Overseas Real Estate Blog

Bulgaria with Booming Economy and Record GDP Growth

According to the Micro Watch group, the Bulgarian economy was performing increasingly well but the country still remained the poorest in the EU.

A report of the Macro Watch group states that the positive development of the Bulgarian economy was continuing with a record GDP growth, but that the country still faced high-risk macroeconomic factors.

The Macro Watch is a group formed by the Open Society Institute - Sofia. It also included experts from three other Sofia-based think tanks - the Center for Economic Development, Industry Watch, and the Center for Liberal Strategies, who presented their report on Sunday in the Bulgarian capital.

According to the report, in the first six months of 2008 Bulgaria's GDP growth has reached the record 7%, while the burden of rising prices had shifted from foods to other less crucial goods such alcohol, which is expected to tame the overall inflation levels.

Yet, the Macro Watch group reminds that despite the improved performance of the Bulgarian economy, the country still remains the poorest in the European Union.

Georgi Angelov from the Open Society Institute predicted that the 2008 inflation would be about 9%, down from the present annual level of 14-15%.

The report also points out that the reserves of the Bulgarian National Bank had reached the record EUR 13 B. At the same time, the drastic decrease of the corporate and income taxes to 10%, which was adopted in 2007, is reported as successful because it had encouraged the payment of taxes. Thus, the state budget's tax revenues have increased.

As a result, the budget surplus has also reached levels never recorded before, while the state debt is at its lowest levels, the experts point out.

The Micro Watch report also mentions that for a second quarter in a row the growth of Bulgaria's exports is greater than the growth of imports.

Bulgaria currently has the lowest unemployment level recorded ever but the shortage of skilled and high-qualified laborers is increasingly problematic. The high number of persons employed by the state, and the low standard of living are also listed among the main problems the Bulgarian economy was facing.

According to the report, the business climate in the country was improving, but serious institutional drawbacks still remained.

The main macroeconomic risks for the Bulgarian economy have to do with the global financial crisis, the rising petrol prices, and the expected slowing down in the EU.

Increasing the state spending before the coming parliamentary elections and other populist moves could also be problematic, according to Macro Watch.

The main recommendations of the Bulgarian experts are the acceleration of the structure reforms, and the preservation of the economic stability and monetary council in order to prepare for joining the Eurozone.

The Micro Watch group also suggests that a shock reduction of the social security payments, the value-added tax, and other state fees be adopted. According to their analysis, the VAT, which is currently 20%, could be reduced to 15% thanks to the enormous budget surplus.