The year-on-year growth rate of the Bulgarian economy during the third quarter of the year stands at 3.9 percent, indicate data of the National Statistical Institute. In the past two years, the growth rate has ranged from 3 to 4 percent.
“At this time, this is the maximum we can achieve with the capital and workforce available, and we are not the only ones to be saying it. The European Commission is saying it in its assessments, so is the International Monetary Fund,” said economist Desislava Nikolova from the Institute of Market Economics in an interview for Radio Bulgaria.
“The things that restrict growth most are the shortages of every kind of labour, migration and the negative population growth. Since 2015 the country has registered a growth rate that is higher than the average for Europe, yet, compared to the countries of the region, our own performance is mediocre. There are countries in Central and Eastern Europe that are growing faster than we are. Romania has held the record for some time, but the growth there is due to a powerful financial shot in the arm. History shows that no good can come of this. Growth in Romania is not sustainable because it is financed with big budget deficits and that means falling into a debt spiral. I hope Romania will not become a second Greece, but that is precisely where the road they have taken is eventually going to lead them.”
Desislava Nikolova says consumption in Bulgaria is still the main driver of growth. Employment is going up very quickly, and that automatically means an increase in earnings and a better consumption capacity. This is having its effect on the real estate market, with a distinct stimulation of real estate transactions and a rise in house prices in big cities.
“Interest on deposits is currently close to zero and people are not encouraged to save money and look for other investment opportunities,” says Desislava Nikolova and adds:
“We are also seeing a high rate of durable goods consumption. After a long period of putting off purchases, people are now sure enough of their earnings and have been buying more and more durable goods, most of all home appliances and technology. Exports are also faring well. The export of services merits special attention, because it is thanks to these exports that the country has, for some time, been registering a current account surplus. This surplus is due to the enormous revenues from tourism. Low-cost airline services have boosted tourism towards Sofia and Bulgaria’s summer resorts enormously. Transport revenues are also appreciable.”
Nikolova says that the current economic situation is conducive to accumulating a surplus and it is difficult to comprehend why, against the backdrop of this high economic growth rate, the deficit set down in the 2018 budget is 1 percent of the GDP.
“Money is still being poured into unreformed sectors like health care,” Desislava Nikolova says and goes on:
“If we take a look at patient satisfaction we shall see that Bulgaria is once again bottom of the list of European countries, i.e. people are not growing more satisfied with the health service. We are pouring money into a system which is producing an increasingly poor result, while people employed in the system are underpaid. As a result we are seeing a mass migration of medical experts towards Western Europe. To put through any decisions in this sphere will take a great deal of spunk. The monopoly of the National Health Insurance Fund must be broken and some of the health contributions must be channeled towards private funds, where control over payments will be much more rigid.”
For 2018, the Institute of Market Economics is proposing an alternative budget, with a surplus amounting to 1 percent of the GDP, which, Desislava Nikolova says is absolutely attainable in the current good economic conditions. In this budget, there is less administrative expenditure and some tax preferences have been dropped. The Institute says it is utterly inconceivable to raise taxes when there is growth.
“The country’s budget for 2018 envisages a 1 percent rise in pension contributions and higher minimum insured income thresholds for a number of professions and employees. In our alternative budget there is no such thing,” says Desislava Nikolova.