2009 was one of the hardest years for the Bulgarian economy for the past 10 years. The Gross Domestic Product of Bulgaria decreased by 5.5%. Unemployment exceeded the 9.0% threshold. Foreign investments totalled EUR 3 bln. as compared to EUR 6.5 bln. for 2008. The national economy fell into crisis, which is unlikely to end in 2010. This economic crisis differs substantially from the financial crisis in the USA or in the most developed EU member states. The output of Bulgarian manufacturers in various industry sectors decreased significantly. Many of these companies export most of their products. Even after their foreign partners recover their pre-crisis production rates, months or even years will be necessary to reach the order volume levels of mid - 2008.
The decline in industrial production is further aggravated by unfavourable interest rates on bank loans. At the beginning of 2010 they are higher than entrepreneurs can afford, i.e. over 8.00 % - 9.00 %. Companies however are forced to seek bank credit financing, because of another problem – intercompany indebtedness. Often a company delays payments to contractors for long periods of time, because it, too, awaits late payments from its clients. This often leads to loss of clients and markets. The need to pay back bank loans and the decreased output volumes reduce significantly products’ profitability. Companies react by declining contracts with partners (incl. the state) when having doubts about their solvency even if these partners make attractive offers for paying higher prices in the future.
The banks, too, are interested in returning to their optimum activity levels by increasing the share of corporate crediting. The bank sector should logically be the first to react and a growth in crediting levels will result in economic growth as well. However, in Bulgaria there is no available preferential bank crediting even for providing initial funding for approved projects under EU Operational Programmes. No significant changes in interest rates can be expected before mid 2010. And if the worst forecasts for preserving the current interest rates come true, 2010 will be a year even more difficult for Bulgarian business than 2009.
It seems highly probable that the recovery of the world economy to the pre-recession levels will continue until the end of 2012. For Bulgaria the time for recovery could be even longer.
In 2009, Bulgarian economic sectors registered an average drop in production as follows: over 35% in the Manufacture of Furniture and Wood Processing Industry; over 25% in the Manufacture of Materials for the Construction Industry; almost 30% in the Textile Industry.
The decline in the sectors Manufacture of Machinery and Equipment and Manufacture of Metal Products for 2009 is approximately 30%. This tendency was not evident from the 2008 financial results of these sectors, as Bulgarian companies had long-term contracts at the time, which allowed them to end the fiscal year 2008 with profit. In 2009, the decline in industrial production is a fact in the Stara Zagora District, too, where the economic crisis has affected most severely the companies engaged in manufacture of machinery and equipment, and in metal processing.
To lessen the burden of the economic crisis many employers had to lay off part of their staff because of decreased demand for their products and reduced output volumes. Tens of companies in the Stara Zagora Region had to undertake this step, some of which suspended hundreds of employees. This measure was implemented in the public sector, too, i.e. the central government administration. On a national basis, this has led to a decrease in taxes paid for the second half of 2009 and a budget deficit for 2009 amounting to approximately BGN 500 mln. (0.5% according to forecast data).
In this context, the National Revenue Agency Regional Office in Stara Zagora is an exception. It registered a 122% implementation of the 2009 revenue plan, which is the top result for Bulgaria. BGN 177 mln. revenue in taxes and BGN 203 mln. in social insurance payments have been deposited in the state budget by the companies registered within Stara Zagora District.
The other alternative for employers, to cut salaries, is still inapplicable in 2010, as Bulgaria remains the poorest country in the European Union.
For hundreds of companies in the Stara Zagora Region a rise in export volumes is of vital importance to overcome the crisis. Recovery of the optimum operation levels of local companies, however, would be possible only after the internal demand in foreign countries, especially in the EU member states, increases. Given the forecast that most of the countries from the Eurozone will overcome the crisis in the middle of 2010, no increase in export of Bulgarian products could be expected during the current year. Exceptions are possible only for companies manufacturing unique or special products, which have won loyal clients throughout the years.
In 2010, the Income Tax and Profit Tax remain 10% and the Government plans no changes in these tax rates, which are the lowest in Europe, by the end of its mandate in 2013. The Value Added Tax (VAT) also remains unchanged, i.e. 20%. However, the Government is considering the possibility to reduce VAT rate to 18% as of 2011 and to 16% in 2013. Some excise duties will be increased in 2010 so as to reach the levels required by the EU.
In 2010, the total social insurance payments due by employers are reduced by 2%. Despite that, 40% of the Gross Domestic Product of Bulgaria is still re-distributed by the Government, which is a much higher percentage as compared to the practices in developed European countries.
Bulgaria has taken a course to joining the Eurozone. It is expected that the stability of the Currency Board in the next three years and adopting the Euro as national currency in Bulgaria will guarantee economic stability and prevent possible risks for Bulgarian business.
Doing business in Bulgaria, however, depends greatly on the political and judicial systems, as well as on how effectively the funding provided by EU Operational Programmes is managed. Unfortunately, there are still many unsolved problems in these areas. Funding provided under EU Operational, Structural and Cohesion Programmes could be a huge resource for Bulgarian economy. However, this capital is still not utilized, because the state has not yet proved its capability to manage European funds transparently and effectively.
Pessimistic forecasts predict the unemployment rate to reach 20% in Bulgaria in 2010. Government’s expectations are for an average annual level of 11.4%. It can be expected that the number of unemployed will start to decrease in the autumn of 2010. This prognosis is based on the policy of most big employers who do not lay off their staff, but rather try to keep their human resources and to manage them in a more flexible manner. In 2009, a total of 1,931 people were made redundant suspended from work and registered as unemployed in Stara Zagora.
|GDP, bln. BGN||23.8||26.7||29.7||32.4||34.6||38.8||42.8||49.4||56.5||66.7|
|GDP, bln. EUR||12.2||13.7||15.2||16.6||17.7||19.8||21.9||25.2||28.9||34.1|
|GDP growth rate, %||2.3||5.4||4.1||4.5||5||6.6||6.2||6.3||6.2||6|
|Year-end inflation rate, %||6.2||11.4||4.8||3.8||5.6||4||6.5||6.5||12.5||7.8|
|Budget deficit, (-)/(+), % GDP||0.2||-0.6||-0.6||-0.6||0||1.7||3.1||3.5||3.5||3|
|DFI, mln. BGN||1,475||2,104||1,788||2,038||3,618||5,351||6,165||12,169||16,812||12,809|
|DFI, mln. EUR||754||1,076||914||1,042||1,850||2,736||3,152||6,222||8,596||6,549|
AVERAGE MONTHLY REMUNERATION OF PEOPLE EMPLOYED UNDER LABOUR CONTRACTS IN 2009
|Regions / Economic Sectors||Gross Value Added by Economic sectors||GVA, BGN Thousand||GDP, BGN Thousand||GDP per capita, BGN||Average annual population||GDP per capita, USD|
|Northeast Region||395,221||1,725,083||3,045 571||5,165,875||6,292,452||6,338||992,815||4,434|