Bulgaria Tourist Information - Economy

One of the poorest countries of central Europe, Bulgaria has slowly been moving from its old command economy towards a market-oriented economy. The economy faced a major crisis in 1996, marked by a banking system in turmoil, a depreciating currency, and contracting production and foreign trade.
Foreign exchange reserves dwindled to $518 million, while dramatically hiked interest rates added to the domestic debt burden and stifled growth. GDP fell by 11% in 1996, after experiencing 2.0% growth in 1995. Privatization of state-owned industries stagnated, although the first auction of a mass privatization program was undertaken in late 1996. Lagging progress on structural reforms led to postponement of IMF disbursements under a $580 million standby loan agreed to in July 1996.
In November 1996, the IMF proposed a currency board as Bulgaria's best chance to restore confidence in the lev, eliminate unnecessary spending, and avoid hyperinflation. The board was set up on 1 July 1997. Its establishment was followed by a reduction in inflation and interest rates and by a rise in foreign investment. Simultaneously the government pledged to sell off some of the most attractive state assets.
GDP in 1997 dropped 7.4%, but is expected to rebound to an estimated 2% in 1998. Other government objectives include: the completion of land reform, the privatization and strengthening of the banking system, and the modernization of the legal environment of business.

GDP: purchasing power parity—$35.6 billion (1997 est.)

GDP—real growth rate: -7.4% (1997 est.)

GDP—per capital: purchasing power parity—$4,100 (1997 est.)

GDP—composition by sector:

agriculture: 12%
industry: 31%
services: 57% (1997 est.)

Inflation rate—consumer price index: 1% (1998 est.)

Labor force:

total: 3.57 million (1996 est.)
by occupation: industry 41%, agriculture 18%, other 41% (1992)

Unemployment rate: 14% (1997 est.)

revenues: $2.7 billion
expenditures: $3.2 billion, including capital expenditures of $NA (1997 est.)

Industries: machine building and metal working, food processing, chemicals, textiles, construction materials, ferrous and nonferrous metals

Industrial production growth rate: -7.4% (1997 est.)

Electricity—capacity: 12.087 million kW (1995)

Electricity—production: 41.449 billion kWh (1995)

Electricity—consumption per capita: 4,821 kWh (1995)

Agriculture—products: grain, oilseed, vegetables, fruits, tobacco; livestock

total value: $4.9 billion (f.o.b., 1997)
commodities: machinery and equipment 15.2%;
agriculture and food 18.9%; textiles and apparel 14.8%; metals, minerals, and fuels 26.5%; chemicals and plastics 20%; other 4.6% (1996)
partners: OECD 50.0% (EU 37.2%); CIS and Central and Eastern Europe 32.4%; Arab countries 5.8%; other 11.8% (1995)

total value: $4.5 billion (f.o.b., 1997 est.)
commodities: fuels, minerals, and raw materials 40.7%; machinery and equipment 18.4%; textiles and apparel 11.6%; agricultural products 7.5%; metals and ores 5.2%; chemicals and plastics 12.2%; other 4.4% (1996)
partners: OECD 45.5% (EU 38.1%); CIS and Central and Eastern European countries 41.1%; Arab countries 1.8%; other 11.6% (1995)

Debt—external: $10 billion (1997 est.)

Economic aid: NA

Currency: 1 lev (Lv) = 100 stotinki

Exchange rates: leva (Lv) per US$1—1,740 (1997), 483.4 (1996), 70.7 (1995), 54.2 (1994), 27.1 (1993)

Fiscal year: calendar year

Bulgaria's command economic system has been patterned on the Soviet model. For several years in the mid-1960s, it appeared that Bulgaria had launched a program of economic reform involving decentralization of decisionmaking, a greater reliance on market forces, and even embryonic workers' councils. In 1968, however, fears aroused by the course of developments in Czechoslovakia and by domestic abuses in the use of decentralized authority prompted the BCP to reverse the trend toward decentralization.

Since 1971, productive enterprises have been grouped into more than 60 state economic amalgamations responsible for almost all nonagricultural production. In the agricultural sector, state and collective farms began to be combined in 1970 into "agrarian- industrial complexes" averaging 17,776-26,664 hectares (44,000- 66,000 acres). Since 1979, halting attempts have been made to decentralize the economic planning and decisionmaking process in both the industrial and agricultural sectors. The most recent reform process, which began in 1986, is intended to make the economy operate more efficiently, but so far, implementation haS been half-hearted and disappointing.

Major features are:

-- Decentralized management decisionmaking;

-- Financial stimuli to workers;

-- Creation of a commercial banking system;

-- Greater emphasis on market forces and incentives; and

-- More rational pricing policies.

Decree 56 of January 1989 provides for the restructuring of economic organizations as companies, with varying forms of ownership and liable to bankruptcy. Theoretically, companies are free to engage in foreign trade, ending the state's monopoly. The basic legal code for self-managing entities is not expected to enter into force until January 1991.

The beginnings of a commercial banking system may have been established in late 1987 with the creation of eight new commercial banks. They are initially functioning only as investment banks. Price controls are to be lifted in stages through the end of 1990. It remains to be seen whether the market will play a greater role in the allocation of productive resources, but the new political leadership has affirmed market-oriented reforms as a high priority and plans to reinvigorate the 1986 reform program, which is expected to extend over a period of 10-15 years.

Bulgaria's economic strategy has been set forth in 5-year development plans closely patterned after and coordinated with the Soviet Union's 5-year plans. The current 1986-90 plan sets lower economic growth targets but continued strong emphasis on the industrial sector, particularly electronics, machine-building, and biotechnology. The plan calls for approximately BL 54 billion in capital investment, roughly 70% slated for modernizing and reconstructing existing plants and equipment, rather than for new projects.


Industry and Agriculture

Industry has been the motor of Bulgarian economic growth for most of the past 45 years. However, by the early 1980s, it was clear that the process of extensive industrialization had carried the Bulgarian economy about as far as it could. Bulgaria has, therefore, launched its current campaign to modernize its aging industrial base, increase efficiency, and introduce new technology (e.g. robotics). The largest industrial sector is "machine building" (heavy industry), which accounts for more than one-quarter of industrial production. The largest single industrial plant is the Metallurgical Combine at Kremilkovtsi (near Sofia), one of the largest iron and steel mills in the Balkans. Despite its lower priority, agriculture remains a key component of the economy. Although only about 40% of the land is arable, Bulgaria has one of the highest ratios of arable land to population in Eastern Europe. Small private farms exist, mainly in the uplands. The size of the private plots is based on the size of the household: one-half hectare is the maximum in most places; in mountainous areas, 1 hectare. Climate and soil conditions are suitable for raising livestock and for growing various grain crops, vegetables, fruits, and tobacco. More than one-third of the cultivated land is devoted to growing the principal grain crops- wheat, corn, and barley. Bulgaria is a major tobacco producer-the fourth largest exporter of tobacco and the largest exporter of cigarettes (mainly to the Soviet Union).


Bulgaria's ambitious nuclear energy program is increasing the share of total electric energy generated by nuclear power-36% in 1988. A nuclear power plant at Kozloduy was recently completed, and construction of a second nuclear power complex has begun at Belene. In northeastern Bulgaria, deposits of black and coking coal may contribute to the effort to increase energy self-sufficiency. Estimated deposits are 1.2 billion metric tons, but great physical obstacles, such as the depth of the deposits (between 1,375 and 1,950 meters) and water-bearing rock strata, must be overcome if they are to be successfully exploited.


Foreign trade is important to the Bulgarian economy. In 1988, exports, which were $17.2 billion, constituted about a quarter of GNP. Since 1985, foreign trade has remained relatively stagnant. In the late 1980s, exports and imports have been basically in balance. Bulgarian foreign trade is conducted principally with other communist countries. In 1987, 82.5% of Bulgaria's exports and 80.5% of its imports were with communist partners. Almost 60% of Bulgaria's trade was with the Soviet Union in 1988. Bulgaria is a member of Council for Mutual Economic Assistance (CEMA), an economic/trade organization of communist countries.

The share of Bulgaria's trade with developed Western countries is relatively modest: 6.8% of exports and 15.1% of imports in 1987. West Germany is the largest exporter to Bulgaria. Bulgaria's main interest in trade with the West is to import technology to modernize its industrial base and to use more efficiently raw materials and energy. In many cases, Bulgaria has been able to pay in hard currency for its imports from the West. Bulgaria's net debt to the developed Western countries increased to $7-$7.5 billion by the end of 1989 because of growing purchases of Western goods.

Since 1967, Bulgaria has been an observer in the General Agreement on Tariffs and Trade (GATT). It is presently seeking accession to full GATT membership on the grounds that it has now reformed its economy sufficiently along market lines to be able to accept both the benefits and obligations of GATT membership.

The Bulgarian Government promulgated a joint venture law (Decree 535) in March 1980 to attract Western technology and investment. However, most Western businesses have responded cautiously because of the vagueness of many of its provisions. Decree 535, on paper one of the most liberal joint venture laws in Eastern Europe, allows the formation of joint enterprises with unlimited foreign participation for operations in Bulgaria.


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