Bulgaria, a former Communist country that entered the EU on 1 January 2007, has experienced strong growth since a major economic downturn in 1996. Successive governments have demonstrated commitment to economic reforms and responsible fiscal planning. Bulgaria has averaged more than 6% growth since 2004, attracting significant amounts of foreign direct investment.
Population:
Bulgaria has implemented substantial economic reforms over the past decade. While maintaining macroeconomic stability, it has made considerable progress in income growth and poverty reduction. Competitive flat tax rates and an open trade regime, supported by a relatively efficient regulatory framework, have encouraged the development of a growing entrepreneurial sector. Bulgaria has weathered the impact of the global economic downturn relatively well, with the economy supported by generally prudent fiscal policy and sound public debt management.
Continued reform in other areas, however, will be indispensable to sustaining high economic growth in coming years. Corruption and the weak rule of law increase the cost of conducting business and constrain more dynamic economic development.
Bulgaria held its first multi-party election since World War II in 1990 and joined the European Union in January 2007. Boiko Borisov of the center-right GERB (Citizens for European Development of Bulgaria) party was the clear winner in general elections held in July 2009. The major challenge for his government was to combat widespread corruption that had prevented Bulgaria from using its EU funds, which were made available after the government implemented reforms in December 2009. Tourism, agriculture, and natural resource mining, including coal, copper, and zinc, are the leading industries. Since the signing of an EU accession agreement in 2004, Bulgaria has experienced a vast inflow of capital and high rates of growth, although the economy contracted in 2009.
BUSINESS FREEDOM
The overall freedom to establish and run a business remains relatively well protected within the regulatory framework. Launching a business has become less time-consuming, and licensing requirements have been eased, though the pace of change lagged behind some other countries.
TRADE FREEDOM
Bulgaria’s trade policy is the same as that of other members of the European Union. The common EU weighted average tariff rate was 1.2 percent in 2009. However, the EU has high or escalating tariffs for agricultural and manufacturing products, and its MFN tariff code is complex. Non-tariff barriers reflected in EU and Bulgarian policy include agricultural and manufacturing subsidies, quotas, import restrictions and bans for some goods and services, market access restrictions in some services sectors, non-transparent and restrictive regulations and standards, and inconsistent regulatory and customs administration among EU members. Enforcement of intellectual property rights and non-transparent government procurement remain problematic. Ten points were deducted from Bulgaria’s trade freedom score to account for non-tariff barriers.
FISCAL FREEDOM
Bulgaria has low tax rates. The corporate and income tax rates are a flat 10 percent. Other taxes include a value-added tax (VAT), an estate tax, and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 33.3 percent. Steps have been taken to improve tax compliance.
GOVERNMENT SPENDING
In the most recent year, total government expenditures, including consumption and transfer payments, equaled 37.3 percent of GDP. In July 2009, authorities announced freezes on public wages in 2010, to be accompanied by scaled-back pension and health care spending. Public-sector debt has been reduced to 16 percent of GDP.
MONETARY FREEDOM
Inflation declined significantly from 12 percent in 2008 to 2.5 percent in 2009. Privatization of state-owned firms has progressed, and most prices are determined by market forces, but regulation affects the prices of electricity, water, natural gas, and pharmaceuticals. As a participant in the EU’s Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. Ten points were deducted from Bulgaria’s monetary freedom score to account for measures that distort domestic prices.
INVESTMENT FREEDOM
Foreign and domestic investors are treated equally. Government approval is required for majority foreign ownership in some sectors. Licensing, regulation, and arbitrary bureaucracy deter investment, as do pervasive corruption, a slow-moving judiciary, and the influence of organized crime. Foreign exchange and capital transactions may be subject to restrictions and require prior registration with the central bank. There are no legal restrictions on acquisition of land by locally registered companies with majority foreign participation. If public needs cannot be met by other means, expropriation may be undertaken, provided that the owner is adequately compensated.
FINANCIAL FREEDOM
Introduction of a currency board, stronger supervision, and tighter prudential rules have helped to transform Bulgaria’s banking sector. Consolidation began in 2004, and privatization of state-owned banks is complete. Combined assets of commercial banks exceed 100 percent of GDP. The three largest banks account for more than 30 percent of assets. In the domestic credit market, foreign banks account for more than 80 percent of total assets. Credit is generally allocated on market terms. The insurance sector, with strong foreign participation, is private and expanding. Strong banking supervision and prudential regulations have lessened the impact of global financial turmoil.
PROPERTY RIGHTS
Although the law protects the acquisition and disposition of property, the judicial system does not resolve commercial disputes, register businesses, or enforce judgments effectively. The constitution provides for an independent judiciary, but the sometimes ineffective rule of law limits investor confidence in the enforcement of contracts, ownership and shareholders rights, and intellectual property rights.
FREEDOM FROM CORRUPTION
Corruption is perceived as widespread. Bulgaria ranks 71st out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009. Despite advances in laws and legal instruments, organized crime and government and judicial corruption persist. Corruption’s threat to the security of the common border is a matter of great concern to the EU.
LABOR FREEDOM
Relatively flexible labor regulations enhance employment and productivity growth, although there is room for further reforms. The non-salary cost of employing a worker is high, but the dismissal cost is moderate.
http://www.heritage.org/index/country/bulgaria