Overview

Strategy

Since the opening of its office more than 25 years ago, the World Bank has developed a sound partnership with Bulgaria. In its reform efforts, Bulgaria has chosen to engage the World Bank in selective areas of the development agenda. The Government, in its partnership with the World Bank Group (WBG), is promoting policies to strengthen institutions and improve service delivery. 

The WBG will continue to align its program with the Government’s priorities to create space for broader engagement where there is a potential for transformational impact. 

Key Engagement

The partnership with Bulgaria is characterized by knowledge and advisory services provided through Reimbursable Advisory Service (RAS) arrangements, funded by the Government or EU trust funds.

On September 1, 2015, Cyril Muller, the World Bank’s Vice President for Europe and Central Asia, and Tomislav Donchev, Bulgaria’s Deputy Prime Minister for EU Funds and Economic Policies, signed a new Memorandum of Understanding (MoU) on partnership and support in the implementation of European Structural and Investment Funds for the 2014–20 period. 

The new Country Partnership Framework (CPF) for Bulgaria, endorsed by the Board in May 2016, covers a period of six years to coincide with the EU programing cycle. The CPF marks a renewed engagement with Bulgaria, including the first new lending operation since FY11. 

The high-level regional conference was opened by the World Bank’s Chief Executive Officer Kristalina Georgieva.

On the eve of Bulgaria’s presidency of the Council of the EU, the World Bank, in partnership with the Prime Minister’s Office and the European Commission, organized a high-level conference of the six Western Balkans heads of state with the goal of identifying meaningful and practical measures to boost connectivity. 

This agenda was further developed at the EUWestern Balkans summit that took place in Sofia in May 2018. The Sofia Declaration outlined new EU measures for enhanced cooperation, with the World Bank playing an important role in achieving better connectivity in the region.

Last Updated: Oct 11, 2018

Economy

RECENT ECONOMIC DEVELOPMENTS

Economic growth remained strong in Bulgaria at 3.3% in the first half of 2018 but continued to decelerate. Domestic demand reached a decade-long peak and remained the main driver of growth. Consumption was supported by a dynamic labor market, rising wages, and consumer credit.

Cumulative inflation accelerated to 2.5% in July 2018 compared to 0.8% a year earlier. 

The fiscal performance remained positive on the back of improved revenue collection. Tax revenues grew by 10.3% in the first seven months of 2018 compared to the same period in 2017, thanks to strong economic activity, better compliance, and higher minimum wages.

At 72.6%, the employment rate (ages 20-64) reached record highs, while unemployment was close to pre-crisis levels. However, the workingage population continued to shrink, constraining the expansion of potential growth. 

Labor and skill shortages, as well as a rising minimum wage, pushed real wages up - by about 5.5% compared to the first half of 2017. Public sector wages increased at a higher pace, especially those of teachers, police, and defense staff. 

Poverty measured using the upper-middleincome class line of US$5.5 per day (in 2011 purchasing power parity [PPP] terms) is projected to have declined from 8.5% in 2015 to 7.5% in 2017. However, income inequality in Bulgaria is the highest in the EU and has been increasing over the past few years, with the income of the richest 20% of the population equal to almost eight times that of the poorest 20% in 2015.

ECONOMIC OUTLOOK

GDP growth is expected to be 3.3% in 2018. Domestic demand will continue to support growth, as consumption will remain strong and the real estate boom and EU funds will continue to boost investment. Going forward, GDP growth is projected to moderate to around 3.0% in 2019 and 2020. Private consumption is expected to continue to expand, albeit at a slower pace due to rising inflation, while investment sentiment might be affected by the increasing uncertainty on external markets. The current account balance is likely to remain in surplus but turn into a deficit by 2020 as net exports continue to deteriorate. The fiscal position in 2018 is likely to be stronger than expected, and fiscal accounts are likely to be broadly balanced in the medium term.

Risks to the projected growth path are broadly balanced. Lower-than-expected growth in Europe and a further slowdown in Turkey could undermine export growth, while tightening global financial market conditions could increase the cost of lending to the private sector, with negative implications for investment.

Poverty reduction is expected to continue at a modest pace in the near term. Sustained improvements in employment and wages, as well as recent increases in the minimum pension, should support real incomes and therefore further reductions in poverty. Poverty is projected to fall to 7.1% in 2018, as measured at US$5.5 per day in 2011 PPP, to 6.8% in 2019 and further to 6.4% by 2020.

Last Updated: Oct 11, 2018

Highlighted Project

Water Sector Engagement

The quality, efficiency, and effectiveness of essential public service delivery, including water and basic infrastructure, remain below what Bulgarian citizens require if they are to realize a convergence in living standards with their EU neighbors. 

Bulgarians have almost universal access to improved water in both urban and rural areas, but water networks need to be upgraded and wastewater collection and treatment systems extended. Pipes are on average 36 years old, many are constructed of asbestos-cement, and close to 60% of the water is non-revenue. Only 66% of the population is connected to a wastewater collection network, and just 50% to a wastewater treatment plant. 

The World Bank currently supports the sustainability of water resources through an ongoing lending operation and past support strategy development in water supply and sanitation and flood protection. According to the new 10-year strategy for the sector, the rehabilitation and construction of water supply and sewerage networks will require BGN 12 billion (€6 billion). 

However, EU funds will cover only 30–40% of the total capital investments needed until 2020. In anticipation of the importance of water infrastructure, the Government is considering possible ways of going forward. The World Bank supported these efforts by organizing an international Water Security Workshop in September 2017 that brought together international knowledge on the subject and offered examples of effective water supply rehabilitation efforts. 

Divers have begun construction work on the rehabilitation of the Studena Dam wall.

The World Bank-supported Municipal Infrastructure Development Project responds to the Government’s priorities to i) rehabilitate and complete construction of water supply and sewerage networks to improve service delivery and reduce health risks and ii) upgrade wastewater treatment systems in line with EU directives. Two of the eight priority water supply dams (Luda Yana and Plovdivtsi) are included in this project and a third (Studena) is included for rehabilitation. 

Upon completion of this project, it is expected that 170,000 more Bulgarians will benefit from a more reliable and better quality water supply.  

View All World Bank Projects in Bulgaria

Last Updated: Oct 11, 2018