The World Bank In Bulgaria

Country Context

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, and as of July 1, 2024, a high-income economy securely anchored in the European Union (EU). 

Bulgaria’s EU accession in 2007 raised expectations that living standards would rapidly rise and match average EU levels in a relatively short time span. By 2023, convergence reached 64% of the average GDP per capita in the EU in purchasing power parity terms but the country remains the poorest EU member state. From 2016 to 2020, economic growth led to improved living standards and significant poverty reduction. However, this trend reversed in 2021 due to the lingering effects of the pandemic, inflation, and rising unemployment among the less educated. Income inequality remains high, making the country the most unequal EU member.

Bulgaria continues to face multiple development challenges. A key horizontal constraint is deep-rooted institutional and governance weaknesses, which enable state capture by vested interests and discourage investment. This suppresses productivity and private sector growth, while also resulting in suboptimal public services. A rapid decline of the population—one of the worst globally —also limits the country’s economic potential while exerting increasing pressure on public systems.

Last Updated: Apr 23, 2025

Strategy

On September 12, 2024, the World Bank Group’s Board of Executive Directors endorsed the new Country Partnership Framework (CPF) FY25-29 for Bulgaria aimed at enhancing competitiveness and social inclusion, while promoting a low-carbon and more sustainable economy. This new CPF provides a roadmap for World Bank Group engagement for the current EU programming cycle through 2029. Bulgaria keeps its access to all World Bank Group instruments, including financing, through three institutions:

• The International Bank for Reconstruction and Development (IBRD) lends to governments of middle-income and creditworthy low-income countries. During the past three decades, the IBRD has provided to Bulgaria $3.3 billion in financing spread across 45 operations.
• The International Finance Corporation (IFC) is the largest global development institution focused exclusively on the private sector. The IFC program in Bulgaria totaled $690.9 million, comprised of $109 million on IFC’s own account and core mobilization of $582 million, across six projects linked to infrastructure, insurance, healthcare, and trade finance.
• The Multilateral Investment Guarantee Agency (MIGA), created in 1988 to promote foreign direct investment into developing countries, fulfills this mandate by offering political risk insurance (guarantees) to investors and lenders. As of October 2024, MIGA did not have active outstanding exposure in the country.

Key Engagement

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

The new CPF marks a renewed engagement with Bulgaria, with a sharpened focus on sustainable and digital development, while maintaining the emphasis of the previous CPF on improving institutions and investing in people for enhanced competitiveness and inclusion. The program was informed by the 2022 Systematic Country Diagnostic Update, which recommended adopting a more sustainable growth model and identified key development challenges, like strengthening institutions, boosting productivity, skills, and employability along with increased effectiveness, efficiency, and adequacy of public spending for improved service delivery.

Last Updated: Apr 23, 2025

Recent Economic Developments

Preliminary GDP data for 2024 surprised on the upside, with GDP growth accelerating to 2.8%against 1.9% in 2023. Despite the underperformance of exports, strong domestic consumption—both on the household and the government side—propped up growth, supported by build-up of inventories.

Following gradual deceleration since 2023, annual average inflation—as measured by the Harmonized Index of Consumer Prices—declined to 2.6% in February, meeting the corresponding Maastricht criterion of 2.7%. The positive outturn followed shortly after the government requested extraordinary convergence reports from the European Commission and the European Central Bank, supporting the country’s bid to join the eurozone from start-2026.

Bulgaria’s fiscal position has loosened since the onset of the multiple crises in 2020. Despite that, the headline deficit was at 3% of GDP in both 2023 and 2024, while the public debt to-GDP ratio continued to rank among the lowest in the EU. The poverty rate (at $6.85/day 2021 PPP poverty line) is expected to decline gradually to 4% in 2024, but progress remains slow. Bulgaria’s strong 2024 growth, fueled by rising wages and robust consumption, may help reduce poverty by boosting household incomes.

Economic Outlook

Economic growth is forecast to slow down markedly in 2025-2026 due to global trade uncertainty. Bulgaria will feel the impact mostly through the indirect effect on the EU economy, global activity,and investment sentiment. As raw materials represent 40% of Bulgaria’s exports, the economy will be affected through the commodity price channel, too.

The worsened economic outlook for 2025 is expected to weigh on revenue collection and threaten the attainment of the 3% budget deficit target unless the government takes measures to curb expenditure.

If Bulgaria joins the eurozone in 2026—contingent on the conclusions of the convergence reports—this is anticipated to positively influence the country’s medium-term economic outlook.

Going forward, external risks remain tilted to the downside due to a complex geopolitical environment. Domestically, the unabated growth of credit to households, mirrored by an ongoing construction boom, remains on the radar, particularly in the context of a slowing economy.

Last Updated: Apr 23, 2025