Transformation in Bulgaria



Contents
1.Development during the communist regime
•Economic situation
2.Transformation period
•Political situation
•Economic reforms after 1990
3.Economic results
•Economic growth
•Unemployment
•Inflation
•External relationships
•
•

•The first part



Economic situation I.
•Centrally planned system
•Relatively backward economy
–large portion of agriculture vs. small portion of services
–almost no private sector
–huge government spendings (subventions)
–low GDP p.c. compared to developed countries
•Relatively positive performance  vs. economic catastrophe in 80´s
•
–
•
1949-52
1953-57
1958-60
1961-65
1966-70
1971-75
1976-80
1981-85
1986
1987
1988
1989
GMP
8,4
7,8
11,6
6,7
8,8
7,8
6,1
3,7
5,3
4,7
2,4
-0,3
GDP (CIA)
7,5
1,0
0,9
4,8
-1,0
0,9
-0,1
Table 1: Economic growth in Bulgaria  - gross  material product and gross domestic product
(estimation based on CIA)  in %
Source: Jeffries, Socialist Economies and the Transformation to the Market, 2003

Economic situation II.
•Unfavourable development in 80´s
–economic slowdown
–increasing foreign dept  (half in USD, consequences of its monetization)
–decreasing volume of foreign trade + dependence on COMECON countries
–lack of basic foods despite the system of rationing
–
–
•Only negligible economic reforms
–slightly more competencies for firms in decision-making process
–certain reduction of mandatory indicators
–no measures at microeconomic level
•
•
•
–
–
Unstable economic situation without any significant reforms as starting point for transformation !

Chart 1: Comparison of GDP p.c. in Bulgaria and Czech Republic (Austria = 100)
Source: Maddison, Historical Statistics - http://www.ggdc.net/maddison/ (11. 10. 2008)


TRANSFORMATION PERIOD
•The second part


Political situation
•Overthrow of Živkov* in 1989
–demonstrations vs. internal attempts for the coup
–*General Secretary of the Communist party since 1954
–
•First free elections in 1990 -> Bulgarian socialist party (BSP)
–new constitution
–political pressures and general strike -> fall of the government after few months
–
•Unstable political situation until 1997
–1990-1991 interim government with Popov
–1991 -1992 Union of Democratic Forces (UDF) + Turkish - Dimitrov
–1992-1994 clerk governments until new elections
–1994-1997 BSP - Videnov -> economic catastrophe
–
•Stabilization after 1997
–1997-2001 UDF -Kostov –> radical reforms
–2001-2005 National Movement Simeon II -> NATO (2004)
–2005- 2009 BSP (coalition with NDSV and MRF) -> EU (2007)
–
•

Economic reforms after 1990
•
•Gradualistist approach
1.Transformation recession 1990-1993
2.Economic recovery 1994-1995
3.Crisis and stabilization 1996-1999
4.Completion of transformation 1999-2004
–

Transformation recession 1990-1993 I.
•Deep economic crisis
–budget deficit, widespread black market, food shortage -> main tasks of the government
–moratorium on foreign loans
–
•Institutional changes and reforms
–elimination of restrictions on private firms
–two-tier banking system
–indexation of wages and pensions
–gradual  price liberalization
–
•Informal („wide“) privatisation and corruption
•
•Problems in external sphere
–trade deficit, decline of foreign reserves
–Iraq, Lybia, later on ex Yugoslavia
–
•Lack of real economic reforms
•

Transformation recession 1990-1993 II.
•Agreement on calm transition to market economy (1991)
–program with quite radical reforms from Popov´s cabinet, supported by MMF
–main tasks
•liberalization of prices and interest rates , restrictions on loans + stabilization of standard of
living
–measures
•unification of exchange rate, free floating, devaluation of lev, inner convertibility
•credit ceiling, high interest rates (in reality: not restrictive policy)
•elimination of quantitative restrictions in foreign trade
•fiscal reforms
–first attempts for small-scale privatisation
–outcomes
•   of GDP, real wages and  foreign trade ;     of unemployment and prices

Chart 2: Development of M2 in Bulgaria and the Czech Republic, 1992-2006 (% change)
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)

Transformation recession 1990-1993 III.
1989
1993
Change
Social security
10,4
15,8
5,4
Subventions
15,5
4,8
-10,7
Expenditures on capital
5,5
1,9
-3,6
Total expenditures
61,5
51,2
-10,3
Source: Coricelli: Macroeconomic Policies and the Development of Markets in Transition Economies,
1998
Table 2: Government expenditures in Bulgaria  (% of GDP)
•Serious problems with
–banking sector –>  support of loss-maker state companies
–unsastainable policy of CB -> dept monetization
–fiscal discipline -> deficit, increasing dept
•No progress in privatization
•Lack of restricitive measures  + weak position of governments

Chart 3: National savings in Bulgaria and the Czech Republic, 1980-2008 (% of GDP)
Source: MMF: World Outlook Database,
http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/index.aspx (12. 7. 2011)

Economic recovery 1994-1995
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000-06
Share of administrative prices on CPI
Bulgaria
100,0
70,0
24,0
16,0
26,0
43,0
46,0
52,0
14,4
15,8
17,2
20-24,7
CR
na
na
27,9
18,3
17,9
18,1
17,4
17,4
13,3
13,3
13,3
10,9-19,7
Tariff returns as % of imports
Bulgaria
5,3
2,5
2,2
4,5
16,0
15,3
13,5
8,0
9,7
13,9
10,2
8,0-10,6
CR
na
na
na
na
3,5
3,5
2,6
2,6
1,7
1,5
1,2
0,2-1,1
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)
Table 3: Selected statistics of economic environment  in Bulgaria and the Czech Republic, 1989-2006
•Problems
–foreign dept - ongoing monetization, agreement with London creditors club
–unstable monetary policy – inflation, devaluation, lack of foreign reserves
–unemployment and income inequality
–weak position of the banking sector + poor regulation
•Attempts of new government
– increase the role of state – price regulations, protectionism
– privatisation
•Positive development of main indicators  (except some surprising facts)
–

Crisis and stabilization 1996-1999 I.
•First steps  of CB to crisis already in 1995
•
•Dramatic situation in 1996
–collapse of fixed exchange rate -> inflation, depletion of foreign reserves, loss of credibility,
dollarization
–problems in financial sector  -> bankrupts and bank runs (9 out of 10)
–fiscal problems -> budget deficit, public debt,
–
–
Country
Total budget deficit
Financing by central bank
1992
1993
1994
1995
1996
1997
1992
1993
1994
1995
1996
1997
Bulgaria
-5.2
-10.9
-5.8
-6.3.
-13.3
-2.6
6.0
11.0
5.5
4.9
14.5
-0.1
CR
…
...
-1.2
-1.8
-1.2
-2.1
...
-2.1
-2.4
-1.0
-0.8
0.7
Hungary
-6.9
-8.5
-8.3
-7.1
-3.1
-4.6
16.5
13.2
11.2
7.5
7.3
1.7
Poland
-7.5
-4.0
-2.0
-2.7
-2.5
-2.3
5.2
1.5
1.5
0.1
0.1
0.5
Table 4: Total balance of public finances and central bank´s financing, 1992-1997 (% of GDP)
Source: Dabrowski, Disinflation Strategies and thein Effectiveness in Transition Economies, 2003

Chart 4: Exchange rate of Bulgarian lev to american dollar, 1991-2000 ()
Source: Bulgarian National Bank,
http://www.bnb.bg/bnbweb/groups/public/documents/bnb_download/s_monthly_exr_en.xls (12. 7. 2011)

Crisis and stabilization 1996-1999 II.
1990
1991
1992
1993
1994
1995
1996
1997
1998
Bulgaria
100
61,2
65,9
62,7
55,7
50,8
34,8
29,6
40,2
Table 5: Real income, 1989-1998 (1990=100)
Source: Stattev, Bulgarian Economic Transition, 2001
•Failed stabilization program as answer
–monetary restrictions (high interest rates) but debt monetization -> inflation and increase of
debt services
–support of the MMF
–
• Voucher privatization since 1996
–Only fifth  state ownership + low attendance
•Catastrophic econ situation + strikes and conflicts in 1996
•Peek of the crisis in 1997 ->   of GDP and real incomes,    poverty, lack of basic foods,
depreciation + resignation of  Videnov

Crisis and stabilization 1996-1999 III.
•Radical structural program of new government (1997)
–currency board (BGN:DEM -> 1000:1, later on euro)
–mass privatization + liquidation program
–measures in banking sector
–reforms of labour market
•Stabilizitation in 1998 ...
Table 6: Privatization procedure in Bulgaria, 1993-2008
Source: Privatization Agency , http://www.priv.government.bg/apnew/Root/index.php?magic=0.0.0.0.2;
MMF, 2002, MMF 2004 (20. 7. 2011)

Chart 5: Foreign reserves in mil. USD (left axis) and interest rates on deposits in % (right axis),
1991-2002
Source: MMF: Database IFS, ......

Completion of transformation 1999-2004 I.
Bulgaria
CSR/CR
Hungary
Poland
Romania
Baltic states
Index
60
346
259
187
105
358
Source: Gros, Steinherr, Economic Transition in Central and Eastern Europe, 2004
Table 7:  Exports in USD, 1999 (1989=100)
•Ongoing economic reforms
–price liberalization
–denomination of the currency (cutting 3 nulls)
–progress in privatization process
–recovery of banking sector
•External relations
– elimination of trade barriers + CEFTA, FTA  with Turkey, EU (application)
–Negative consequences of the conflict in Kosovo
•Encouraging macroeconomic indicators but problems with
–Deficit of current account
–Still low volume of foreign trade

Completion of transformation 1999-2004 II.
•Continual reforms also in the new century
–Privatization (FDI, foreign resreves)
–Social  reforms
–Integration process with EU
–Trade liberalization
–Measures to reduce unemployment
–Deregulation of prices
–Legislative changes (commercial code, law of propriety rights, privatization law...)
–
• Stabilized economic situation, apart from some problematic indicators
•
–
–
•
•
2001
2002
2003
2004
2005
2006
2007
Bulgaria
0,835
1,233
1,378
2,27
1,932
1,823
0,414
CR
-5,3
-6,117
-6,221
-2,799
-3,513
-2,705
-1,235
Source: MMF, World Outlook Database,
http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/index.aspx (12. 7. 2011)
Table 8:  Structural budget balance in Bulgaria and the Czech Republic  (% of potential product)

Chart 6: Government dept in Bulgaria and the Czech Republic, 1991-2006 (% of GDP)
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)
•

ECONOMIC RESULTS
•The third part


Chart 7: Economic growth in Bulgaria and the Czech Republic, 1989-2006 (%)
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)

Chart 8: Cumulative development of GDP in Bulgaria and the Czech Republic, 1989-2006 (1989=100)
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)

Chart 9: GDP per capita, 1989-2007 (PPP, current international dollars)
Source: MMF: World Outlook Database,
http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/index.aspx (12. 7. 2011)

Table 9: Cumulative growth of price level in Bulgaria and the Czech Republic, selected years of
1989-2006 (%)
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)
1990
1991
1992
1993
1994
1995
1996
1997
CR
9,7
52,0
11,1
20,8
9,9
9,6
8,9
8,4
Bulgaria
26,3
333,5
82,0
73,0
96,3
62,0
123,0
1 082,0
1998
1999
2000
2001
2002
2003
2004
2005
2006
10,6
2,1
4,0
4,7
1,8
0,2
2,8
1,9
2,5
22,2
0,7
9,9
7,4
5,9
2,3
6,1
5,0
7,3
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)
Table 10:  Growth of inflation rate, 1990-2006 (annual averages in %)
1989
1990
1993
1996
2000
2003
2006
Bulgaria
100
126,30
1 723,89
12 225,04
195 451,05
227 241,30
271 762,67
CR
100
109,70
223,79
293,60
373,91
399,54
428,99

Chart 10: Unemployment rate in Bulgaria and the Czech Republic, 1990-2006 (% of labour force)
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)

Chart 11: Cumulative change of unemployment rate in Bulgaria and the Czech Republic, 1989-2006
(1989=100)
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)

Chart 12: Exports in Bulgaria and the Czech Republic, 1989-2006 (% of GDP)
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009), own calculation

Chart 13: Development of current account in Bulgaria and the Czech Republic, 1990-2006 (% of GDP)
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)

Chart 14: Net inflows of FDI to Bulgaria and the Czech Republic, 1990-2005 (% of GDP)
Source: World Bank (WB):  Data ,
http://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS(29. 4. 2009)

Chart 15: EBRD index of large-scale privatisationin Bulgaria and the Czech Republic, 1989-2006
•The index contains values from 1 to 4.3; the higher the value, the closer the country is to
developed  countries.
Source: European Bank for Reconstruction and Development (EBRD): Selected economic indicators data,
http://www.ebrd.org/country/sector/econo/stats/index.htm (29. 4. 2009)

Conclusions
•Gradual economic reforms
–insufficient economic reforms
–slow progress of privatisation
–lack of monetary and fiscal restrictions
–populist policy
–lack of political support for transformation
–
•Stabilization
–after implementation of drastic restrictions  and currency board only in 1997
–

Thank you for attention !