site.btaWB Revises Down Bulgaria's Growth in 2022 Due to Ukraine War

A new World Bank report, Europe and Central Asia Economic Update, Spring 2022: War in the Region, lowers the economic growth forecast for Bulgaria to 2.6% from 3.8% in the January forecast. That reflects high inflationary pressures, the Ukraine war, and supply chain disruptions. Poverty is expected to increase amidst rising food and energy prices.

The WB analysts believe the draft 2022 budget to suggest that consolidation will be postponed to 2023 with a continuation of support measures.

"The long-term structural challenges facing Bulgaria include negative demographic trends, coupled with institutional and governance weaknesses. Institutional gaps have been mirrored by suboptimal public service delivery, hindering private sector expansion and undermining inclusive growth and shared prosperity. High rates of inequality of opportunity limit access to key public services, constraining the ability of individuals to escape poverty and result in persistently high income inequality. Poverty and inequality are reinforced by inadequacies in the targeting, coverage and generosity of the social security system, limiting its role as a redistributive mechanism and fiscal stabilizer," the report says.

The pace of convergence to average EU income levels has been slower than the one observed in other new EU members, and Bulgaria continues to rank last in terms of GDP per capita in PPP in the EU, at 55 percent of the EU average in 2020.

Economic growth and convergence to average EU income levels across the NUTS-3 regions – ranging between 24 percent of the EU average in Silistra to 120 percent in Sofia in 2019 – has been increasingly uneven, widening in-country disparities. As a result, some areas are being depopulated at a rapid pace, with the first results of the 2021 census showing the fastest between-census decline of the population since 1985, by 11.5 percent against 2011 to 6.52mn people.

Significant outmigration since the start of the transition period, driven by large income gaps and search for better quality of life, has been the main factor behind Bulgaria’s rapid loss of population.

The WB analysts warn that further downward revisions in the Bulgaria forecast are likely to follow in case of a prolonged military conflict in Ukraine, or new disruptive Covid waves amidst low vaccination rates. "Moreover, the delay in the approval of the national Recovery and Resilience Plan and the operational programmes for EU funds (2021-2027) jeopardizes the government’s plan to increase substantially public investment in 2022, further undermining the growth prospects."

On a positive note, the political crisis that dominated the national landscape since early 2021 has been overcome, after a four-party coalition took office after the Nov 14, 2021 elections. There are high expectations from the new government to undertake structural reforms in a number of areas, including the judiciary and the control of corruption, the report says.