Country Report Bulgaria

Outlook for 2008-09

• Relations between the ruling Bulgarian Socialist Party (BSP) and its main coalition partner, the National Movement for Stability and Progress (NMSP), will remain problematic in 2008-09.
• The NMSP's leader, Simeon Saxe-Coburg, remains committed to the ruling coalition, but the risk of further fragmentation hangs over the party.
• The Citizens for European Development of Bulgaria (CEDB) party seems certain to lead the challenge to the BSP by rightist parties, and will continue to try to force an early election.
• Although there are rising calls for populist increases in government spending, no government is likely to jeopardise the policy anchor that is provided by the currency board system and plans for euro adoption.
• After a sharp acceleration in the fourth quarter, real GDP growth reached 6.2% in 2007 as a whole. A slight deceleration in domestic demand will see real GDP growth slow to an annual average of 5.7% in 2008-09.
• The current-account deficit will be of concern to policymakers in 2008-09. The Economist Intelligence Unit forecasts that it will fall only gradually as a proportion of GDP in 2008-09, having reached over 20% of GDP in 2007.

Monthly review

• Having announced in March a suspension of Bulgaria's EU funding, amid suspicions of corruption, the European Commission is not yet satisfied with measures taken to combat financial impropriety by local officials.
• The three-party ruling coalition has made the issue of administering EU funds its most urgent policy priority. Healthcare deregulation and social spending are its other main policy goals.
• The fiscal surplus for the first three months of the year reached a record level of Lv1.7bn (US$1.3bn), more than three times the level in January-March 2007.
• The government has approved a revised employment strategy for 2008-15, which aims to raise the employment rate to 72%, from 62% currently, thereby meeting the target set out in the EU's Lisbon Agenda on competitiveness.
• In March 2008 industrial production decreased by 2% in comparison to March 2007—the first year-on-year contraction since the beginning of 2002.
• The EU harmonised measure of inflation in Bulgaria was 13.4% year on year in April, and the month-on-month rate has fallen in each month of 2008.
• Government debt (including government-guaranteed debt) decreased to just 16.8% of GDP in March 2008. This compares with 22.4% of GDP in March 2007 and is the lowest level since the beginning of transition in 1989.

SOURCE: Country Report