Bulgaria Economy

Bulgaria Economy

Subchapters:

  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

According to preliminary data, GDP grew by 3.4% in 2021, GDP growth is estimated at 3.8% in 2022 and 3.2% a year later. The recovery of domestic and external demand after the lifting of pandemic restrictions helped revive the Bulgarian economy and return to economic growth, although another wave of contagion in the second half of the year again led to partial restrictions that affected economic development. In 2022, GDP growth should continue thanks to the reopening of the economy and the recovery of consumer confidence, which will translate into consumption growth. Public expenditure in the form of fiscal measures to support healthcare, citizens and entrepreneurs will gradually disappear, on the other hand, Bulgaria should benefit from EU funds in the form of the National Recovery and Resilience Plan. However, according to the EIU, in 2023-2026 the average growth rate will reach 2.6% due to continued population decline. Check ebizdir for economical facts of Bulgaria.

The nominal value of GDP in 2021 reached 77.3 billion USD, and the EIU estimate for 2022 and 2023 is 78.7, respectively. 8billion USD. GDP per capita in 2021 was $26,420 and is expected to rise to $30,426 by 2023.

The current account showed a surplus of 0.2% of GDP in 2021, compared to 1.4% in 2020, and should rise to 0.8% in 2022.

According to EIU analysts, the state budget deficit should fall from 4% of GDP in 2021 (€4.78 billion) to 2.6% in 2022. The fiscal deficit was mainly caused by spending on measures against COVID-19, as well as government subsidies on energy prices for households, although the volume of collected taxes increased due to high inflation.

Unemployment stood at a record high of 6% at the end of 2021, with an estimated decline to 5.6% this year.

Year-on-year inflation reached 7.8% in December 2021, which is the highest in the last 14 years. Average inflation for 2021 was 3.3%. The reason was primarily rising heating, fuel and food prices. Inflation should gradually decrease year-on-year thanks to the stabilization of prices on the market, on the other hand, pressure on the labor market and strong domestic demand will continue to push prices up. The producer price index (PPI) rose to 15.5% in 2021, according to the EIU estimate. Energy prices and rising production costs were mainly to blame.

Structure of the Bulgarian economy

Bulgaria is an open economy built on market principles and with a medium-high level of income. A country firmly anchored in the EU has a strong fiscal framework, a stable currency pegged to the euro (the so-called currency board), relies on free trade and the free movement of capital with other countries, which makes the country an attractive place for foreign investment.

In terms of economic structure, the main part is services (63%), followed by industry (31%) and agriculture (6%). In terms of industry, the largest share belongs to food processing (23%), followed by metal processing (20.6%), engineering (12.3%), raw material processing (10.9%), rubber and plastics (10.9%), textile production (7.7%), electronics (5.3%), wood processing (4.9%) and chemical industry (4.4%).

In terms of exports, the main items include machinery, equipment and means of transport, as well as market products by type of material, various finished products, food and live animals, chemicals. Mainly machinery, equipment and means of transport, market products by type of material, chemicals, raw materials, food are imported.

Main economic indicators of Bulgaria

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 3.6 -4.1 3.4 3.8 3.2
GDP/population (USD/PPP) 24,743.40 24,600.00 26,420.00 28,770.00 30,430.0
Inflation (%) 3.1 1.7 3.3 4.1 2.7
Unemployment (%) 5.6 7.4 6 5.6 4.8
Export of goods (billion USD) 33.4 32 40.7 42.8 45.8
Import of goods (billion USD) 37.8 34.5 44.1 46.7 50.4
Trade Balance (Billion USD) -3.2 -2.2 -2.3 -2.7 -3.3
Industrial production (% change) 0.6 -7 5.8 3.5 3
Population (millions) 7 6.9 6.9 6.8 6.8
Competitiveness 48/63 48/63 53/64 ON ON
OECD export risk 03.VII 03.VII 03.VII ON ON

Source: EIU, OECD, IMD

At the end of the year, Bulgaria’s balance of payments reached a result of EUR 219.3 million (EUR -68million compared to 2020), of which the current account was EUR -27million (EUR -230 million) and the capital account was EUR 490, EUR 7 million (-EUR 45million).

Government debt was 21.2% of GDP, but it is estimated to grow to 27.7% in 2022 and should gradually decrease to 24.2% at the end of 2026, according to the EIU.

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -2.9
Public debt (% of GDP) 26.9
Current account balance (billion USD) 0.2
Taxes 2022
AFTER 10%
F.O 10%
VAT 20% general
9% tourist accommodation
0% financial services, old buildings, earth. land etc.

Current status and outlook

The EIU estimates that the current account will return to a modest surplus of 0.2% of GDP ($0.2 billion) in 2021 thanks to a recovery in services exports. In 2022, analysts expect a current account surplus of 0.8% of GDP, as the continued recovery in domestic demand and widening of the trade deficit will be offset by an improvement in the secondary income balance and a partial recovery in tourism receipts. In the years 2022-26, an increasing inflow of funds from the EU (from the EU Recovery Fund) can be expected, and a recovery in the area of ​​services and the balance of secondary income will help maintain the current account surplus.

Balance of payments, foreign exchange reserves, state budget deficit/GDP, public debt/GDP, foreign debt, debt service

At the end of the year, Bulgaria’s balance of payments reached a result of EUR 219.3 million (EUR -68million compared to 2020), of which the current account was EUR -27million (EUR -230 million) and the capital account was EUR 490, EUR 7 million (-EUR 45million).

Foreign exchange reserves stood at USD 4billion at the end of 2021 and should rise to USD 4billion by the end of 2023, according to the EIU.

According to EIU analysts, the state budget deficit should fall from 2.9% of GDP in 2021 (EUR 4.78 billion) to 2.6% in 2022 and gradually turn into a surplus in 2025. Fiscal deficit for 2021 mainly caused by spending on measures against COVID-19, as well as government subsidies on energy prices for households, although the volume of taxes collected increased due to high inflation.

Government debt amounted to 26.9% of GDP, in 2022 its growth is estimated up to 27.7%, but according to the EIU it should gradually return to 24.2% at the end of 2026 (above the level of 2019 – 20.2%), but at a lower level than other countries in the region).

External debt stood at USD 4billion at the end of 2021 and should fall to USD 4billion by 2023, according to EIU estimates. Debt service reached $billion in 2021 and is forecast to rise to $7.1 billion by the end of 2023.

Banking system

Bulgaria’s banking system is open and regulated in a standard way by the National Bank. In 2020, Bulgaria entered the ERM II system and is preparing to join the Eurozone (plan 1/1/2024).

The base interest rate has been at the level of 0.00% since June 2020.

The Bulgarian National Bank (BNB) is the country’s central monetary authority. Since 2007, it has been a full member of the European System of Central Banks, carries out banking supervision and monitors the stability of the local currency.

The Bulgarian Development Bank (BDB) is a 99.9% state-owned financial institution. It provides direct financing as well as financing through other credit institutions. BDB’s current focus is on start-ups and innovation, exporters of final products, industry and the mining sector.

As of 31 December 2021, there were 25 banks operating in the country, seven of which operated here as branches of foreign banks.

The five largest banks (66.9% of assets) according to the volume of assets at the end of 2021 included:

  • UniCredit Bulbank ( www.bulbank.bg ) – established in 2007 as a result of the merger of three banks controlled by the Italian UniCredit Group (Bulbank, Hebros Bank and Holcim), is the largest bank in the country in terms of capital, deposits and loans. It employs approximately 4,200 workers and operates 170 branches throughout the country. The market share is 18.4%.
  • DSK Bank ( www.dskbank.bg ) – similar to the former Czechoslovak Savings Bank, founded in 1951, belongs to the Hungarian OTP Bank Group, one of the largest financial groups in Central and Eastern Europe. It has 93 branches, 100 affiliates, 119 bank offices, 9 regional, 20 business and 40 financial centers. It employs approximately 6,700 workers. The market share is 18%.
  • United Bulgarian Bank (www.obb.bg) – established in 1992 by the merger of 22 regional commercial banks in Bulgaria. Privatized in 1997, it holds a full license to provide banking operations. It operates 190 business locations across the country with 2,800 employees. The market share is 11.5%.
  • Postbank (www.postbank.bg) – formally Eurobank Bulgaria is an autonomous Bulgarian bank financed through the local and international market. Part of the Eurobank EFG Group, based in Greece. The market share is 10.7%.
  • First Investment Bank ( www.fibank.bg ) – was established in 1993 and is the largest bank owned by local private capital. It serves approx. 380 thousand individual and 21 thousand corporate clients through a network of 21 branches and 68 offices throughout Bulgaria. The market share is 8.3%.

The total volume of assets in the banking system increased by 9.2% to BGN 135.41 billion (EUR 69.23 billion) in 2021 compared to 2020.

Tax system

The tax system in Bulgaria is transparent and stable. Bulgaria has concluded approximately 70 tax agreements with other states, it also signed the OECD multilateral instrument (MLI) in June 2017. The tax authority is the National Revenue Agency. More detailed information on taxes is available on the Deloitte website.

Taxes

Personal income tax is governed by the Personal Income Tax Act (PITA). Starting from January 1, 2008, a system of flat personal income tax of 10% was introduced. Natural persons, including self-employed persons, are obliged to pay this tax. The tax applies to the income of employees in an employment relationship, income from economic activity on a trade license and other economic activities related in particular to the provision of property rights, etc.

According to the Corporate Income Tax Act (CITA), all legal entities domiciled in Bulgaria are required to pay corporate income tax. Other legal entities are taxed only on income from activities on the territory of Bulgaria. The corporate income tax rate has been gradually reduced from 19.5% to 10% since 2005, starting on January 1, 2007.

Value added tax – companies whose taxable income in the last 12 months exceeded 50,000 leva (25,500 euros) are required to pay VAT. The standard VAT rate is set at 20%, a reduced rate of 9% is applied to hotelier services. There are services that are exempt from VAT, they are certain financial, educational, insurance and other services listed separately by law.

Expected development

Discussions about overall tax policy and reforms, especially in the area of ​​tax incentives, continue. The government is working on a plan to introduce a capital wealth tax and limit the presence of offshore companies in the economy. Due to the coronavirus crisis, until the end of 2021 VAT was exceptionally reduced to 9% for restaurant and catering services incl. beer and wine, sales of books, baby food and hygiene items, use of sports. facilities and services of travel agencies.

Bulgaria Economy