The World Bank In Bulgaria

Country Context

*Latest data for 2020

Bulgaria has undergone a significant transformation over the past three decades, moving from a highly centralized, planned economy to an open, market-based, upper-middle-income economy securely anchored in the European Union (EU). In its initial transition to a market economy, the country went through a decade of slow economic restructuring and growth, high indebtedness, and loss of savings. 

However, the advancement of structural reforms, starting in the late 1990s, the introduction of a currency board, and expectations of EU accession unleashed a decade of exceptionally high economic growth and improved living standards. Yet, some legacy issues from that early period remain and, along with the global economic crisis of 2008 and the pandemic-induced crisis in 2020, have undone some of the gains achieved during the high-growth period. 

The long-term structural challenges facing Bulgaria include negative demographic trends, coupled with institutional and governance weaknesses. Strengthening institutions together with improved efficiency of public service delivery will support private sector expansion unlocking 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: Oct 10, 2022

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. In its partnership with the World Bank Group, the Government is promoting policies to address the gap between institutions and to 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.

On July 21, 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 during a meeting with former Prime Minister Petkov and key Cabinet Ministers on June 6, 2022. The Bank’s engagement will focus on supporting the country to unleash its potential and strengthen its institutions, among other things, to enable the country to absorb and put to good use resources from the EU Operational Program for 2021-2027 and the National Recovery and Resilience Plan (NRRP).   

The new EU financial framework for 2021–27, including the NextGenerationEU stimulus package, will require continued strengthening of the state and its institutions, and the Bulgarian Government has expressed continued interest in Bank support for this purpose.

Last Updated: Oct 10, 2022

Recent Economic Developments

Following a contraction of 4.4 percent in 2020, economic recovery gained momentum in 2021. The economy grew by 4.4 percent in 2021 and by a further 4.5 percent in the first half of 2022, with export and consumption acting as the main growth engines. 

Similar to regional peers, Bulgaria’s CPI inflation sped up notably in 2022, with 12-month inflation reaching 17.7 percent in August 2022 – an inflation rate not seen since 1998 when Bulgaria was emerging from a brief hyperinflationary period. Imported energy and food price inflation was the key factor behind the recent inflationary spike.

In response, the government froze prices of water, electricity and heating for households until end-Q1, 2022 and launched government subsidies for corporate electricity bills. In July 2022, the Parliament approved a package of further inflation-mitigation measures, including indirect tax reductions for energy consumption, pension increases, and increased income tax benefits for parents, among others.

The fiscal position remained strong in the early part of 2022 with a surplus of 1.1 percent of GDP in January-August. Yet, a worsening of the budget balance is expected going forward as the economy slows down and anti-inflationary measures show their impact on the budget. 

Economic Outlook

Bulgaria’s growth projection for 2022 has increased to 2.9 percent, on a better-than-expected performance in the year to date. Growth deceleration is forecast to start in the second half of 2022 and continue in 2023, in line with global and EU trends. Going forward, reforms and investment under the National Recovery and Resilience Plan and the EU Multiannual Financial Framework will help sustain growth. 

Inflation is projected to remain elevated and end 2022 in double digits, with a gradual reduction in 2023. Rising food and energy prices continue to put pressure on poorer Bulgarians who spend a disproportionately high share of their income on these necessities. Poverty is projected to remain relatively unchanged at 6.7 percent in 2023, though downside risks are likely to persist.

The fiscal deficit is likely to expand in 2022 and exceed 4 percent of GDP, due to the expected slowdown of the economy and recently approved anti-inflationary measures. The current account deficit is also expected to widen in 2022, to 2.7 percent of GDP, as import prices soar. 

Last Updated: Oct 10, 2022