Bulgaria

Politics:

• Analysis

  Bulgaria politics: Quick View - Bulgaria yields to EU in row over judiciary

  Event

  The prime minister has invited a small opposition party to nominate a new candidate for the Constitutional Court after the president prevented the previously elected judge from taking up her post, following EU criticism.

  Analysis

  The president walked out of the swearing-in ceremony of four newly elected members of the Constitutional Court on November 15th, when it was the turn of a controversial judge, Veneta Markovska, to take the oath of office. This unprecedented act followed sharp criticism by EU officials of parliament's decision at end-October to elect Ms Markovska without a hearing or a debate concerning her suitability for the post. Ms Markovska was the target of allegations that as the deputy chair of the Supreme Administrative Court she had traded influence to favour an acquaintance.

  The president has received the backing of Boiko Borisov, who extended an invitation on November 19th to the UDF, a small right-wing opposition party, to nominate a replacement candidate for the Constitutional Court. The invitation to the UDF was probably motivated primarily by electoral considerations. The ruling CEDB is facing an uphill task as it sets out to retain power after the next election, due in mid-2013. While searching for potential allies, Mr Borisov may want to build links with the UDF ahead of the election.

  By restarting the parliamentary procedure for electing a new member of the Constitutional Court, the government has second important goal. It wants to demonstrate to the EU that it is taking action to deal with corruption and other irregularities in the judiciary. After Ms Markovska's nomination was nodded through parliament, the European Commission warned that it may become necessary to publish an interim report on Bulgaria's progress as part of the co-operation and verification mechanism introduced when Bulgaria (and Romania) joined the EU in 2007. The publication of an unscheduled-and almost certainly highly critical-report by the EU would have been a blow to the government's credentials, particularly in the run-up to the election. By choosing to re-elect the judge, this time involving a proper hearing, Mr Borisov has probably managed to avoid the pitfall represented by an EU report.

  November 20, 2012

• Background

  Bulgaria: Political forces at a glance

  Political outlook: Political forces at a glance

  Government: Bulgaria is a parliamentary democracy. Parliament consists of the single-chamber, 240-seat National Assembly. Since the election in July 2009, the centre-right Citizens for European Development of Bulgaria (CEDB) has governed alone, despite lacking a parliamentary majority (it won 117 seats in parliament). The government is headed by the prime minister, Boiko Borisov, who is also the leader of the CEDB. The president is Rosen Plevneliev, a former minister of regional development in the CEDB government, who was elected in October 2011.

  Parliamentary forces after the election on Jul 5th 2009
  	% of vote	No. of seats
  Citizens for European Development of Bulgaria	39.7	117
  Coalition for Bulgaria (Bulgarian Socialist Party & partners)	17.7	40
  Movement for Rights & Freedoms	14.5	37
  Ataka	9.4	21
  The Blue Coalition (Union of Democratic Forces & Democrats for a Strong Bulgaria)	6.8	15
  Law, Justice & Order Partya	4.1	10
  Total incl others	100.0	240
  a The parliamentary group of the party was dissolved, as one of its members left the group and the members fell below the minimum requirement. Its members of parliament are now independent.
  Source: Central Election Commission.

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  Next elections: According to the constitution, the parliament has a four-year term following an election and the president has a five-year term of office. The next parliamentary election is to be held in mid-2013. The next presidential election will be held in October 2016.

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  June 01, 2012

• Structure

  Bulgaria: Political structure

  Official name

  Republic of Bulgaria

  Legal system

  Based on the constitution of July 1991

  National legislature

  Unicameral National Assembly of 240 members, elected by proportional representation. Following the election in July 2009, Citizens for European Development of Bulgaria is the largest parliamentary party

  Electoral system

  Universal direct suffrage from the age of 18

  National elections

  October 2011 (presidential) and July 4th 2009 (parliamentary). Next presidential election due in October 2016; next parliamentary election due in July 2013

  Head of state

  Rosen Plevneliev, elected president in October 2011

  National government

  Minority government comprising only Citizens for European Development of Bulgaria

  Main political parties and groupings

  Bulgarian Socialist Party (BSP; previously the Bulgarian Communist Party); National Movement for Stability and Progress (NMSP; formerly the Simeon II National Movement, centred on the former king Simeon Saxe-Coburg); Movement for Rights and Freedoms (MRF; formed mainly from the ethnic Turkish minority); Bulgarian New Democracy (BND; formed by rebel NMSP deputies in December 2007), Blue Coalition (comprising the Union of Democratic Forces/UDF and Democrats for a Strong Bulgaria/DSB, a party made up of former members of the UDF); Bulgarian People's Union (BPU; a centre-right grouping, most of whose members were previously in the UDF); Ataka (Attack; a nationalist grouping that emerged just before the parliamentary election in June 2005); Citizens for European Development of Bulgaria (CEDB; led by Boiko Borisov, a former mayor of the capital, Sofia); Napred is a coalition of three parties: the Internal Macedonian Revolutionary Organisation-Bulgarian National Movement (VMRO-BND), the Liberal Initiative for Democratic European Development (LIDER) and the Agricultural National Alliance (ZNS); Law, Justice and Order Party (LJO)

  Council of ministers

  Prime minister: Boiko Borisov

  Deputy prime minister & finance minister: Simeon Djankov

  Deputy prime minister & interior minister: Tsvetan Tsvetanov

  Key ministers

  Agriculture & food: Miroslav Naidenov

  Culture: Vezhdi Rashidov

  Defence: Anyu Angelov

  Economy, energy & tourism: Delian Dobrev

  Education, youth & science: Iordanka Fandukova

  Environment & water: Nona Karadzhova

  Foreign: Nikolai Mladenov

  Health: Stefan Konstantinov

  Justice: Margarita Popova

  Labour & social policy: Totyu Mladenov

  Regional development: Liliana Nikolova

  Sport: Svilen Neikov

  Transport, communication & IT: Ivailo Moskovski

  Without portfolio: Bozhidar Dimitrov

  Central bank governor

  Ivan Iskrov

  December 01, 2012

• Outlook

  Bulgaria: Key developments

  Outlook for 2013-17

  • The ruling Citizens for European Development of Bulgaria (CEDB) lacks an outright majority, but has sufficient support from independent parliamentarians to push through its programme.
  • The EU will keep Bulgaria under close scrutiny, continuing to demand judicial reform, as well as results from efforts to combat corruption and crime. Nevertheless, progress in these matters will be slow.
  • The government will not jeopardise the policy anchor provided by the currency board, and Economist Intelligence Unit does not expect Bulgaria to adopt the euro until the crisis in the euro zone has been resolved.
  • We estimate that real GDP growth in 2012 will slow to 0.7%, from 1.8% in 2011, owing to the impact of a forecast recession in the euro zone.
  • Growth is forecast to accelerate to 1.5% in 2013 and an annual average of 3.3% in 2014-17 as labour and credit markets rebound. There are downside risks to this forecast, owing to the uncertain outlook for the euro zone.
  • We estimate that average inflation will slow to 2.9% in 2012 from 4.2% in 2011, but forecast that it will pick up to an annual average of 3.3% in 2013-17.
  • The current account is estimated to be broadly in balance in 2012. As economic growth picks up, the trade gap is likely to widen, pushing the current account back into deficit, at an average of 1.5% of GDP in 2013-17.

  Review

  • At end-October the president, Rosen Plevneliev, said that Macedonia will not be ready to begin EU accession talks until it stops what he called its "anti-Bulgarian campaign and distortion of historical facts".
  • The prime minister, Boiko Borisov, challenged the European Commission in early November to make clear its objections to the election of a controversial judge to Bulgaria's Constitutional Court.
  • The January-September consolidated budget surplus, at Lv248.1m (US$165m), impressed the markets, leading to record-low yields on government bonds.
  • In mid-November parliament's budget committee approved the government's proposals to introduce a 10% tax on earnings from interest on bank deposits.
  • Industrial output (working-day-adjusted) shrank by 1.3% year on year in September, the steepest decline since March.
  • Retail trade turnover contracted by 3.7% year on year in September, indicating a weakening of domestic demand.

  December 01, 2012

Economy:

• Background

  Bulgaria: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	7.4	Population growth	-0.7
  GDP (US$ bn; market exchange rate)	53.6b	Real GDP growth	1.8
  GDP (US$ bn; purchasing power parity)	95.1	Real domestic demand growth	-0.5
  GDP per head (US$; market exchange rate)	7,284	Inflation	6.0
  GDP per head (US$; purchasing power parity)	12,932	Current-account balance (% of GDP)	-10.5
  Exchange rate (av) :US$	1.41b	FDI inflows (% of GDP)	12.9
  a Economist Intelligence Unit estimates. b Actual.

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  Background: After a violent communist takeover, Bulgaria became a People's Republic in 1947. The communist regime collapsed in November 1989, but the Bulgarian Communist Party-renamed the Bulgarian Socialist Party (BSP)-won the country's first free election. The anti-communist Union of Democratic Forces (UDF) formed a government after the election in October 1991, but was replaced in December 1992 by a technocratic government backed by the BSP and the mainly ethnic Turkish Movement for Rights and Freedoms (MRF). The election in December 1994 returned the BSP to power, but a severe economic crisis in 1996-97 forced an early election in April 1997, which a UDF-led centre-right coalition won. The Simeon II National Movement (SNM, which has since changed its name to the National Movement for Stability and Progress/NMSP) won the election in 2001 and governed with the MRF until the election in June 2005. The BSP won the election in 2005 and governed with the NMSP and the MRF until the election in July 2009, after which the centre-right Citizens for European Development of Bulgaria (CEDB) formed a minority government.

  Political structure: Bulgaria has a unicameral legislature. The 240-member National Assembly is constitutionally the highest state authority. Its members are elected by proportional representation. A new constitution was passed in July 1991. The head of state is a directly elected non-executive president, who has the power to delay legislation, but not to block it.

  Policy issues: Following the economic crash in 1996-97, an IMF-backed currency board was introduced. The currency board is intended to remain in place until Bulgaria adopts the euro (which is unlikely before 2015). The currency board limits monetary policy, and so fiscal policy will remain crucial for macroeconomic stability. Further reform of the judiciary, and intensified efforts to combat corruption and organised crime, will be needed if Bulgaria is to avoid any further imposition of punitive restrictions on its use of EU funding.

  Taxation: There is a flat-tax system in place, with a single, 10% rate applied on personal income since January 2008, and a 10% rate applied on company profits since January 2007. Value-added tax (VAT) is levied at a single rate of 20%, although tourism packages sold abroad carry a rate of 9%.

  Foreign trade: In 2011 exports of goods (fob) amounted to US$28.1bn and imports of goods (fob) amounted to US$30.9bn. The current-account surplus was around US$500m (0.9% of GDP), having swung from a deficit of 1.2% of GDP in 2010.

  Major exports 2011	% of total	Major imports 2011	% of total
  Other metals	12.4	Crude oil & natural gas	17.2
  Clothing & footwear	7.5	Machinery & equipment	7.1
  Iron & steel	4.4	Chemicals, plastics & rubber	7.1
  Chemicals, plastics & rubber	4.1	Textiles	4.9
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	11.9	Russia	18.5
  Romania	9.6	Germany	11.3
  Italy	8.3	Italy	7.5
  Turkey	8.0	Romania	7.1

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  December 01, 2012

• Structure

  Bulgaria: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• Outlook

  Bulgaria: Country outlook

  Bulgaria: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The centre-right Citizens for European Development of Bulgaria (CEDB) won a convincing victory in the parliamentary election in July 2009. The CEDB lacks an outright majority (by five seats) and relies on support from independent parliamentarians to pass its legislative programme, following quarrels in mid-2011 with Ataka (Attack, a right-wing, nationalist grouping), which had previously backed the government. The government is prone to inconsistent policymaking. Together with the slow economic recovery, this has weakened its popularity from previously high levels. The government will remain under pressure, especially if economic growth remains sluggish in 2013, as the Economist Intelligence Unit forecasts. However, the CEDB is likely to remain more popular than the main opposition party, the Bulgarian Socialist Party (BSP), although recent opinion polls suggest a narrowing of the gap between the two parties.

  ELECTION WATCH: The next parliamentary election is due in mid-2013. The CEDB is in the final year of its four-year mandate and retains fairly robust support in opinion polls. According to a poll by the National Centre for the Study of Public Opinion published in October 2012, support for the CEDB was 26.8%, compared with 17.5% for the BSP. However, the impact of the recession and inconsistent policymaking has eroded some of the CEDB's popularity. The CEDB will be aware that since the restoration of democracy in 1989, no party in Bulgaria has been elected twice in succession as the largest grouping. However, with support for the BSP remaining low, the CEDB has a reasonable chance of bucking this trend. This is also suggested by the CEDB's success in the presidential and local elections in October 2011.

  INTERNATIONAL RELATIONS: Relations with the EU have improved from 2008-09, but the EU will continue to monitor Bulgaria closely and may impose penalties if the country fails to meet its commitments. The latest report by the European Commission, published in July 2012, pointed to continuing shortcomings, including a lack of convictions in cases of organised crime, and concerns about the management of the judiciary. To give Bulgaria more time to make progress in these areas, the Commission said that instead of publishing regular six-monthly reports, the next report on Bulgaria will not be issued until the end of 2013. However, renewed problems about the election of judges to the Constitutional Court prompted the EU to warn, in early November, that it might be necessary to issue an interim report. Although the problems are widespread and entrenched, we expect some progress in 2013-17, including an improvement in the absorption of EU funds. Bulgaria has met the technical requirements for joining the Schengen area, but political opposition within the EU means that entry will be delayed until the first half of 2013 at the earliest.

  POLICY TRENDS: The government will not jeopardise the policy anchor provided by the currency board during the forecast period. Bulgaria is committed to adopting the euro, but the government has made it clear since mid-2012 that it has no intention of joining the EU's exchange-rate mechanism (ERM2) until the euro zone crisis is resolved. The currency peg is unlikely to harm Bulgaria's competitiveness to the extent that policymakers would consider changing it. The significant improvement in the current account in 2009-12 has boosted confidence in the currency board. As monetary policy is constrained by the currency board, the emphasis falls on fiscal policy. This will mostly be tight in 2013-17 as the government seeks to bring the budget towards balance. There remains a risk that Bulgaria could require external financial assistance from the IMF and the EU were the euro zone debt crisis to intensify and cause problems in the Bulgarian banking sector. However, the authorities have buffers of their own--including the fiscal reserve, the Deposit Insurance Fund and resources within the Bulgarian National Bank (BNB, the central bank)--to respond to stresses in the banking system.

  ECONOMIC GROWTH: Recovery from the recession of 2009 has been slow, with growth of 1.8% in 2011. Export growth was the main driver of economic activity until early 2012, when faltering economic performance in the euro zone, Bulgaria's main trade partner, caused export growth to weaken. As a result, real GDP growth in the first half of 2012 slowed to 1% year on year (0.5% on a seasonally and working-day-adjusted basis--a rate of growth that continued, according to flash estimates, in the third quarter). In view of the sluggish economic growth in the first three quarters of the year and the prolonged euro zone debt crisis, we estimate that real GDP growth in 2012 will have decelerated to 0.7%. The outlook for the euro zone has recently become more gloomy and we have, therefore, revised our forecast for Bulgarian real GDP growth in 2013 to 1.5% (previously 1.9%) and to 2.8% in 2014 (previously 3.2%). We forecast faster growth in 2015-17--driven by private consumption, fixed investment and exports--with real GDP growth accelerating to an annual average of 3.4%, which is still well below pre-crisis rates of around 6%.

  INFLATION: We estimate that inflation will have slowed to an average of 2.9% (according to national methodology) in 2012, from 4.2% in 2011, owing to a decline in international non-oil commodity prices and a weakening of the global economic recovery. Inflation was subdued in January-June 2012, at an average of 1.8% year on year. Although it rose to 4% in the third quarter, driven by higher international food prices, we expect inflationary pressures to moderate in the final quarter. However, tensions in the Middle East could lead to a spike in oil prices, which would be likely to push up inflation in Bulgaria.

  EXCHANGE RATES: The currency board arrangement still retains strong political commitment, and it is expected to stay in place until euro adoption (which is not expected in the forecast period), with the lev fixed to the euro at Lv1.95583:EUR1. Although the real effective exchange rate (REER) of the lev appreciated significantly in the pre-crisis years, it has depreciated since 2011, allaying concerns about the competitiveness of the economy. The euro zone debt crisis has diminished the allure of joining the euro, and the government has become more circumspect about applying for entry into ERM2, saying that it will not do so until the crisis is resolved.

  EXTERNAL SECTOR: The current-account surplus in 2011, of 0.9% of GDP--the first surplus since 1997--reflected strong export performance, supported by higher commodity prices. We estimate that the current account has been broadly in balance in 2012, following a significant weakening of both export and import performance. Owing to stronger economic growth in 2013-17, the trade deficit is likely to expand, leading to a return of the current-account deficit, at an annual average of 1.5% of GDP. However, the current-account deficit is expected to remain much smaller than in the pre-crisis period, when a construction boom contributed to a surge in imports.

  December 01, 2012

• Forecast

  Bulgaria: Country forecast summary

  Country forecast overview: Highlights

  • The ruling centre-right Citizens for European Development of Bulgaria (CEDB), under the leadership of Boiko Borisov, aims to crack down on organised crime and corruption, and to engage more effectively with the EU. Despite the ingrained nature of the problems, the Economist Intelligence Unit expects some progress to be made during the forecast period, albeit slowly.
  • The CEDB lacks an outright majority and relies on support from independent parliamentarians. We expect the CEDB to emerge as the strongest party from the next election, due in mid-2013, but it will probably need to find a coalition partner to stay in power.
  • Political commitment to the currency board arrangement is strong, and we expect the lev to continue to be linked to the euro at the current exchange rate. Entry into European economic and monetary union (EMU) will not take place until the euro zone debt crisis has been resolved.
  • The government will run a fairly conservative budget policy. We forecast that after an election-related expansion to 2% of GDP in 2013, the budget deficit will narrow to an average of around 0.8% of GDP in 2014-17, well within the 3% of GDP limit set by the EU's Stability and Growth Pact (SGP). Financial shortfalls in the healthcare sector, which strained the budget in 2011-12, present a risk.
  • Real GDP grew by 1.8% in 2011. We estimate that economic growth in 2012 will weaken to 0.7%, owing to the impact of a recession in the euro zone. We estimate a contraction of 0.4% in real GDP in the euro zone in 2012.
  • We forecast that economic growth will accelerate to 1.5% in 2013 and an annual average of 3.3% in 2014-17. There are substantial downside risks, owing to the weakness of the recovery in the EU and the debt crisis in Greece (and the wider euro zone), to which Bulgaria is extremely vulnerable.
  • We estimate average inflation to slow from 4.2% in 2011 to 2.9% in 2012, because of lower international commodity prices and weak domestic demand. We forecast that inflation will rise only moderately in 2013-17, at an annual average of 3.3%, as domestic demand remains relatively subdued, given more cautious credit growth than in pre-crisis years and tighter government wage policy.
  • The current-account balance has improved sharply since 2009. We forecast that the deficit will remain relatively small, at an average of 1.5% per year in 2013-17.

  

  December 01, 2012

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Country Briefing

Total area

111,002 sq km, of which 28% is arable land and 33% forest

Population

7.61m (December 2008)

Main cities

Population in '000 (December 2007) (a)

Sofia (capital): 1,241

Stara Zagora: 356

Plovdiv: 705

Blagoevgrad: 329

Varna: 460

Pleven: 298

Burgas: 420

Pazardzhik: 294

(a) Population figures relate to planning districts (oblasts) rather than cities.

Climate

Continental

Weather in Sofia (altitude 550 metres)

Hottest month, July, average temperature 21°C; coldest month, January, average temperature -2.3°C; driest month, April, 18 mm average rainfall; wettest month, June, 91 mm average rainfall

Language

Bulgarian

Weights and measures

Metric system

Currency

Lev (Lv) = 100 stotinki; the plural of lev is leva

Time

Two hours ahead of GMT in winter; three hours ahead in summer

Fiscal year

Calendar year

Public holidays

January 1st (New Year), March 3rd (Liberation Day), April 16th (Easter Monday), May 1st (Labour Day), May 6th (St George's Day), May 24th (Saints Cyril and Methodius), September 6th (Unification Day), September 22nd (Independence Day), November 1st (National Revival Day), December 24th-26th (Christmas)

March 01, 2012