Overview

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Context
Strategy
Economy

Country Context

BULGARIA	2019
Population, million	7.0
GDP, current US$ billion	67.9
GDP per capita, current US$	9,732
Gini Coefficient (Gini coefficient of disposable income - 2019, Eurostat)	40.8
Life Expectancy at birth, years (Most recent WDI value 2017)	75

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

However, the advancement of structural reforms starting in the late 1990s, the introduction of the currency board, and expectations of EU accession unleashed a decade of exceptionally high economic growth and improved living standards. Yet, a number of legacies from that early period, the global economic crisis of 2008, and a period of political instability in 2013–14 undid some of those gains.

In the current period, the ongoing pandemic is currently forecast to drag the economy into a recession in 2020. Poverty is projected to increase, given the job losses and rising vulnerabilities associated with the crisis and the possible negative impact of rising minimum wages on employment among the unskilled. The poor are more vulnerable to health shocks because they often have less access to health care and lower savings to protect them from a financial catastrophe.

Additionally, they are more likely to suffer from income losses as a result of quarantines and/or disruptions in economic activity. Bulgaria will need to adopt bold recovery measures to increase productivity by at least 4 percent per year in order to catch up with average EU income levels and boost shared prosperity.

Last Updated: Oct 12, 2020

Strategy

IBRD Operations	45
	15 Adjustment Loans (US$1.73 Billion)
	25 Investment Projects (US$1.45 Billion)
	1 Debt Reduction Loan (US$125 Million)
IFC	40 Projects (completed and ongoing), with total commitments of over $ 1.05 billion
GEF	4 World Bank-Managed Grants

Since opening its office more than 28 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 address the capacity gap between institutions and to 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 and supported by EU funding.

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 second Memorandum of Understanding (MoU) on partnership and support in the implementation of European Structural and Investment Funds for the 2014-20 period.

The current 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 CPF Performance and Learning Review (PLR) reconfirmed the relevance of the program’s main areas of engagement, and implementation over the first two years is on track to achieve the program’s objectives.

The new EU funding program for 2021–27, including the introduction of Enabling Conditions, will require the continued strengthening of the state and its institutions, an area in which the Bulgarian government has expressed interest in continued WBG support.

Last Updated: Oct 12, 2020

Recent Economic Developments
In early July 2020, Bulgaria joined the waiting room for the eurozone, the EU’s Exchange Rate Mechanism (ERM-II), after the Government delivered on a list of prior commitments in the areas of banking and non-banking financial supervision, the governance of state-owned enterprises, and money laundering, among others.
Thus far, the negative impact of the global COVID-19 crisis on the Bulgarian economy has been relatively mild compared to other EU members, thanks to its lower exposure to global value chains and foreign tourism. For 2020, the Bank forecasts a contraction of 5.1 percent of GDP. Job shedding, primarily in the hotel and restaurant, manufacturing, and trade sectors, has been mitigated by a salary subsidy program under which the Government is covering 60 percent of gross wages in distressed businesses. Average unemployment for 2020 is forecast to grow moderately by 1.8 percentage points to 6 percent year-on-year.
Bulgaria entered the crisis in a strong fiscal position: public debt of 20 percent of GDP, a fiscal surplus as of end-March 2020, and a hefty fiscal reserve of some 9 percent of GDP. As of the end of August, the budget surplus had been retained at 1.3 percent of government-projected GDP. The year-to-date surplus was due to conservative revenue planning, the retention of expenditure, and the slow implementation of fiscal response measures - the latter of which were relatively limited in scale.
A rapid worsening of the fiscal position is expected in the reminder of the year, however. In mid-September, the country re-entered the international bond market for the first time since 2016 and successfully placed €1.25 billion in 10-year bonds and €1.25 billion in 30-year bonds at average yields of 0.389 and 1.476 percent, respectively.
Economic Outlook
Both private and public investment are likely to decline substantially in 2020, as private investors remain wary of the recovery prospects and public investment projects are postponed. EU funds for public investment under the anti-crisis Recovery and Resilience Facility are to start being absorbed no earlier than 2021.
Thanks to a good starting position, the fiscal deficit in 2020 will remain relatively contained at 4.1 percent of GDP, which will increase public debt to 27.7 percent of GDP. The COVID-19 crisis has exposed the dual need for reform and investment in key public spheres, such as health and education. Unless reform efforts are urgently directed at these and other public sectors, the latter will be increasingly unable to provide services that are up to expected standards.
Poverty at the US$5.5 per day line is expected to increase between 2019 and 2020, reversing a previous trend of sustained, albeit slowing, decreases in poverty since 2016. The recovery in the labor market is likely to be uneven, with a lengthier recovery for individuals in less secure jobs.
The slow uptake of the Government’s proposed fiscal package to retain and hire employees and provide support to individuals in non-standard work contracts is likely to further prolong the recovery. Similarly, individuals in vulnerable households may not readily see incomes returned to pre-COVID-19 levels, which will be compounded by concerns surrounding the coverage and adequacy of existing social security systems and the limited uptake of new social measures.
Risks to the outlook continue to stem primarily from the uncertainties around the COVID-19 pandemic and its development, both domestically and globally.

Last Updated: Oct 12, 2020