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Economic recovery
Modern Sofia

Within ten years of the Bulgarian crisis of 1996/97 the country had become a different place. On 18 October 2006 the Bulgarian prime minister, five government ministers, numerous state officials and business leaders gathered in the Sofia Sheraton Hotel for a conference on "60 days before Europe – what to expect, what to do". The expectations were high, the mood optimistic, the future looked bright. "You are now part of the European family," noted Swedish Foreign Minister Carl Bildt.

What a difference a decade can make. Business reviews, summing up Bulgaria's economic situation in early 2007, just after it joined the EU, present the picture of a Balkan tiger. In 2006, real GDP growth was projected to reach 6.1 percent. The state budget would post another record surplus of over 3 percent of GDP, with inflation hovering around 6 percent. Unemployment was in single figures. The Emerging Europe Monitor reported:

"Bulgaria's economic outlook should remain bright, with robust investment providing a solid platform for GDP growth and accelerating exports over the medium term … with Bulgaria looking increasingly likely to enter the single currency before most of the EU-10 states."

In fact, since 1998 Bulgaria's economy has been growing at rates of at least 4 percent each year. Since 2000 Bulgarian GDP growth has outpaced the Central European Four (Czech Republic, Hungary, Poland and Slovakia). As a result of this growth (and the weakening of the US Dollar) Bulgaria's GDP per capita rose from $1,576 in 2000 to $3,123 in 2004, and is estimated to have reached $6,609 in 2008 (Deutsche Bank Research). It will have quadrupled in eight years.

The decade since 1997 has also seen other impressive developments. Since 1998 government deficits have never exceeded 1 percent of GDP. Investment has leapt from roughly 15 (in 2000) to 25 percent of GDP. Capital goods have become the fastest growing category in the recent import boom, increasing companies' competitiveness and laying the basis for sustained high growth. Unemployment has fallen from 18 percent in 2001 to less than 9 percent in 2008. Since 2001 average wages have begun to increase significantly, from 240 Leva in 2001 to 538 Leva in September 2008 (the currency is pegged to the Euro).

One cause of this transformation is a spectacular increase in foreign direct investment (FDI). From 1992 to 1996 average FDI was $153 million per year. In 1997 it was 636 million. In 2000 it reached more than $1 billion. Since 2003 annual FDI has exceeded $2 billion every year. Most of it is linked to green-field investment (i.e. new companies being set up), and not simply the privatisation of existing companies. In the five years up to 2008 net FDI inflows averaged over $5 billion per year.

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The competitiveness of the Bulgarian economy has also been reflected in its export performance. The value of Bulgarian exports almost tripled over the last decade, from less than $5 billion in 1997 to $14.4 billion in 2006.

By 2004 the accumulated value of FDI per capita had nearly caught up with levels in Poland. The banking sector had been completely restructured; by 2004 85 percent of commercial banking assets were in private banks, most of them foreign owned.

Whereas the Bulgaria of 1996 had been diplomatically isolated, the Bulgaria of early 2007 is a full member of all European institutions. Since 2001 Bulgarian citizens have been able to travel freely to the EU. In 2004 Bulgaria joined NATO and in January 2007 it joined the European Union.

October 2008

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