Brussels removes Bulgaria from excessive macroeconomic imbalances categories, high growth of GDP expected

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Last week Bulgaria was taken out of the EU ‘black list’ of states with excessive economic imbalances and the Central Bank announced preliminary data on the GDP growth in 2017. Obviously the first event is positive, while the second only clarifies how and why the country has been taken out of that list. The forecasts of the financial ministry for the GDP growth in 2017 have been confirmed – 4% according to the Central Bank, despite the slight slowing of 3.6%, registered by the National Statistical Institute through the final trimester of last year. We should remind here of the preliminary expectations of the government – 3.9% - 4%, while the IMF and the EC would rely more on 3.8%. Bulgaria was listed on the excessive macroeconomic balances categories three years ago during the financial crisis, caused by collapse of the 4th largest bank in this country – Corporate Commercial Bank. Quite some time has passed ever since and many things have changed in the spheres of economy and politics. The growing trend of the Bulgarian economy has played a significant role for this transition to the upper category, where France and Portugal can be found: of states with economic imbalances. Experts of the EC say that Bulgaria has managed to overcome the deficiencies and imbalances within the banking and non-banking financial supervision; it has taken measures for risk management within the banking sector; the situation on the labor market has registered improvement. Of course, there is still plenty of work needed, in order for the ‘white list entry’ to be achieved – there are reforms still left unfinished in the sectors of finances, the labor market, also inter-company indebtedness, legislation on bankruptcies, education etc. Still, lots of work has been done in the course of three years. This is additional ‘plus’ for Sofia, which intends to apply for the Eurozone in mid-2018 – and they do want economic stability there. This is also a very convincing reason for the attraction of foreign investments that have decreased in a dramatic manner recently.

This overall positive background adds to the economic growth forecasts for 2018. Experts say that it will be the peak of the economic cycle with GDP growing by some 4% - even 4.2% according to the Central Bank. This in its turn is a real possibility for overcoming of the remaining economic imbalances on the way through to the group of countries with no imbalances at all. The picture is not perfect, of course, mainly in terms of catching up with the living standard of Western Europe – a mandatory requirement for entering the Eurozone. The progress here is still slow and the gap remains huge: GDP of EUR 6,500 per capita in Bulgaria against an average of EUR 28,000 in Europe and EUR 100,000 in Luxembourg. One can add here the disproportional regional development of the capital Sofia and several other cities, compared to some of the poorest EU regions that can be found here.

At the same time EC experts think that the economic results achieved can serve as good background for gradual overcoming of this gap and for deeper reforms in the financial sector and the employment policy. The major other spheres with progress expected are: education, healthcare and the implementation of a transparent mechanism for setting the minimum working wage – and some good options can be seen there given the great financial stability through the recent years. All this optimism is a good occasion to recall the words of Managing Director of the IMF Christine Lagard, saying that “It’s always a good idea to use the sunny days for the repair of your roof”. It is really easier to overcome problems when the circumstances are favorable – just like the case with the remaining Bulgarian economic imbalances and the current promising economic situation.

English version: Zhivko Stanchev 

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