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Spotlight on Economic Growth and Stability

With new figures having been released about the healthy state of the Bulgarian economy, international property specialists, Obelisk International report on their assessment of the Bulgarian economy. Having performed excellently in Q1 of 2008, Bulgaria’s economy is in good shape. Gross domestic product (GDP) increased by 6.3% in Q2 of 2008 - this South-eastern European country now boasts the 3rd highest growth rate in the EU. According to The Economist, GDP is set to stabilise at just over 6% between 2008 and 2010. Inflation in Bulgaria has risen significantly during the first half of 2008. This rise has been primarily attributed to the increase in food prices. However, The Economist predicts that inflation will reduce in 2009, a sign that is already showing; inflation decreased to 14.5% in July 2008 from 15.3% in June 2008. Statistics for July 2008 showed that Bulgaria’s unemployment rate stood at 5.95%, a 1.28% reduction on the same period of the previous year.

Standard & Poor have confirmed Bulgaria’s long term rating as BBB+ and short term rating as A2, acknowledging Bulgaria’s attempts to manage fiscal policy, management policy and to reduce public debt in order to prevent long periods of high inflation and loss of external competitiveness. All of which could affect Bulgaria’s future credit rating. However, according to research by Moody’s Investors Services,
Bulgaria’s banking system is strong enough to withstand a significant financial or economical shock, rating the country BBB+ for Bulgaria’s “prudent fiscal policy and low and declining debt levels”.

Foreign Investment

Immediately after joining the EU in 2007, Bulgaria saw a peak in foreign direct investment (FDI) of around €6 billion, with approximately 60% of all FDI in 2007 going into the real estate sector. According to preliminary data from the Bulgarian National Bank, the first 6 months of 2008 saw FDI of €2.078 billion, accounting for 6.3% of GDP. This represents a decrease from the same period of 2007, where FDI accounted for 8.8% of GDP. Despite the fall in FDI, Bulgaria has secured third place in the most attractive destinations for foreign investment in South-eastern Europe, according to independent market researchers, CSA and Ernst & Young. More than 68% of the survey’s respondents believe that Bulgaria will regain popularity among foreign investors, but recommend that the country looks at ways to improve its transport and telecommunications infrastructure, meet EU economic regulation standards, eradicate bureaucracy and corruption and simplify administrative procedures. Bulgaria is working hard to entice foreign investors offering incentives that include low taxes and cheap labour, helping industrial investors buy land and co-financing training for employees amongst others. The Bulgarian Investment Agency has expressed its confidence that FDI in 2008 will be around the same levels as last year. A US$ 20 million investment is being made by ABB, a leading engineering company, for its 3rd production operation in Bulgaria. The Japanese Bank for International Development has granted a €230 million loan for the construction of new container terminals at the ports of Varna and Bourgas. Transport Minister, Petar Mutafchiev, has revealed that the project will be completed by 2014, however, the ports have already seen a 40% increase in container loads, compared with the year before.

Political Reassurance

Since becoming a member of the EU in 2007, Bulgaria has remained politically stable. The President, Georgi Purvanov (who was re-elected in October 2006), and the Prime Minister, Segei Stanishev (who is head of the National Government) have ensured that Bulgaria has met the majority of EU regulations. However, one principal problem, as in many of the countries in this region, has been in achieving the successful implementation and enforcement of existing laws. However, the government is continuing to introduce better monitoring mechanisms, better training and stricter ethical standards. Currently, Bulgaria’s government is a parliamentary democracy and a coalition of the Bulgarian Socialist party (BSP), the National Movement for Stability and Progress (NMSP) and the Movement for Rights and Freedoms (MRF). Prior to the country’s recent EU accession, Bulgaria joined WTO in 1996 and became a member of NATO in 2004.

Improving the Infrastructure

Whilst Bulgaria has made efforts to improve infrastructure throughout the country, Bulgaria’s road and rail systems are both in need of attention. However, plans have currently been shelved since the EU announced suspension of €500 million funding for Bulgaria. Plans to revamp Bulgaria’s major roads, in particular Struma, Trakia, Maritza and Hemus were expected to begin construction work in 2008.

Bulgaria’s national rail network is set to benefit from a facelift. New coaches, repairs and upgrades for the rail lines will allow trains to travel at a speed of 160 km per hour, radically reducing travel times.

The Ministry of Transport signed a deal with German company, Poyry Infra, in August 2008, for contracts to modernise the main railway lines throughout Bulgaria, with a combination of state and private finance.

Extract from Obelisk’s Absolute Guide to Bulgaria available at