Bulgaria’s most glowing achievement in recent years has been the stability it has brought to its economy. Following the financial crisis of 1996/97, the government introduced a Currency Board to anchor the economy and facilitate the implementation of important structural reforms – moves which boosted investor confidence.
“Bulgaria’s ambitious structural reforms and very prudent fiscal and wage policies have helped the country to achieve a remarkable level of macroeconomic stability,” explained Peter Grasmann, Head of the DG ECFIN Unit for economic affairs within the candidate countries. Despite this enviable level of stability, challenges remain in terms of Bulgaria’s large current account deficit and high credit growth rate, both of which are fairly common manifestations of rapidly growing economies.
Overall, future looks promising. “Economic growth is expected to accelerate further in 2007 and 2008 as strong investment growth and ongoing enterprise restructuring continue to bear fruit,” the ECFIN autumn forecast predicted. Real GDP growth is expected to top 6% in 2008 and the increasing absorption of EU transfers together with continued strong foreign capital inflows will help to sustain relatively high rates of investment growth of around 14% per year. The unemployment rate is expected to drop further and is likely to reach around 7% by 2008. At the same time, a rapidly ageing and declining population limits the potential for further employment growth. Increases in real wages are expected to keep pace with productivity gains. EU membership will also bring its own challenges: implementing the remaining reforms necessary for eventual euro entry and ensuring the efficient use of Structural Funds.