Bulgaria · 2007. 7. 18. · Bulgaria 1 ' The Economist Intelligence Unit Limited 2007 Country Profile 2007 Contents Bulgaria 3 Basic data 4 Politics 4 Political background 5 Recent

Country Profile 2007

Bulgaria This Country Profile is a reference work, analysing the country's history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit's Country Reports analyse current trends and provide a two-year forecast.

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ISSN 1366-4166

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Comparative economic indicators, 2006

Gross domestic product(US$ bn)

Sources: Economist Intelligence Unit estimates; national sources.

Gross domestic product(% change, year on year)


Consumer prices(% change, year on year)


Gross domestic product per head(US$ '000)


0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0

TajikistanKyrgyz Republic

MoldovaMacedonia

ArmeniaTurkmenistan

GeorgiaAlbania

Bosnia and HercegovinaUzbekistan

EstoniaLatvia

AzerbaijanSerbia

LithuaniaBulgaria

BelarusSlovenia

CroatiaSlovakia

KazakhstanUkraine

HungaryRomania

Czech RepublicPolandRussia

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Azerbaijan

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AzerbaijanAlbania

MacedoniaBosnia and Hercegovina

BelarusSerbia

BulgariaKazakhstan

RomaniaRussiaLatvia

LithuaniaPolandCroatia

SlovakiaHungary

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ArmeniaCroatia

MacedoniaLithuaniaHungary

EstoniaSlovakia

Kyrgyz RepublicLatvia

RomaniaBelarus

BulgariaBosnia and Hercegovina

UzbekistanAzerbaijan

KazakhstanUkraineGeorgia

RussiaTajikistan

TurkmenistanMoldova

Serbia

978.2

337.3

34.5

18.4

Bulgaria 1

© The Economist Intelligence Unit Limited 2007 www.eiu.com Country Profile 2007

Contents

Bulgaria

3 Basic data

4 Politics 4 Political background 5 Recent political developments 8 Constitution, institutions and administration 9 Political forces 13 International relations and defence

15 Resources and infrastructure 15 Population 17 Education 17 Health 18 Natural resources and the environment 18 Transport, communications and the Internet 21 Energy provision

22 The economy 22 Economic structure 24 Economic policy 26 Economic performance 28 Regional trends

29 Economic sectors 29 Agriculture 30 Mining and semi-processing 30 Manufacturing 32 Construction 32 Financial services 34 Other services

35 The external sector 35 Trade in goods 37 Invisibles and the current account 38 Capital flows and foreign debt 40 Foreign reserves and the exchange rate

41 Regional overview 41 Membership of organisations

48 Appendices 48 Sources of information 49 Reference tables 49 Population 49 Labour force and unemployment 49 Freight traffic by mode of transport 50 Energy production and consumption

2 Bulgaria


50 Consolidated budget 50 Money supply 50 Interest rates 51 Gross domestic product 51 Nominal gross domestic product by expenditure 52 Real gross domestic product by expenditure 52 Prices and earnings 52 Gross agricultural output 53 Levels of industrial production by subsector 53 Construction 54 Tourism 54 Retail sales 54 Main trading partners 55 Balance of payments, IMF series 55 Foreign reserves 55 Exchange rates

Bulgaria 3


Bulgaria

Basic data

111,002 sq km, of which 28% is arable land and 33% forest

7.7m (end-2005)

Population in !000 (December 2005)

Sofia (capital) 1,232 Stara Zagora 360 Plovdiv 708 Blagoevgrad 334 Varna 458 Pleven 305 Burgas 419 Pazardzhik 298

Continental

Hottest month, July, average temperature 21°C; coldest month, January, average temperature -2.3°C; driest month, April, 18 mm average rainfall; wettest month, June, 91 mm average rainfall

Bulgarian

Metric system

Lev (Lv)=100 stotinki; the plural of lev is leva. In July 1997 the lev was pegged to the D-mark at Lv1,000:DM1; in January 1999 it was repegged to the euro at Lv1,955.83:"1 and in July 1999 it was redenominated (at the euro equivalent of parity with the D-mark#Lv1.95583:"1). Average exchange rates in 2006: Lv1.56:US$1; Lv1.96:"1. Exchange rates on January 10th 2007: Lv1.51:US$1; Lv1.96:"1

2 hours ahead of GMT in winter; 3 hours ahead in summer

Calendar year

January 1st, January 2nd (EU membership celebration, only in 2007), March 3rd (national day), Easter Monday (Orthodox calendar: in 2007, April 9th), May 1st (labour day), May 6th (St George!s day), May 24th (day of Bulgarian culture and script), September 6th (St Cyril!s and St Methodius!s day), September 22nd (independence day), December 24th (from 2pm), December 25th-26th (Christmas)

Public holidays

Climate

Weather in Sofia (altitude 550 metres)

Language

Weights and measures

Currency

Time

Fiscal year

Total area

Population

Main cities

4 Bulgaria


Politics

The government consists of a coalition of the former communist Bulgarian Socialist Party (BSP), the Simeon II National Movement (SNM) and the Movement for Rights and Freedoms (MRF). The administration took office after the June 2005 parliamentary election and is headed by the prime minister, Sergei Stanishev, who is also leader of the BSP.

Political background

The Bulgarians take their name from the Bulgars, a people of Central Asian origin who founded the first Bulgarian state in 681 AD. Christianised in the ninth century, this state formed the core of a powerful regional empire before succumbing to the Ottoman Turks in 1386. Turkish domination ended in the Russo-Turkish war of 1876-78. The treaty of San Stefano (1877) awarded much of Macedonia and Thrace to Bulgaria. These territories were promptly reassigned at the Congress of Berlin (1878), as Europe!s great powers strove to limit Russian influence. Aspirations to recreate this "Greater Bulgaria" had a bearing on Bulgaria!s foreign policy for the next 70 years. A German prince became monarch in 1878, under a notably progressive constitution. However, governments up until 1940 alternated between squabbling civilian administrations and direct royal rule. Bulgaria allied itself with Germany in both world wars, although in the second, the popular Tsar Boris III refused to declare war on Russia or to allow Bulgaria!s Jews to be deported.

An anti-German coup in September 1944, as Soviet armies entered Bulgaria, brought to power the broad Fatherland Front coalition, in which the Bulgarian Communist Party (BCP) gradually consolidated its position by eliminating its erstwhile partners. A rigged referendum in 1946 abolished the monarchy, and the BCP!s political monopoly was symbolised by the show-trial and execution of the Agrarian Party leader, Nikola Petkov, in 1948. Collectivisation in agri-culture and nationalisation in industry were accompanied by repression that was severe even by the standards of the region at the time. Changes after the death of Stalin brought Todor Zhivkov to the fore and he emerged clearly as Bulgaria!s leader in 1956. Mr Zhivkov stayed in power for 33 years through a combination of extreme loyalty to the Soviet Union and skill in pre-empting potential challengers at home.

In November 1989, as other Soviet-bloc regimes tottered, Politburo colleagues forced Mr Zhivkov to resign. There were massive street demonstrations and the Union of Democratic Forces (UDF), an umbrella organisation of anti-regime groupings, was formed in December. The BCP repealed its constitutional monopoly on political power, renaming itself the Bulgarian Socialist Party (BSP). Consultations with the opposition led to a parliamentary election in June 1990, which the BSP won. However, Petur Mladenov, who had led the move in the BCP to oust Mr Zhivkov in 1989, was forced out of the presidency in July 1990 and was replaced by the UDF leader, Zhelyu Zhelev. Andrei Lukanov then formed a BSP-led government in September 1990, but proved unable to rule in

The communists take over

Communism is overthrown

The formation of modern Bulgaria

Bulgaria 5


the face of extra-parliamentary pressure from the opposition and the collapse of the economy.

In mid-December 1990 a "government of experts" emerged, headed by the non-party judge Dimitur Popov, and including ministers from the BSP, the UDF and the Bulgarian Agrarian National Union (BANU). An election in October 1991 left the UDF short of an outright majority, and it formed a government with the support of the mainly ethnic Turkish Movement for Rights and Freedoms (MRF). Filip Dimitrov became prime minister. Although the government passed a privatisation law and revamped foreign investment legislation, the UDF met with dissent both from the MRF and from within its own ranks. A scandal involving arms exports to Yugoslavia precipitated a vote of confidence in October 1992, which Mr Dimitrov lost. Another independent government of experts was formed at the end of 1992, headed by the presidential adviser Lyuben Berov, and supported by the MRF, the BSP and a breakaway faction of the UDF. However, by early 1994 this administration too was under fire from Mr Zhelev, the MRF and the trade unions, and its unpopularity increased when the lev crashed in March 1994. Having negotiated a long-awaited settlement with Bulgaria!s commercial creditors in June 1994, Mr Berov stood down.

The parliamentary election in December 1994 gave the BSP and its smaller leftist allies an absolute majority. Under Zhan Videnov, the BSP formed a government that was supported on most issues by the populist Bulgarian Business Bloc (BBB), a new entrant to parliament. But the economy deteriorated rapidly in 1996. The international financial institutions, dissatisfied with the slow pace of structural reform, withheld the support needed to replenish reserves and called for a currency board to be established. This, along with the BSP!s defeat in the November 1996 presidential election, prompted Mr Videnov to resign as prime minister and party leader. After a brief outbreak of violence around parliament on January 10th 1997, a wave of peaceful protests, strikes and blockades of major roads spread around the country. The new BSP leader, Georgi Purvanov, declined to form a government and a caretaker government was appointed.

Recent political developments

The UDF mayor of Sofia, Stefan Sofianski, became caretaker prime minister in February 1997. The government dealt with fuel shortages and stabilised the lev, which had depreciated sixfold to Lv3,000:US$1 between end-1996 and early February 1997. In addition, the cabinet rapidly brought down inflation, came to an agreement with the IMF, launched a drive against crime and corruption, and vigorously purged the bureaucracy. The popularity of Mr Sofianski!s government and of the UDF-backed president, Petur Stoyanov (who had won favour by brokering the political solution in early February), boosted that of the UDF. With its other allies in the United Democratic Forces (UtdDF) alliance, the UDF won a comfortable majority in the parliamentary election of April 1997.

The UDF leader, Ivan Kostov, formed a UtdDF government in May 1997. A currency board was set up in July (see Economic policy). The government

A caretaker government takes over after the 1996-97 crisis

First post-communist governments prove unstable

Collapse of the lev leads to fall of BSP government in 1996

Ivan Kostov's UDF government governs for a full four years

6 Bulgaria


successfully stabilised the economy, concluded a three-year agreement with the IMF, privatised much of Bulgarian industry, and, against the weight of public opinion at the time, backed NATO in the 1999 Kosovo war. Although the government and Mr Kostov stayed popular for over two years, popular support began to wane as the public became concerned about corruption at senior levels in the government. Poor results in the October 1999 local elections prompted Mr Kostov to carry out a purge of his cabinet in December 1999. However, allegations of sleaze persisted. As well as opposition attacks on the government, conflicts within the UDF multiplied. Although Mr Kostov beat off internal challenges, the UDF entered the June 2001 parliamentary election campaign with only a small lead over the BSP in the opinion polls.

The situation was changed by the unexpected appearance on the political scene in February 2001 of the popular former king, Simeon Saxe-Coburg. Denied the right to stand in the November 2001 presidential election, Mr Saxe-Coburg formed the Simeon II National Movement (SNM) in April, winning half the seats in parliament in the June 2001 poll, on the back of promises to root out corruption, improve living standards and reform the economy. A coalition government with the MRF was formed in July 2001, with the participation as individuals of two BSP members.

Mr Saxe-Coburg!s government completed a full four-year term in office and was successful in many respects. The government budget was near balance throughout and recorded large surpluses at the end of the government!s term. Sustained economic growth led to sharp falls in unemployment. Foreign investment rose, Bulgaria joined NATO and progress towards EU membership was as fast as could reasonably have been expected. On the other hand, some major privatisations proved much more difficult than anticipated; crime remained a serious problem; and improvements in living standards and welfare, although significant, were well below the inflated expectations set by the 2001 election campaign.

The result was a revival of the BSP!s fortunes. The party!s position improved sharply in November 2001, when its leader, Mr Purvanov, won the presidential election against an incumbent backed by both the UtdDF and the SNM. Mr Purvanov has proved a popular and assertive president. Opinion polls through much of Mr Saxe-Coburg!s time in office showed the BSP well ahead of the SNM in the polls, if usually short of the support that would have assured it of a majority in parliament. The MRF, often a troublesome coalition partner for the SNM, was also widely seen as a likely partner for the BSP after the next parliamentary election. When that election was held, in June 2005, the outcome was more complicated than had been expected, partly because of the success of the recently created extreme nationalist Ataka (Attack) coalition. After almost two months of bargaining and false starts, a broad coalition between the BSP, the SNM and the MRF emerged, with BSP leader Sergei Stanishev as prime minister.

Although potentially an uneasy alliance, the three-party coalition remains intact almost a year and a half later: in-fighting has been limited by the task of implementing the reforms needed to ensure EU accession at the start of 2007 and

Former king's new movement takes office after 2001 election

A tripartite ruling coalition emerges in 2005

Bulgaria 7


subsequently to comply with the EU!s post-accession "screening", and the ruling parties have reached consensus over tough budgetary policies. The coalition!s survival has been helped by the ineffectiveness of the traditional right of politics, although the rise of the charismatic Sofia mayor Boiko Borisov#informal leader of the new Citizens for the European Development of Bulgaria (CEDB) party#could present problems for the coalition in 2007. Ataka, too, remains relatively popular, with its leader Volen Siderov reaching the run-off in the presidential election in November 2006. Mr Purvanov, however, won the second-round run-off by an unprecedented margin#despite a record low turnout.

Bulgaria is much more politically stable than it was ten years ago. Two governments in succession have served their full four-year terms, and a third still enjoys a large majority; transfers of power have been peaceful and, mostly, smooth; and despite the strong performance of Ataka in the 2005 parliamentary election (and of its party leader in the 2006 presidential election) and the delay in forming the government after the election, there appeared to be little threat of disorder. The "anti-establishment" nature of Mr Borisov!s appeal#as well as that of Ataka#could, however, make politics more turbulent in future.

Important recent events

March 2000

Formal EU accession negotiations begin.

March-June 2004

Bulgaria joins NATO and provisionally closes accession negotiations on all 31 chapters of the EU!s acquis communautaire.

April 2005

Bulgaria signs its treaty of accession with the EU, envisaging membership on January 1st 2007, provided that certain conditions are fulfilled#and a delay of one year if they are not.

June-August 2005

A parliamentary election in late June fails to confer a majority on any single party, in a vote characterised by unexpected gains by the ultra-nationalist Ataka (Attack) coalition. After seven weeks, a coalition government is formed by the Bulgarian Socialist Party (BSP), the Simeon II National Movement (SNM) and the Movement for Rights and Freedoms (MRF), with the BSP!s Sergei Stanishev as prime minister.

December 2005

Bulgaria!s peacekeeping battalion#committed after the US-led invasion in 2003#is withdrawn from Iraq.

October-November 2006

In the presidential election, former BSP leader Georgi Purvanov wins a second five-year term by beating Ataka!s Volen Siderov resoundingly in a second-round run-off.

December 2006

Citizens for the European Development of Bulgaria (CEDB), established as a civic association at end-March, becomes a political party. Sofia mayor Boiko Borisov is its informal but undisputed leader.

January 2007

Following a favourable European Commission report in September 2006, Bulgaria becomes a full EU member on January 1st 2007.

8 Bulgaria


Constitution, institutions and administration

A post-communist constitution was adopted in July 1991, providing for a multi-party system, free elections on the basis of a universal adult franchise, and the protection of human and civil rights. Amendments to the constitution, passed between 2003 and 2006, as part of the requirements of EU accession, have concerned such topics as the operation of the judiciary, immunity from prosecution of MPs and members of the judiciary, and foreign ownership of Bulgarian land.

The government is parliamentary. A regular parliament consists of the single-chamber, 240-seat National Assembly, directly elected for a term of four years. Under the current electoral law, parties and electoral coalitions need 4% of the popular vote to qualify for seats in parliament. The voting system is based on proportional representation in multi-member constituencies. An election can be called before the end of the parliamentary term in specific circumstances, such as the loss of a vote of confidence, but not purely at the government!s discretion. Governments are created according to strict rules: the largest parliamentary group is asked to form a government, then the next largest, if the first fails, and only then another group of the president!s choice. A simple parliamentary majority is required to approve a government and to pass ordinary legislation. A three-quarters majority is needed to pass constitutional changes, although, with some delay, a two-thirds vote can suffice.

The head of state is the president, who is directly elected every five years for a maximum of two terms. The president!s political powers include the ability to make certain military and diplomatic appointments (he is commander-in-chief of the armed forces); to decree a state of emergency; to appoint a caretaker government in the run-up to an election; and to return legislation to the parliament for reconsideration. Much of the president!s work is diplomatic and ceremonial, but the president can also exercise considerable influence in the spheres of security and foreign affairs, and may play a role in defusing political crises and brokering agreement on new governments. The current incumbent, Mr Purvanov, has consistently been one of Bulgaria!s most popular politicians.

Plans to amend the constitution to give local government units more fiscal powers, including the ability to raise and vary taxes, are currently at an advanced stage of passage through parliament. Directly elected councils and mayors exist at town, borough and village level, although even after the amendments these will remain heavily dependent on financial support from the central government. Apart from the capital, Sofia, the country is divided into 28 regions. These regions do not have directly elected institutions, but instead are run by governors appointed by the central government.

Foreign observers have long regarded the judiciary as one of Bulgaria!s major weak points. During EU membership negotiations with Bulgaria, the European Commission repeatedly stressed that judicial reform was needed to ensure compliance with the acquis communautaire (the body of EU law), and important steps were eventually taken to strengthen the independence of the

A parliamentary republic

Progress in judicial reformbut only after EU pressure

Plans to increase the power of local government

The president has a limited but significant role

Bulgaria 9


judiciary and streamline its operation. However, the EU will maintain scrutiny of reform progress under a post-accession "screening" process.

Corruption remains a problem within the state bureaucracy. Anti-corruption efforts have been an important element in all main parties! political platforms but progress has been slow. The privatisation process, which has involved the sale of some of the state!s major assets, has been perceived as subject to political influence. Petty corruption is also a problem for foreign companies operating in Bulgaria. The government remains under pressure from the EU to demonstrate that its policies are having an effect on corruption.

Political forces Results of parliamentary elections % of vote No. of seatsJun 2005 Coalition for Bulgariaa 31.0 82Simeon II National Movement 19.9 53Movement for Rights and Freedoms 12.8 34Attack coalitionb 8.1 21United Democratic Forces coalitionc 7.7 20Democrats for a Strong Bulgaria 6.4 17Bulgaria's People Union coalitiond 5.2 13Parties missing the 4% threshold 8.9 0Total 100.0 240Jun 2001 Simeon II National Movement Coalitione 42.7 120United Democratic Forcesf 18.2 51Coalition for Bulgariaa 17.1 48Movement for Rights and Freedoms Coalitiong 7.5 21Parties missing the 4% threshold 14.5 0Total 100.0 240Apr 1997 United Democratic Forcesh 52.3 137Democratic Lefti 22.1 58Alliance for National Salvationj 7.6 19Euroleft 5.5 14Bulgarian Business Bloc 4.9 12Parties missing the 4% threshold 7.6 0Total 100.0 240

a Bulgarian Socialist Party (BSP) and smaller leftist parties. b Coalition of four nationalist formations. c Includes United Democratic Forces, Democratic Party, Bulgarian Agrarian National Union, National Union-Bulgarian Agrarian National Union, Gergyovden Movement, Roma Movement for an Egalitarian Social Model. d Bulgarian Agrarian National Union-People's Union (BANU-PU), Internal Macedonian Revolutionary Organisation (VMRO), Union of Free Democrats. e Officially, an electoral coalition established by the Bulgarian Women's Party and the Oborishte Movement for National Revival. f Coalition established by the Union of Democratic Forces (UDF), the People's Unionconsisting of the Democratic Party and the Bulgarian Agrarian National Union-People's Union (BANU-PU)and the National Movement for Rights and Freedoms. g The mainly ethnic Turkish Movement for Rights and Freedoms (MRF), the Liberal Union, and a Roma (Gypsy) formation, Euroroma. h The UDF, the People's Union (the Democratic Party and BANU) and the non-Dertliev faction of the Bulgarian Social Democratic Party. i The BSP with the Stamboliiski Agrarian Party and Ecoglasnost. j The MRF and a collection of Greens, monarchists and others.

Source: Press reports.

The BSP is the senior partner in the Coalition for Bulgaria (CFB), the largest grouping in the current parliament. After 1989 the BSP fared much better than

Corruption in the bureaucracy is still a problem

Bulgarian Socialist Party

10 Bulgaria


most of its former communist counterparts in the region. Its social base was diverse, including pensioners, peasants, and some of the technical intelligentsia, as well as most Bulgarians living in ethnically mixed areas, who were attracted by its nationalist stance. The BSP accommodated a wide range of political opinions, from hardline traditionalist to social democratic.

The BSP!s credibility and support were seriously affected by the 1996-97 economic collapse. In the wake of this crisis, the initially obscure Mr Purvanov was elected leader as a compromise candidate. He brought the BSP around to his policy line of economic reformism and orientation towards western Europe. Mr Purvanov!s influence was strengthened by his presidential victory and the election of his preferred successor, Mr Stanishev, as party leader in December 2001. Although the BSP suffered in 2005 as some of its supporters shifted their allegiance to the nationalists of Ataka, the party has since begun to restore its credibility. Nevertheless, some erosion of the party!s more traditional support is possible owing to the government!s market-oriented economic and fiscal policies, and its alliance with the MRF.

The emergence of the SNM in early 2001 altered what had previously been a broad left-right political divide#although the SNM has always defined itself as right-of-centre. It came to power because of disillusionment with the BSP and the UDF. This sentiment was combined with popular faith in Simeon Saxe-Coburg and his blend of welfare promises and supply-side market economics. Yet the SNM-led government!s failure to meet its ambitious policy benchmarks for economic prosperity led to a fall in the party!s support and increasing divisions within the SNM. The SNM!s representation in parliament was more than halved following the 2005 election, falling to 53 seats, compared with 120 seats after the 2001 election.

Although the SNM still held sufficient support to participate in the new BSP-led government, polls in late 2006 and early 2007 suggested that the SNM could struggle to secure 20 seats in parliament if an early election were held. Moreover, Mr Saxe-Coburg has come to be seen as more of a liability than an asset, and the party!s right-of-centre credentials have been compromised by its participation in a government led by the BSP. Although the desire for political survival creates an incentive for the SNM to hold on to its place in government for as long as possible, the party seems destined for fragmentation.

The MRF is the third partner in the current coalition. In practice, the party represents Bulgaria!s 750,000 ethnic Turks, although formally there is a constitutional ban on ethnically based parties, and some ethnic Bulgarians are prominent within the MRF!s leadership and its parliamentary group. It has been dominated since its foundation in 1990 by Ahmed Dogan, a former dissident who has become a highly effective political player. Mr Dogan and the MRF have generally resisted the demands of ethnic and Islamist separatists within the Turkish community, instead concentrating on cultural and religious rights, and the defence of economic interests. The MRF gained a record 34 MPs in the 2005 election and occupies a powerful position in the ruling tripartite coalition.

Movement for Rights and Freedoms

Simeon II National Movement

Bulgaria 11


The UDF was the dominant force on the political right from its foundation as a broad anti-communist movement in December 1989 until it lost the June 2001 election. After electoral defeat in 1994, Mr Kostov took over the leadership in and consolidated power at the centre, while also improving co-operation with other non-communist groups. The party was rewarded with a successful presidential campaign in late 1996 (in which it supported Mr Stoyanov) and a commanding victory in the parliamentary election of April 1997. However, its support fell sharply from late 1999, and it was eclipsed in 2001 by the SNM.

Mr Kostov resigned as head of the party shortly after the 2001 election, and Nadezhda Mihailova was elected UDF leader in March 2002. A popular former foreign minister, Ms Mihailova proved less successful as a party leader, and discontent with her leadership produced a major split in March 2004, when Mr Kostov and a group of his supporters left the UDF to found a new party, Democrats for a Strong Bulgaria (DSB). Ms Mihailova was ousted as party leader in September 2005 and was replaced by Mr Stoyanov. His leadership has failed to revive the UDF!s fortunes, and Mr Stoyanov indicated in late 2006 that he may relinquish the leadership to stand for the European Parliament.

Mr Kostov and his DSB did better than most expected in the June 2005 election, entering parliament with 17 MPs. Personally dominant within the DSB, Mr Kostov has proved the political right!s most effective critic of the current government#as he was of its predecessor. Yet over-reliance on uncompromising anti-communism may limit the long-term potential of the DSB, and Mr Kostov!s abrasive style probably rules out deals with the SNM or the MRF and has most recently put him at odds with Mr Borisov. Mr Kostov!s credibility has also been weakened by his insistence on the unsuccessful presidential candidacy of Nedelcho Beronov in the 2006 election.

As a new party, which was only officially registered in December 2006, Citizens for the European Development of Bulgaria (CEDB) is not represented in parliament. Mr Borisov and his associates have been busy creating local structures since the CEDB!s registration as a "civic association" in late March 2006. Formally, Mr Borisov is not leader of the party, being debarred from this under the legislation applicable to his duties as mayor of Sofia. But party chairman Tsvetan Tsvetanov has previously worked under Mr Borisov in political roles, and there is little doubt that Mr Borisov will take over when freed of his mayoral obligations. The CEDB!s policy platform stresses family values, the need to tackle crime and corruption, and, in the economic sphere, a policy of low taxes. In terms of voter support, the CEDB appears almost entirely dependent on the public approval of Mr Borisov for now.

Mr Borisov insists that an early election be held and his preferred date now appears to be late 2007, in conjunction with municipal elections. But he will probably need to secure co-operation from the SNM to bring this about and, if he succeeds, Mr Borisov would then need to make strategic alliances in order to enter government. Although some opinion polls in 2006 suggested that the CEDB could secure a parliament majority in its own right, it now appears increasingly likely that being a partner in a future government is a more realistic aim for the CEDB.

Union of Democratic Forces

Citizens for the European Development of Bulgaria

Democrats for a Strong Bulgaria

12 Bulgaria


The radical nationalist movement Ataka (Attack) unexpectedly entered parliament after the 2005 election. A coalition of nationalist groups put together shortly before the election, Ataka is led by Volen Siderov, a journalist once aligned with the UDF. Preaching "Bulgaria for the Bulgarians", Mr Siderov has displayed hostility to the country!s Roma (Gypsies) and its ethnic Turks. Ethnic themes have been interwoven with a radical defence of "national interests" that has included opposition to NATO membership, to planned US bases and to the deployment of Bulgarian troops abroad. Ataka appears to have genuine appeal among voters disillusioned with Bulgaria!s mainstream political parties.

However, Mr Siderov!s erratic and authoritarian leadership style has alienated increasing numbers of his party colleagues, and has been a factor in the defections that reduced Ataka!s parliamentary representation to just 12 members by end-2006. Mr Siderov!s creditable performance in the 2006 presidential election nevertheless shows that Ataka!s political support#even if much can be attributed to voting against the mainstream parties#is still significant.

Main political figures

Sergei Stanishev

Young, fluent in English, and with London and Moscow on his educational CV, Mr Stanishev was head of the International Department of the Bulgarian Socialist Party (BSP) before succeeding Georgi Purvanov as party leader in December 2001. Expected by many at the time to be only a temporary leader, Mr Stanishev has shown an impressive capacity for survival. He became prime minister in August 2005 and, so far, has filled the post with more competence and confidence than some had expected.

Georgi Purvanov

Appointed leader of the BSP in the catastrophic circumstances of late 1996, he successfully moved the party in a reformist, pro-NATO direction, and towards rapprochement with other centre-left groups. His decision to stand as the left!s candidate for the presidency in 2001 proved unexpectedly successful. As is often the case with presidents in Bulgaria, opinion polls regularly show Mr Purvanov as one of Bulgaria!s most popular politicians. His re-election in November 2006 surprised few observers, although his high share of the vote owed much to the lack of a convincing rightist candidate, the failure of Boiko Borisov to stand, and a reaction against the extreme nationalism of Volen Siderov.

Simeon Saxe-Coburg

Exiled as the six-year-old king Simeon II after a communist-inspired referendum abolished the monarchy in 1946, Mr Saxe-Coburg spent half a century abroad before revisiting his homeland in 1996. He established the Simeon II National Movement (SNM) and won half the seats in the June 2001 parliamentary election. Mr Saxe-Coburg became prime minister after the election and served out a full four-year term. Although he holds no office in the new government, Mr Saxe-Coburg remains SNM leader and, via the "coalition council", exercises some influence on government decisions. However, his approval ratings have worsened since the 2005 election.

Ahmed Dogan

Leader of the Movement for Rights and Freedoms (MRF) since its foundation in 1990, Mr Dogan has retained a tight grip on the party, despite discontent at his authoritarian style and his failure so far to secure tangible benefits for the impoverished ethnic Turks whom the party mainly represents. Mr Dogan agreed to a tripartite government with the BSP and the SNM in 2005, in which his members have some powerful posts. Hostility from Ivan Kostov and Mr Siderov is intense, however, and even Mr Borisov#an admirer of Mr Dogan!s political skills#has called for the exclusion of the MRF from the next government. Mr Dogan periodically announces his intention to retire, doing so most recently in December 2006#but these announcements lack credibility.

Ataka coalition

Bulgaria 13


Ivan Kostov

A famously austere finance minister in two governments in 1991 and 1992, Mr Kostov became leader of the Union of Democratic Forces (UDF) in 1994, and was largely responsible for transforming it into a disciplined party capable of taking power. He led the UDF to victory in the April 1997 election and was prime minister for four years. He resigned as leader shortly after the UDF!s defeat in the 2001 election. In 2004 he founded his own party, Democrats for a Strong Bulgaria (DSB), which performed surprisingly well in the 2005 election. Basing his politics on staunch anti-communism, he has been an articulate critic of both the Saxe-Coburg and the Stanishev governments. However, Mr Kostov!s abrasive style will make it difficult to for him to establish the alliances needed to return to political power.

Boiko Borisov

After occupying various positions in the Ministry of Internal Affairs between 1982 and 1990, Boiko Borisov established his own security firm in the early 1990s. Its success led him first to responsibility for the security of former communist leader Todor Zhivkov and then Mr Saxe-Coburg. Shortly after Mr Saxe-Coburg!s SNM won the 2001 election, he appointed Mr Borisov chief secretary at the interior ministry, a post Mr Borisov occupied for four years, gaining great popularity owing to his hands-on political style. Forsaking Mr Saxe-Coburg!s party after the 2005 election, Mr Borisov was elected mayor of Sofia as an independent candidate in late 2005l; his political vehicle#Citizens for the European Development of Bulgaria (CEDB)#was set up as a "civic association" in March 2006 and converted into a political party in December 2006. Mr Borisov has set his sights on government and called for an early election in 2007. Opinion polls consistently show him as one of Bulgaria!s most popular politicians.

Volen Siderov

A journalist by profession and the editor of the UDF!s daily newspaper Demokratsiya in the early 1990s, Volen Siderov has distanced himself from the conventional right in the past decade to pursue a radical nationalist agenda, directing the blame for many of Bulgaria!s ills at the Roma and Turkish minorities, and criticising what he perceives as excessive political indulgence and special treatment towards them. Shortly before the 2005 election he organised the Ataka (Attack) coalition, which, unexpectedly, won over 8% of the popular vote and 21 seats in parliament. A forceful and intolerant leadership style has lost many colleagues, but Mr Siderov performed unexpectedly well in the presidential election of November 2006. His political future, however, is limited by the emergence of Mr Borisov as a more acceptable and credible leader playing on the "strong hand" theme.

International relations and defence

Under communism, Bulgaria was unswervingly loyal to the Soviet Union. However, since 1990 the country!s economic and political orientation has shifted towards the West and, in particular, western Europe. In December 1999 Bulgaria was invited to start membership talks with the EU. These were completed in June 2004 and a treaty of accession signed in April 2005, with EU entry itself planned for January 2007. Concerns about progress in certain areas#notably justice and home affairs#meant that Bulgaria!s treaty (like that of its neighbour Romania) contained a "safeguard clause" providing for a one-year delay to accession if reform progress stalled. However, a European Commission report in September 2006 recommended membership for January 2007, although imposing post-accession reporting and "screening" requirements on Bulgaria and Romania. Following the ratification of both countries! accession treaties in the national parliaments of the then 25 members of the EU, Bulgaria and Romania acceded to the EU on January 1st 2007.

Bulgaria was invited to join NATO at the alliance!s Prague summit in November 2002 and became a member in March 2004. Bulgaria committed a peace-

Bulgaria joins the EU in January 2007

Bulgaria joined NATO in 2004

14 Bulgaria


keeping battalion to the Polish-controlled zone in Iraq. This was an unpopular decision from which the BSP made much domestic political capital. The unit!s withdrawal in December 2005 did not damage relations with the US (it was followed by the dispatch of a smaller contingent to perform guard duties). Bulgaria has also contributed to the Western presence in post-Taliban Afghanistan. An agreement was signed in April 2006 on the establishment of US military bases in Bulgaria, although these plans have not yet been finalised.

Bulgaria has improved relations with most of its neighbours over the past eleven years. A long-standing dispute with Greece over use of the waters of the Mesta river was settled in 1997, and disagreement with Romania regarding the location of a proposed second bridge over the Danube was resolved in Bulgaria!s favour in March 2000. A compromise in early 1999 allowed an easing of tensions with Macedonia on the question of whether Macedonian was a Bulgarian dialect or a separate language. Another free-trade agreement with Turkey, in force since 1999, reflects the recognition afforded to Bulgaria!s large Turkish minority and the fact that the two countries are no longer on opposite sides of an ideological and military divide. The introduction of a moderate Islamist government in Ankara has made no discernable difference to bilateral relations, and a dispute over Bulgarian electricity exports to Turkey is chiefly of a non-political character.

Relations with Russia, which cooled under the 1997-2001 Bulgarian government, improved thereafter. Bulgaria may, however, prove to be one target of increased assertiveness by the Kremlin. Bulgaria has been among those former Soviet bloc states pressed to revise contracts with Russian gas giant Gazprom, which at present supplies around 90% of Bulgaria!s natural gas. A prolonged dispute over the terms of payment for transit of Russian gas through Bulgaria to other south-east European countries was resolved only in December 2006, and the Bulgarian authorities are increasingly sensitive to the economic and political consequences of dependence on Russian energy.

Relations with Serbia and Montenegro were relatively strong during the BSP!s periods in power. Under Mr Kostov!s government, open hostility to the administration of Slobodan Milosevic, the former Yugoslav president, was combined with assurances of no ill-will towards the Serbian people. Relations with the first post-Milosevic government in Serbia were constructive, and its successors appear to have no particular animosity towards Bulgaria. The success of Bulgarian attempts to act as an "honest broker" on the Kosovo question, and lately to facilitate final status talks, has been limited by the problem!s complexity rather than by problems in Bulgaria!s relations with the authorities in Belgrade and Pristina.

Bulgaria has a relatively high level of defence spending for a new NATO member. In 2004 it pledged to keep defence spending at around 2.6% of GDP, although the level actually planned in the 2006 budget was only 2.44%, and the Ministry of Defence has had to fight hard to ensure that the 2.6% of GDP promise was fulfilled in the 2007 budget. However, the military remains underfunded owing to the weak structure of spending. Low pay and poor conditions have created problems with morale and recruitment. Moreover, the

Relations with most neighbours improve

Defence spending is relatively high, but quality is low

Bulgaria 15


defence budget is under strain from the expense of foreign deployments (such as Iraq and Afghanistan) and the costly procurements involved in the modernisation programmes to which Bulgaria is committed. The government plans to reduce service personnel to 36,000 by end-2015, although there is some dispute as to how these cuts should be distributed over time.

Military forces, 2006 Army 25,000Air force 13,100Navy 4,370Centrally controlled and other 8,530Total active forces 51,000Paramilitary 34,000Reserves Army 250,500Air force 45,000Navy 7,500

Source: International Institute for Strategic Studies, The Military Balance, 2006.

Resources and infrastructure

Population

Bulgaria!s population has undergone a drastic decline in recent decades. Having peaked at a little short of 9m in 1988, it had fallen to 7.9m by the March 2001 census and, according to official estimates (which exclude the effect of emigration since the 2001 census), stood at 7.7m in December 2005. The decline was partly a matter of emigration: many ethnic Turks left the country in the last years of the communist regime and in the early post-communist period, and net emigration is reckoned to have reduced the permanent resident population by nearly 200,000 between the 1992 and 2001 censuses. The rate of natural population decrease was still high in 2005, at 5 per 1,000 people. The size of the cohorts moving into child-bearing age range is set to fall for the next 15 years, so that the population is expected to continue to decline, even if net emigration comes to an end. Under some projections, the population could decrease to 7m or below by 2020.

Bulgaria is a predominantly urban society#with 70% of the population living in towns at the end of 2005. One-half of the population lives in the six cities with inhabitants of more than 300,000. Apart from Sofia (with a population of 1.2m), Plovdiv, Varna, Burgas, Stare Zagora, Blagoevgrad and Pleven have over 300,000 inhabitants.

16 Bulgaria


Population by age-group and sex, official estimate end-2005 Total Male Female Age group Male Female Urban ('000) ('000) ('000) (% of total) (% of age group) (% of age group) (% of age group)Total 7,718.8 3,743.3 3,975.4 100.0 48.5 51.5 70.20-4 337.7 173.8 163.9 4.4 51.5 48.5 72.5

5-9 320.8 164.8 156.0 4.2 51.4 48.6 69.710-14 388.6 199.3 189.3 5.0 51.3 48.7 69.4

15-19 510.8 261.5 249.3 6.6 51.2 48.8 73.420-24 536.5 275.4 261.1 7.0 51.3 48.7 78.025-29 575.1 294.7 280.4 7.5 51.2 48.8 77.0

30-34 566.6 288.3 278.3 7.3 50.9 49.1 76.135-39 536.7 271.7 265.0 7.0 50.6 49.4 74.8

40-44 522.0 261.3 260.7 6.8 50.1 49.9 74.445-49 540.8 267.5 273.3 7.0 49.5 50.5 74.550-54 545.3 264.4 280.9 7.1 48.5 51.5 73.7

55-59 564.0 267.1 296.9 7.3 47.4 52.6 70.460-64 445.6 203.9 241.7 5.8 45.8 54.2 63.0

65-69 395.7 174.4 221.3 5.1 44.1 55.9 57.670-74 385.2 163.6 221.6 5.0 42.5 57.5 54.7

75-79 293.4 118.3 175.1 3.8 40.3 59.7 55.380+ 254.3 93.5 160.8 3.3 36.8 63.2 54.1

Source: National Statistical Institute.

There are three major ethnic groups in Bulgaria (unless one accepts that there is also a distinct Macedonian minority, a point of view that is regarded locally as something of a heresy). In March 2001 ethnic Bulgarians made up 83.9% of the population, ethnic Turks 9.4% and Roma (Gypsies) 4.7%. Language coincides closely, but not exactly, with ethnicity: 84.5% of the population gave Bulgarian as their mother tongue in March 2001, 9.6% Turkish and 4.1% Roma. The link between ethnicity and religion is slightly more complicated, as the Roma are divided between Christianity and Islam, and a small minority of ethnic Bulgarians (known as Pomaks) are Muslims. Of the total population, 83.7% gave their religion in the census as Christianity (99% of these being Eastern Orthodox) and 12.2% as Islam. By Balkan standards, ethnic and religious problems are mild, and have not been associated with political violence since the government-inspired assimilation campaign of the 1980s.

Population by ethnic, linguistic and religious group, 1992 and 2001 censusesa 1992 2001 No. ('000) % of total No. ('000) % of totalEthnic group Bulgarian 7,271.2 85.7 6,655.2 83.9Turkish 800.1 9.4 746.7 9.4Roma 313.4 3.7 370.9 4.7Others 94.2 1.1 69.2 0.9Unknown/undeclaredb 8.5 0.1 86.9 1.1Mother tongue Bulgarian 7,275.7 85.7 6,697.2 84.5Turkish 813.6 9.6 762.5 9.6Romany 310.4 3.7 327.9 4.1Others 79.1 0.9 71.1 0.9Unknown/undeclaredb 8.5 0.1 70.3 0.9

Bulgaria 17


Population by ethnic, linguistic and religious group, 1992 and 2001 censusesa 1992 2001 No. ('000) % of total No. ('000) % of totalReligion Christian 7,349.5 86.6 6,638.9 83.7Muslim 1,110.3 13.1 967.0 12.2Others 19.0 0.2 14.9 0.2Unknown/undeclaredb 8.5 0.1 308.1 3.9Total 8,487.3 100.0 7,928.9 100.0

a Censuses were held in December 1992 and March 2001; the 2001 results are now final. b "Unknown" in 1992, presumably reflecting an unsuccessful interview; "undeclared" in 2001, with refusal to give an answer to a question a permissible response.

Sources: National Statistical Institute website; Statisticheski Spravochnik.

Education

The educational system, traditional in style, has generally been considered a national asset. However, inadequate funding and low teacher morale in the post-communist period have led to some erosion in its quality. Furthermore, the shortage of Western-style business education, particularly in finance and marketing, has generally been more serious than in the more advanced transition countries, although this is progressively being corrected. The country!s elite foreign-language secondary schools, especially the English-language schools of Sofia and Plovdiv, have produced a steady supply of fluent and well-educated linguists for foreign companies and have provided much of the country!s political elite.

The number of teaching staff has gradually declined, dropping from 126,048 in the system as a whole in the 2000/01 educational year to 122,339 in 2005/06. A further drop can be expected: teachers have been involved in bitter pay disputes with the Ministry of Education and Science in recent years, and gradual pay rises are to be accompanied by a restructuring programme. The number of students in technical colleges and institutions of higher education rose considerably in the post-communist period, from 183,500 in 1990/91 to 238,301 in 2005/06. The number of university graduates rose strongly up to 2002, when there were around 45,500 graduates, although this had fallen back to 41,500 in 2005. Private education at primary and secondary levels, although not significant in numerical terms, is growing fast: in 2005/06 there were 102 private schools, with 9,912 pupils, more than a twelvefold increase since 1992/93.

Health

Under communism, poor central budgetary provision meant that medical personnel also worked semi-legally or illegally by accepting payments and favours from patients for access to facilities or adequate service. The system led to inequalities in access to healthcare services. In the decade after 1989 the core of this system remained basically unreformed. Although private practice began to play a role at the margins, serious healthcare reform, assisted by the World Bank, only really began in 1999. The first steps towards the development of an insurance-based system were taken in that year, with the introduction of employee and employer contributions, each set at 3% of gross salary.

Healthcare system reformbegan in earnest in 1999

Increasing concern about the quality of education

18 Bulgaria


There is a single health insurance fund#the National Health Insurance Fund (NHIF)#rather than a number of competing private-sector funds (private-sector health insurance exists, but is supplementary in character and so far relatively small in volume). Local doctors are paid according to the number of patients registered, rather than on the expensive fee-for-service system. However, the overall health system still heavily relies on out-of-pocket payments from users, which is one of the most regressive forms of financing. Following a focus on privatisation and decentralisation, many hospitals have run up debts, which have then had to be paid off from the government budget. The government that came to power in August 2005 has taken a relatively tough line on this, with several key hospital directors sacked and the NHIF playing more of a role in hospital finance since 2006.

Since the collapse of communism, it is hard to distinguish the impact of the shortcomings of the health service from social and economic conditions in general, but the overall picture has been disappointing. Infant mortality rose from 12.4 per 1,000 live births in 1988 to 17.5 per 1,000 in the crisis year of 1997. Although it has subsequently fallen to around 10.4 per 1,000 in 2005, it is still much higher than the EU average (4.6 per 1,000 in 2003, according to the latest data available). Male life expectancy shows signs of recovering from its decline in the mid-1990s: having fallen to a low of 67.1 years in 1994-97, it climbed back to 69.1 years in 2002-04, although this represents only a return to the levels of the 1980s. By contrast, female life expectancy has remained on a gently rising trend, and was 76.2 years in 2002-04.

Natural resources and the environment

Bulgaria!s environmental record is generally poor. However, EU pressure and funds should bring about gradual progress towards EU norms and levels of enforcement in the coming years. The Bulgarian parliament is about to approve the introduction of a regulated market of "green certificates" to encourage the use of renewable energy sources. The government has already implemented a carbon-credit scheme in connection with the Kyoto Protocol in co-operation with the World Bank, the Prototype Carbon Fund and other national governments.

Agricultural land accounts for 63,764 sq km, of which 31,282 sq km are classified as arable. Forests cover 37,158 sq km (one-third of the land area), with conifers accounting for about one-third of this. Bounded to the north by the Danube, Bulgaria has no other rivers that are navigable by sizeable ships. Bulgaria has a wide range of mineral resources, including commercially exploited deposits of iron, lead, zinc and copper (see Economic sectors: Mining and semi-processing).

Transport, communications and the Internet

Bulgaria!s transport infrastructure is reasonably well developed, but has suffered from low spending and poor maintenance in the post-communist period. Gradual improvement in communication routes should result from two factors: first, the development of European transport corridors (four of which are set to pass through Bulgaria); and second, investments aided by an influx of

Transport infrastructure needs more funds

A poor environmental record

Death rates are now falling after rising in the 1990s

Bulgaria 19


EU funds ("6bn is to be invested in transport under the infrastructure programme for 2007-15).

SOFIASOFIASOFIA

BUCHAREST

Ruse

Dobrich

Varna

Burgas

Plovdiv

Stara Zagora

Sliven

Edirne

Pernik

Pleven

Veliko Turnovo

VidinVidinVidin

BULGARIABLACK

SEA

ROMANIA

SERBIA

Proposed transport corridors through Bulgaria

TURKEY

GREECE

MACEDONIA

R. Danu be

Source: Bulgarian Ministry of Transport.

0 km 50 100 150 200

0 miles 50 100

X

VII

VIIIVIII

IV

IV

IV

IV

IX

IX

IX

Rail is still a significant domestic mode of transport for freight, although road transport now accounts for a larger (and increasing) share of the total. In 2005 there were 6,025 km of rail track; 4,154 km of these were main lines (of which, in turn, 69.3% were electrified). Investment, planned at around "1.2bn in 2007-15, will focus on the continuing overhaul and repair of existing infrastructure, on upgrading rolling stock, and on modernisation work, such as further electrification of track and double tracking. Both business and railway officials have been vocal about the system!s problems: in late 2006, around two-thirds of main track was deemed to be in unsatisfactory condition and the 7,083 rail cars at the disposal of Bulgaria State Railways (BSR) are reckoned to be around 1,470 short of the number needed to meet freight needs in 2007.

Bulgaria has five main ports, of varying degrees of modernity. The largest are Varna and Burgas, both on the Black Sea; Varna mainly handling containers, grain and bulk goods, and Burgas crude oil and some bulk commodities. There are three sizeable ports on the Danube (Ruse, Lom and Vidin), and 24 smaller sea and river ports. Of all modes of transport, sea transport has declined the least since 1989, perhaps because it is the least dependent on the vagaries of the domestic economy. There has been some modernisation of ports, but much more needs to be done if the sector is to become more internationally competitive. Varna has ambitions to rival Romania!s Constanta, but its plans include a very costly relocation of Varna East port and the construction of three new terminals; Lom is seeking to exploit its position on the EU!s north-south Corridor IV by investing in

Shipping

Railways

20 Bulgaria


a "30m upgrade to take container traffic. A system of 25- or 30-year concessions will play an important role in upgrading ports and terminals, with concessions on a few of the country!s smaller ports already awarded or in the pipeline. Indecisiveness and conflicts of interests could slow progress, however.

Air is the least significant mode of freight transport, carrying just 21,000 tonnes in 2005 (although the total was three times higher than in 2002). Bulgaria Air (the carrier that emerged from the sale of national carrier Balkan Airlines) handles most business. Sofia airport, which handled 1.6m passengers in 2004, has undergone a "210m upgrade to provide it with the capacity and modern facilities needed to deal with the expected rise in demand for international air travel. Bulgaria has two other major airports, at Varna and Burgas. A "400m investment across both airports is planned to cope with an expected rise in passengers to 8m in 2040, from 2.7m passengers in 2004. In response to demand for both cargo and tourist-oriented low-cost passenger transport, the government recently added Gorna Oryahovitsa (in northern Bulgaria) and Rousse to its list of airports able to accept international air traffic.

Bulgaria had 37,300 km of roads in use at end-2001#an increase of 400 km since end-1994. All but 3,000 km were hard-surfaced, with motorways accounting for 324 km. The proportion of road surfaces categorised as "good" decreased significantly in 2004 and 2005, and at end-2005 only 70.1% of motorways and 34% overall of roads were rated above Category IV. Development plans focus on upgrading and on investments#especially in motorways#to integrate the country!s road system with the international network, although implementation has so far been slow, owing to policy and legal disputes. An infrastructure strategy adopted in 2006 envisages the construction of 717 km of motorways in the 2006-15 period. The government plans to complete the construction of the Trakia and Martisa motorways by the end of its term in 2008.

Bulgaria entered the post-communist era with one of the highest telephone line densities in the former Soviet bloc. Although the quality of the equipment which used to support the network was less impressive than its density, it has improved greatly in recent years. The fixed-line monopoly of the Bulgarian Telecommunications Company (BTC) ended in 2005, when alternative fixed-line operators were given access to its network. Over ten alternative operators had been licensed by late 2006 but their market share is small.

Mobile penetration has risen rapidly in recent years, with subscriber numbers at over 6.24m at end-2005, compared with 0.7m at end-2000 and 4.73m at end-2004. The penetration rate was 80% at end-2005, which was reported to have risen to 91% by October 2006 (the second-highest in central and eastern Europe). Each of the three mobile operators has a licence for universal mobile telecom-munications service (UMTS, or "third-generation" mobile), with two launching their services in 2006, and the third set to do so in early 2007. Heavyweight foreign firms are playing an increasing role in Bulgaria!s telecoms sector.

Internet penetration is rising, although it remains low by general European standards. Of the population aged over 18, as of October 2005, 27.9% have

Air transport

Roads

Telecommunications

The Internet

Bulgaria 21


access to a computer. Of those aged over 15, in the first half of 2006 over 25% are reported in the to have used the Internet. The shift from dial-up connections to high-speed local area networks (LANs), cable networks, and asymmetric digital subscriber line (ADSL) connection is supporting higher Internet usage. In the coming years, increasing digitalisation of the network, better regulation, increased competition and higher foreign investment should improve the country!s ability to take advantage of the Internet.

High levels of literacy and of television and radio ownership have boosted the influence of the media. Only one state and two foreign-owned private television channels are at present licensed as national terrestrial broadcasters. Two state radio channels broadcast nationally, and the private sector has several national licensed radio channels. The range of newspapers available is wide for a market of Bulgaria!s size (none of the papers are state-owned). At national level these include: 24 Chasa (24 Hours) and Trud (Labour), the two largest-circulation dailies; Sega, a popular left-of-centre daily; Duma, a daily, which has a relatively low circulation and is affiliated to the Bulgarian Socialist Party (BSP); Standart, which was bought in 2000 by controversial business interests; Pari, a financial daily; Dnevnik, a financial daily; and the weekly Capital, which is widely regarded as the most intellectually serious publication.

Since 1989 senior-level appointments in the state-owned electronic media have been politicised and subject to various forms of government pressure, although the cruder forms of control and censorship have been absent. Privately owned electronic and print media have not been subject to systematic state control, but journalistic standards are uneven and self-censorship is perceived as widespread. The fact that most newspapers are affiliated either to political parties or to business groupings has been a further complication; regulatory bodies for the electronic media have sometimes taken intrusive or eccentric decisions; and the legal environment is not always conducive to robust expression. Official interpretations of laws on defamation and on secret surveillance media, for instance, have sometimes been used to muzzle journalists rather than for more conventional purposes.

Energy provision

Bulgaria!s energy provision is based on imported oil and gas, as well as on electricity generated from a combination of domestic coal, nuclear and, to a much smaller extent, hydroelectric plants. The Bulgarian economy is still extremely energy-intensive. This is a legacy of its communist-era industrial structure and of post-communist policies that, for a long time, gave firms and households little incentive to economise on energy use. However, the electricity market is gradually being opened up.

A high proportion of existing thermal generation plant (installed total around 6,600 mw at end-2005) is approaching the end of its original service life and is also environmentally problematic#local lignite is the fuel source for the large plants of the Maritsa Iztok area. Both concerns are being addressed by schemes for refurbishment or replacement capacity, involving major foreign companies,

Bulgaria is heavily reliant on imported oil and gas

The media

22 Bulgaria


which are in place at all three Maritsa Iztok plants. Bulgaria!s other major thermal power plants (TPPs), all primarily coal-fired, have either already been privatised or are in the process of being sold, with new investors committed to refurbish existing generators (except one or two due for closure).

Kozlodui NPP, on the Danube, is the country!s only nuclear plant at present. It has produced 40-45% of the country!s electricity in recent years, but this is set to fall after the closures at end-2006, which have left only two 1,000-mw reactors operating. The plant!s four older 440-mw units had been the subject of EU pressure on safety grounds starting in the early 1990s. Replacement nuclear capacity will be provided by the completion of a second nuclear power plant at Belene (also on the Danube), which was abandoned halfway through construc-tion in the early 1990s. Assuming that construction starts on time in 2007, the first of two 1,000-mw reactors at Belene would come on stream in 2013, with the second#built almost in parallel#beginning to operate in the following year.

Bulgaria produces most of the coal that it uses, the majority being lignite extracted from the Maritsa Iztok basin. Some pits have been closed or privatised, but the Maritsa Iztok Mines (MIM) remain in state ownership#as does the second-largest mining complex at Bobov Dol. Oil, mainly imported, is largely used for the giant Neftochim refinery (7.5m tonnes capacity), in which Russia!s Lukoil bought a majority stake in October 1999. A second, smaller refinery at Pleven (capacity 1.2m tonnes), was privatised in 1996, but has been hampered by long-running financial problems.

Natural gas is the fuel for much heavy industry and is an important feedstock for synthetic chemicals. It also fuels many of Bulgaria!s district heating firms. Bulgaria currently consumes around 3bn cu metres of gas per year, with around 90% imported from Russia (offshore production, started in 2004, accounts for the rest). No diversification of supplies is expected until the proposed Nabucco pipeline comes on stream. Bulgaria also plays an important role in the transit of Russian gas to Greece, Turkey and Macedonia. Gas supplies were the subject of a fierce dispute with Russia in 1998 and of pressure in 2005-06 from Russia!s Gazprom to revise the terms of the resultant contract in its favour#which resulted in an agreement until 2030 signed in December 2006.

The economy

Economic structure

Main economic indicators, 2006 Real GDP growth (%)a 6.1Consumer price inflation (av; %) 7.3Current-account balance (US$ m)a -4,374Exchange rate (av; Lv:US$) 1.56Population (m)a 7.60External debt (end-2006, US$ m)a 17,521

a Economist Intelligence Unit estimate.

Source: Economist Intelligence Unit CountryData.

Oil and coal

Natural gas

Bulgaria 23


Under communism, Bulgaria!s traditionally strong agricultural sector was supplemented by the impressive, but to a large extent artificial, development of industry concentrated on branches#such as steel, heavy chemicals, electronics, information technology (IT) and armaments#that turned out to be ill-suited to competition in a post-communist environment. Along with the loss of protected markets, and slow and botched agricultural reform, this led to a steep decline in output in the early and mid-1990s. The recovery since 1997-98 was initially slow in industry, and has been almost non-existent in agriculture. However, industrial performance has improved since 2001, with industrial production rising strongly.

A rise in the importance of services#services! share of gross value added (GVA) increased from 29.5% of GVA in 1989 to 60% in 2005#has reflected less a move towards a modern, services-oriented economy than the decline of industry, with industry!s share down from 59.4% of GVA in 1989 to 30% in 2005. It should also be noted that the high share accounted for by services conceals a high proportion of government services within the total. Nevertheless, tourism (a strong sector even in the communist era) has shown healthy growth recently, and real GVA in communications increased by over 75% between 2001 and 2005.

The share of the private sector in GVA has risen dramatically since 1989, reaching 79.4% in 2005 as a whole. Outside agriculture, this is in part the result of an emphasis on the restitution of small urban properties in the early post-communist years, and in part the result of more recent progress in privatising manufacturing and extractive industries. These official figures ignore a thriving but unrecorded grey economy, which is usually estimated at between 20% and 30% of recorded GDP.

When GDP per head is measured in terms of purchasing power parity (PPP), Bulgaria ranks ahead of only Romania among the 27 current members of the EU. However, Bulgaria does have a lower nominal GDP per head than Romania. Bulgaria!s high inflation and large current-account imbalance represent significant problems when compared with other EU members.

Comparative economic indicators, 2006 Bulgaria Romania Slovakia Turkey Russia

GDP (US$ bn) 31.2a 115.3a 55.0 a 395.4 a 978.2a

GDP per head (US$) 4,090a 5,330a 10,090 a 5,320 a 6,870a

GDP per head (US$ at PPP) 10,040a 9,680a 17,550 a 8,960 a 12,160a

Consumer price inflation (av; %) 7.3 6.6 4.5 9.6 9.7a

Current-account balance (US$ bn) -4.4a -12.6a -4.4 a -32.8 a 95.6a

% of GDP -14.0a -10.9a -8.1 a -8.3 a 9.8a

Exports of goods fob (US$ bn) 15.0a 32.6a 41.7 a 89.9 a 302.3a

Imports of goods fob (US$ bn) 21.2a 47.4a 44.6 a 130.1 a 162.7a

External debt (US$ bn) 17.5a 52.8a 30.4 a 199.6 a 293.1a

Debt-service ratio, paid (%) 13.9a 16.2a 11.2 a 34.9 a 15.8a

a Economist Intelligence Unit estimate.

Source: Economist Intelligence Unit, CountryData.

Growth in services and the private sector

24 Bulgaria


Economic policy

The development of Bulgaria!s economy in the early post-communist years was hampered by internal obstacles to reform and a variety of external shocks, which led to currency crises in 1994 and 1996-97. Strong dependence on trade links with other members of the Council for Mutual Economic Assistance (CMEA, or Comecon#the communist states! economic bloc) was an initial handicap after 1989. Economic difficulties were exacerbated by the government!s declaration in 1990 of a moratorium on servicing communist-era debt, which cut Bulgaria off from international financial markets until the debt rescheduling of 1994.

Despite these problems, there were some early attempts at reform. A wide-ranging liberalisation of prices and a freeing up of the foreign-exchange market took place in early 1991, and for a short time the authorities gained something of a reputation for financial orthodoxy. However, failure to restructure or privatise loss-making state firms resulted in a growing burden of bad debts in the banking sector. In early 1996 a wave of bank failures#aggravated by political in-fighting#led to a loss of confidence in the banking system and a sharp fall in the currency. The lev collapsed from Lv71:US$1 (under its pre-1999 denomination) at the start of April 1996 to Lv3,000:US$1 in February 1997.

Relations with the international financial institutions were deadlocked for much of this period. A stand-by arrangement was eventually signed with the IMF and the first US$115m tranche disbursed in July 1996. The IMF decided to make further disbursements contingent on the creation of a currency board. After some delay, the currency board was introduced in July 1997#but only after the lev had collapsed and the government of the Bulgarian Socialist Party (BSP) had been removed.

The centre-right government that took office in 1997 after the crisis was fully committed to following multilateral recommendations on stabilising and restructuring the economy. Although its popularity at home gradually weakened, it received much support and praise from the IMF and the World Bank. The IMF agreed to a three-year, SDR628m (US$864m) extended fund facility (EFF) agreement in September 1998. After some disagreements over tax policy, the government led by the Simeon II National Movement (SNM) signed a new, two-year stand-by agreement for US$299m with the Fund in February 2002. A successor precautionary stand-by agreement#so that IMF funds would only be drawn if they were required#was approved in August 2004. Originally for two years, this is now due to expire in March 2007. It will be Bulgaria!s final stand-by agreement, as it is agreed that active Fund involvement will no longer be needed once Bulgaria has joined the EU.

Under the currency board scheme, foreign-exchange reserves at the Bulgarian National Bank (BNB, the central bank) must cover at least 100% of base money. Controls on the money supply and on credit expansion are therefore tight. Overall, the currency board has proved successful in stabilising the economy.

External shocks and poor policy have held back growth

IMF pressure led to creation of the currency board

The IMF has supported reform policies since 1997

Lack of financial control led to a crisis in 1996-97

Features of the currency board

Bulgaria 25


Inflation has come down dramatically, and confidence in the banking system has been re-established.

Domestic lending has expanded very rapidly since 2003, leading to worries in the central bank and the IMF that lending growth was proving excessive. In response, the central bank made several moves to tighten restrictions on bank lending. By November 2006 the year-on-year growth of bank lending to the private sector had slowed to 24% (compared with 48% in November 2004 and 33% in November 2005). It remains to be seen how lending will react to the removal of restrictions at the start of 2007. Nonetheless, credit volumes are still relatively low in relation to GDP.

Although privatisation started in 1992, asset sales before 1997 were generally on a small scale. The 1997-2001 government of the Union of Democratic Forces (UDF) pushed both enterprise restructuring and privatisation forward decisively, but the quality of deals varied sharply. Although some first-rate investors were attracted to larger enterprises, many firms were sold to new owners of more dubious calibre. However, recent privatisations have generally been carried out more successfully. A 65% stake in the Bulgarian Telecommunications Company (BTC), the dominant fixed-line telecommunications operator, was sold in June 2004. Privatisation of the larger non-nuclear generating companies has made progress, with Varna TPP sold in 2006 and a contract for Ruse TPP signed in January 2007, although the Bobov Dol TPP sale remains under negotiation.

According to the Privatisation Agency, 60% of state enterprise assets had been sold by the end of November 2006. This represents 90.8% of the assets that are expected to undergo privatisation. The remaining assets include some minority stakes and majority stakes in medium-sized firms but, as of January 2007, the only sizeable privatisations remaining planned outside of the utility and energy sectors are those of the tobacco-processor, Bulgartabac; the national merchant marine, Navibulgar; and certain firms involved in defence repair and weapons trading.

Under communism, Bulgaria usually had a balanced budget, although a significant underlying deficit was often masked by means of various extra-budgetary accounts. Moreover, as a result of the generous refinancing of the commercial banks by the BNB in this period, the de facto fiscal deficit was much higher than the headline budget figures suggested. Both fiscal discipline and tax collection improved dramatically under the currency board, and the consolidated budget has shown either a surplus or only a small deficit since 1997. In addition, the government has a substantial "fiscal reserve" fund over and above the foreign reserve requirements of the currency board.

The need to curb the increase in the current-account deficit prompted the government, under IMF pressure, to achieve a balanced budget in 2003 and a 1.7%-of-GDP surplus in 2004. This was achieved without spending cuts, given dramatic revenue overperformance#prompting criticisms of deliberate underestimation in the budgeting process. This pattern continued in 2005 and

Quality of privatisations has been mixed

Privatisation programme nears an end

Budget deficits have been low under the currency board

A lending boom emerges

26 Bulgaria


2006, and a similar "contingency plan" is written into the 2007 budget, with a 0.8%-of-GDP budget surplus in law but one of 2% of GDP being targeted by the government on the basis of anticipated revenue performance and ministerial spending controls.

Consolidated state budget, Jan-Nov (Lv m)

2005 2006Revenue 16,203 18,019

Expenditure & lending 14,424 15,505Balance 1,779 2,514 Planned full-year budget balance -196 0

Source: Ministry of Finance.

Consolidated tax revenue in 2005 was equivalent to 34.5%, and total budget revenue to 42.9%, of GDP. Revenue is planned to be around 41.8% of GDP in 2007, although this includes an increased influx of EU funds. The most important categories on the revenue side are social security and health contributions (10.5% of GDP in 2005), value-added tax (VAT; 11.4%), excises and road fees (5.2%), personal income tax (3%, up from just 1.3% of GDP in 2003) and corporate profit tax (2.5%). Customs duties and fees are now very low, as a result of the ongoing process of trade liberalisation.

VAT is levied at a uniform rate of 20% on almost all goods and services (with a special rate of 7% for tourist packages sold abroad). The profit tax rate has been reduced to 10% in 2007 from 15% in 2006. As of 2007, marginal rates of personal income tax range from 20% to 24% (the top rate had been 38% in 2001), but the highest rate is applied on all income above the threshold of Lv600 (US$380) per month. Excise duties on alcohol and tobacco were raised sharply at the beginning of 2006, as the government brought forward the increases previously planned for 2007 and 2008. Although still quite high relative to gross wages, compulsory contributions to state-run social insurance funds have been reduced in recent years. Increases in health insurance contributions from the current 6% have been postponed more than once.

Economic performance Gross domestic product (real % change, year on year)

Jan-Sep 2006 Annual average 2001-05GDP 6.3 4.9

Source: National Statistical Institute.

External shocks, combined with economic mismanagement in the early post-communist years, led to weak and volatile economic performance up until 1997. On the official measure, the level of real GDP in 1997 was just 68% of its level in 1989. This put Bulgaria on a par with countries in the Commonwealth of Independent States (CIS) in terms of the scale of the post-communist fall in economic activity. However, the macroeconomic stabilis

Bulgaria · 2007. 7. 18. · Bulgaria 1 ' The Economist Intelligence Unit Limited 2007 Country Profile 2007 Contents Bulgaria 3 Basic data 4 Politics 4 Political background 5 Recent

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