The World Bank In Bulgaria

Country Context

*Refers to 2021

**Most recent WDI value (2020) 

Bulgaria has undergone a significant transformation over the past three decades. It has moved from a highly centralized, planned economy to an open, market-based, upper-middle-income economy securely anchored in the European Union (EU). 

Bulgaria’s EU accession raised expectations that living standards would rapidly rise and match average EU levels in a relatively short time span. Bulgaria’s reform momentum was initially robust and rapid. However, following a series of external crises—including the global financial crisis (GFC), the European debt crisis, the Covid-19 pandemic and Russia’s invasion of Ukraine —foreign investment inflows dried up and reform progress slowed, dampening the pace of convergence toward average EU incomes.

The long-term structural challenges facing Bulgaria include negative demographic trends, coupled with institutional and governance weaknesses. Institutional gaps have been mirrored by suboptimal public service delivery, hindering private sector expansion, and undermining inclusive growth and shared prosperity. High rates of inequality of opportunity limit access to key public services, constraining the ability of individuals to escape poverty and thus leading to persistently high-income inequality. Poverty and inequality are reinforced by inadequacies in the targeting, coverage, and generosity of the social security system, limiting its role as a redistributive mechanism.

Last Updated: Apr 07, 2023

Strategy

Since the opening of its office in the country 30 years ago, the World Bank Group has developed a robust partnership with Bulgaria.

In its reform efforts, Bulgaria has engaged the World Bank Group in strategic areas of the development agenda. The Government, in its partnership with the World Bank Group, is promoting policies to address the gap between institutions and improve service delivery. 

Key Engagement

The partnership with Bulgaria is presently characterized by knowledge and advisory services, provided through Reimbursable Advisory Service (RAS) arrangements, and supported by EU funding.

In July 2022, Gallina A. Vincelette, World Bank Director for the European Union and Assen Vassilev - Deputy Prime Minister for EU Funds and Minister of Finance signed a new Framework Agreement for Reimbursable Advisory Services allowing the Government of Bulgaria to benefit from the World Bank’s global knowledge and expertise in the 2021 – 2027 EU-programming period.

The latest Country Partnership Framework (CPF) for Bulgaria was endorsed by the Board in May 2016 and covered a period of six years to coincide with the EU programing cycle. 

The preparation of the new World Bank Group Country Partnership Strategy for Bulgaria was launched in June 2022. The Bank’s engagement will focus on supporting the country unleash its potential and strengthen its institutions. The partnership is informed by the objectives in the National Recovery and Resilience Plan (NRRP) and aims at enabling the country to absorb and put to good use resources from the EU Operational Programs for 2021-2027 period.  

Unleashing Bulgaria’s full productive potential through policies and institutional reforms that level the playing field among all economic agents in the country would pave the path to high income and provide a prosperous future for its people. Success requires ambitious reforms that promote human capital development as well as institutional independence and accountability to foster productivity growth. Countering the demographic trend through advancing equality of opportunities and nurturing human capital is a primary task. It also requires deep reforms in the education system towards skills development and ensuring equal access to quality public services throughout the territory of the whole country.

Last Updated: Apr 07, 2023

Recent Economic Developments

GDP growth exceeded expectations in 2022, as the economy expanded by 3.4 percent. Even if the deceleration of growth continued in the last quarter of 2022, the economy proved to be more resilient than earlier forecasted. Throughout the year, the main growth driver remained final consumption on the back of labor market buoyancy and increased government spending. In 2022, the labor market recovered to its pre-Covid level, with employment reaching 54.9 percent in Q4/2022, and unemployment down to 3.9 percent against the backdrop of labor scarcity. 

Bulgaria recorded one of the highest inflation rates among EU countries in 2022, with annual average CPI inflation reaching 15.3 percent. Imported inflation through higher energy and food prices after Russia’s invasion of Ukraine was the key factor. 

The fiscal deficit in 2022 surprised on the positive side, reaching 0.8 percent of GDP on cash basis. The accrual-basis deficit was estimated by the Ministry of Finance at 0.1pp below the 3 percent EU ceiling. While current expenditure grew substantially on Covid-19 and inflation-mitigation measures, the deficit was contained due to the revenue-boosting impact of inflation and underperformance on capital spending.

Outlook

Bulgaria’s economy is expected to slow down substantially in 2023 – to 1.5 percent - in tune with the downward trend in the eurozone. Growth may be further suppressed if Bulgaria fails to deliver on its milestones under the National Recovery and Resilience Plan, resulting in a freeze or reduction of upcoming tranches, and depriving the country of substantial investment resources. 

Inflation will continue to subside but remain elevated in 2023. The fiscal deficit is projected to expand to 3.6 percent of GDP due to the economic slowdown and the rollover of fiscal discretionary measures to 2023. The current account is projected to move to a slight surplus in tune with the downward adjustment of import prices of key raw materials. 

The economic slowdown and prolonged inflationary pressures are expected to decelerate poverty reduction, with poverty ($6.85/day PPP) declining slowly, from 4.5 percent in 2020 to 3.6 and 3.5 percent in 2022 and 2023, respectively. 

Last Updated: Apr 07, 2023