt (% of GDP) 20.1 24.8 25.1 28.5 28.8 27.2 Primary Balance (% of GDP) -0.4 -2.4 -2.5 -4.1 -2.6 -2.0 a,b International poverty rate ($1.9 in 2011 PPP) 0.9 1.1 0.9 0.8 0.8 0.8 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 2.6 2.9 2.6 2.5 2.4 2.3 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 6.2 6.3 6.2 6.2 6.1 6.0 GHG emissions growth (mtCO2e) -2.7 -3.1 -0.9 -0.9 -0.9 -0.9 Energy related GHG emissions (% of total) 82.7 86.1 85.8 85.5 85.1 84.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. a/ Calculations based on ECAPOV harmonization, using 2019-EU-SILC.Actual data: 2019. Nowcast: 2020-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2019) with pass-through = 0.7 based on GDP per capita in constant LCU. MPO 14 Apr 22