GDP growth was resilient in the first three quarters of 2022 but is expected to slow down significantly in 2023. Inflation will be a key feature to monitor as price stability is one of the economic convergence criteria for Bulgaria’s future entry into the Eurozone in 2024. Another point of concern is that the political scene continues to be subject to uncertainty given the many changes in the government over the past 20 months. Investment has suffered as a result of this situation. However, the commitment of the authorities towards reforms does not appear to have been affected.
Bulgaria is an upper-middle income country of 7 million people. The country joined the European Union in 2007. The country is not a Eurozone member despite a currency (lev, BGN) peg to the Euro. The country recently joined the European exchange rate mechanism (ERM II, which is a precondition before joining the Euro) and the European Banking Association (EBA).
Bulgaria experienced low growth over a long period (2009-14) as a result of a deflationary adjustment that finally triggered the necessary consolidation. Indeed, since 2015, macroeconomic and country risk trends have been favourable. Macroeconomic balances remain healthy and the currency peg to the Euro is sustainable. Financial vulnerability was also quite modest, and foreign reserves increased to a moderately high level (10 months of imports), which is a key buffer against liquidity tensions. Moreover, a recurrent current account surplus is limiting financing needs.
The main factors weakening Bulgaria’s economic growth potential include its weak demographics (low birth rate and high emigration), the tradition of too frequent government changes, a weak judiciary and corruption, that complicate long-term investment in development and innovation.
