Bulgaria Ranks 50th in World Bank’s Ease of Doing Business 2016 Report

Bulgaria ranks 50th among 190 economies globally in the fifteenth Ease of Doing Business report of the World Bank. In the previous two editions, the country ranked higher – 38th in 2015 and 37th in 2016. The drop is not due to deterioration in Bulgaria’s performance but rather due to the fact that other countries have reformed better than last year and have improved their own indicators. Bulgaria lowered its rating in just one out of all 10 key indicators, namely Getting Electricity. The other indicators remain unchanged or mark a slight increase in score.

In another report, issued in October – Europe and Central Asia Economic Update, the World Bank published its country analysis for Bulgaria. The article reviews the current state of the main economic indicators, and gives a forecast for the next two years.

1. Stronger domestic demand contributed to stronger real GDP growth, which rose from 3.4 percent in 2016 to 3.9 percent year -on-year in the first quarter of 2017 and to 4.2 percent in the second
2. Private consumption continues to improve because of rising incomes and employment. Real private sector wages increased by about 9 percent year-on-year in the first half of 2017, driven by strong demand in industry and services
3. Unemployment declined to an eight-year low of 5.9 percent of the labor force in July 2017. New jobs were created in sectors that contribute most to economic growth: industry, trade, transport, tourism, ITC
4. Tax revenues and social contributions grew by about 8 percent year-on-year because of improved economic activity and the increase of the pension contribution rate

Outlook

According to the analyses in the ranking, prospects for 2017 are better than initially expected, with GDP projected to grow at 3.8 percent as robust domestic demand outweighs the diminishing contribution of net exports. Household consumption is likely to continue expanding on the back of further improvements in labor market and credit conditions. Investment is likely to remain strong in the second half of the year. GDP is projected to pick up to 4 percent in 2019. Strong consumption and, increasingly, investment are likely to be the key driver in the medium term. Poverty reduction is expected to continue at a modest pace in the near term. Continued improvements in employment and wages, as well as scheduled increases in pensions, should support real incomes and therefore further reductions in poverty. Poverty is projected to fall to 7.6 percent in 2017, as measured at $5.5 a day in 2011 PPP, to 7.1 percent in 2018, and to 6.7 percent in 2019.

Export growth is projected to be robust, in line with Bulgaria’s improved competitiveness in EU markets and higher commodity prices. Import growth is expected to be driven by higher oil prices and strengthening domestic demand for consumer and investment goods.

Risks and challenges

The key challenge for Bulgaria is to accelerate convergence with the rest of the EU and deal with the negative consequences of its demographic transition. Accelerating convergence would require improvements in productivity and labor force participation. Bulgaria will need to raise productivity growth to at least 4 percent per year to reach the average EU income levels within a generation, as per Productivity in Bulgaria, a World Bank report.

This compares with annual average productivity growth of 2.5 percent per year over the last six year. A large portion of the population is at risk of poverty or social inclusion. Enhancing productivity growth would require addressing governance challenges (public administration, judiciary, governance of SOEs), that have undermined Bulgaria’s structural transformation. Enhancing the skills and employability of all Bulgarians is also needed. The effectiveness and efficiency of public spending on health, pensions and long-term care also needs to be improved to ensure inclusiveness and sustainability of growth in the face of demographic changes.