1. EXECUTIVE SUMMARY

Political outlook 

Bulgaria is facing an uncertain year as the coronacrisis is yet to reach its peak, while the country is going also through a deep political crisis marked by citizens’ lack of trust in the government, parliament and prosecution.

Bulgaria is due to hold a general election in March, which could further destabilise the situation if no party gains enough votes to form a government or if a coalition cannot be formed.

Macroeconomic outlook

Many sectors of the economy have been severely affected by the restrictions and the pandemic and, despite the government’s support measures, will struggle to recover to the pre-crisis levels in 2021.

Bulgaria joined the Exchange Rate Mechanism (ERM2) in July and this is expected to push the country to make further reforms that would secure the stability of the financial sector.

Budget and debt outlook

Bulgaria plans a budget deficit of 5% in 2021, with the government projecting economic growth of 2.5%. 

Critics say the government didn’t sufficiently take into account the coronacrisis when drawing up the budget, and revisions may be needed. 

Real economy outlook

Political instability and the coronacrisis have negatively affected investments in the country with no major projects expected to be launched by private investors in 2021.

Markets outlook

A slow recovery is expected in 2021 after the main indexes of the Bulgarian Stock Exchange (BSE) slumped in 2020. 

 

2. POLITICAL OUTLOOK 

Bulgaria is due to hold a general election in March, which is seen as the most challenging in years due to the deep political crisis and the tough economic situation. This will be also the first regular general election after several snap elections. 

The country was shaken by the worst political crisis in seven years after in early July hundreds of thousands of people went out to protest against widespread corruption, demanding the resignations of the government of Prime Minister Boyko Borissov and chief prosecutor Ivan Geshev. They were accused of murky connections to controversial politicians and businessmen.

The protests, which took place daily for several months, were sparked by an attempt by Hristo Ivanov, one of the leaders of non-parliamentary Democratic Bulgaria, to get to the state-owned beach near the summer villa of politician Ahmed Dogan, the chairman of honour of the Movement of Rights and Freedoms (DPS). Ivanov published a video showing that he was pushed into the water by guards from the state security services. Dogan was not entitled to their protection as he does not hold any public post. Moreover, the state-owned beach should be accessible for everyone.

The incident confirmed suspicions among many Bulgarians that Borissov is politically dependent on Dogan and the DPS, even though the party is formally in opposition. Dogan and his party became symbols of corruption in Bulgaria after Dogan openly admitted being behind all major political appointments in the country. 

After the video was released, President Rumen Radev was the first to confirm Dogan was guarded by the state security services and insisted on an investigation into why this was allowed.

A day later, Geshev organised an action movie-style raid of Radev’s offices, and the special prosecution arrested two of his advisors on unproven suspicions of influence peddling. The raid rocked Bulgaria as it was seen as an assault on the presidential institution and proof of Geshev’s dependence on the DPS.

The protests lasted 115 days but were eventually ended by the Poisonous Trio — their informal organisers — due to the sharp rise of coronavirus cases in the country. However, the government has lost trust among citizens and the rating of the Gerb party that has ruled for more than 10 years fell below 20% as of late 2020, though it recovered slightly to 27% by January. 

Moreover, the main opposition party, the Bulgarian Socialist Party (BSP), has failed to profit from people’s disappointment in the ruling party and its rating also stands at 27%. 

This has given the chance for several new political formations to emerge, and they are hoping to gain seats in the 2021 parliament. 

Popular showman Slavi Trifonov’s party, There is Such People, is very likely to become a significant factor in the next parliament. Some believe that Trifonov might enter into coalition with Borissov.

Borissov’s former right hand man, Tsvetan Tsvetanov, has started his own political party, attracting many former Gerb members. However, Tsvetanov for the moment seems unable to gain enough support to make it into the parliament.

Maya Manolova, former ombudsman and former member of BSP, also started her own political project, Rise.bg. Manolova was close to winning the race for Sofia mayor in 2019, but her credibility is low due to her past connections with the BSP and, although she might make it into parliament, she is unlikely to attract a significant number of votes.

Democratic Bulgaria has gained more support after its members started revealing top-level corrupt schemes. The coalition claims to be the sole political player dedicated to restoring the rule of law and good democratic practices in the country. Although support for Democratic Bulgaria is rising constantly, it is unlikely to become a major player in the next parliament.

Most recently, the Poisonous Trio indicated that they will start a political project as a continuation of the summer 2020 protests. The trio, comprising PR expert Arman Babikyan, human rights lawyer Nikolai Hadzhigenov and sculptor Velislav Minekov, have called on Bulgarians to unite against Gerb and its formal and informal coalition partners. Hadzhigenov has also said that although they do not wish to enter politics, they might do so if necessary in order to oust Gerb from power. If they decide to run in the March election, this has the potential to change the status quo.

According to Standard & Poor’s, the March 2021 general election will most likely reflect the current fragmented political landscape in Bulgaria and is unlikely to produce a viable ruling coalition. The rating agency projected that this could result in a protracted period of coalition forming or even a rerun of the elections. 

А poll carried out by Alpha Research showed that most likely the next ruling coalition will be formed either by Gerb, or by BSP.

 

3. MACROECONOMIC OUTLOOK 

The coronavirus (COVID-19) pandemic has significantly affected the Bulgarian economy, which is seen going into recession in 2020. According to international financial institutions, the economy could contract by more than 4% in 2020. 

Companies have been suffering since the first coronavirus cases in the country were reported in early March 2020 and the government imposed a lockdown in the spring to contain the spread of the disease. At the time, the number of new cases remained low, below 100 per day. After almost all restrictions were lifted, in the autumn the country faced a second, much worse, wave of the pandemic with the number of new cases reaching 4,000 per day and on some days going beyond that.

Bulgarians are spending Christmas and New Year under a second lockdown, albeit a slightly softer one than in the spring, to take some of the pressure off the beleaguered healthcare system. With many of the usual festivities cancelled, this is a blow for the retail and services sectors. 

However, the economy is expected to rebound in 2021, posting robust growth. According to the International Monetary Fund (IMF), the economy will expand by 4.1% in 2021 before slowing to 2.5% in 2022.

The World Bank is slightly more pessimistic, expecting 3.3% economic growth in 2021, but it projects that the economy will speed up growth in 2022, rising by 3.7%.

The European Commission (EC) has the most pessimistic forecast that Bulgaria’s economy will contract by 5.1% in 2020 and only partially recover in 2021, expanding by 2.6%. It will fully recover in 2022 when GDP should grow by 3.7%, the EC says.

In 2021, the economy is expected to benefit from a rise in external demand, which will be backed by the recovery of Bulgaria’s most important trade partners, according to rating agency Standard & Poor’s (S&P). Moreover, Bulgaria has preserved its external competitiveness despite a tightening labour market.

Bulgaria's recovery will also be supported by significant EU funds under various programmes from the EU's Multiannual Financing Frameworks for 2014-2020 and 2021-2027, as well as further EU support schemes, such as the Recovery and Resilience Facility. According to S&P, Bulgaria could be eligible for EU funds totalling nearly €30bn between 2021 and 2027.

Meanwhile, inflation in Bulgaria should be close to 0.5% in 2020 due to the coronavirus pandemic, but is expected to speed up to 2.4% in 2021, according to the IMF. 

The IMF has also projected that Bulgaria’s current account will stay in surplus in 2020 and 2021, at 1.9% and 2.3% of GDP, respectively.

 

4. BUDGET AND DEBT OUTLOOK 

Bulgaria plans a budget deficit of 5% in 2021, with the government projecting economic growth of 2.5%. In 2020, the deficit is seen at 5.2% of GDP due to increased spending related to the coronacrisis, while in 2022 the deficit is expected to fall to 1.9% of GDP.

Critics of the budget commented that it is the same as in previous years and does not include any plans for reforms.

Former finance minister Simeon Dyankov believes that the budget will have to be revised as soon as in spring 2021 as it has not taken into account the ongoing economic crisis and the need to support sectors most affected by the coronavirus. Dyankov also noted that the government would not need to borrow to do this as it has enough funds.

The budget revenue is expected to fall to between 38.3% and 37.6% of GDP in 2021-2023. In 2021, the budget revenue is expected to reach BGN47.65bn (€24.4bn) and rise to BGN52.42bn in 2023.

Spending is projected to decrease to between 42.2% and 39.6% of GDP, reaching BGN52.53bn in 2021 and rising to BGN54.96bn in 2023.

The government plans to increase the minimum pension to BGN300 from BGN250 as of January 2021 and further hike pensions by 5% as of July 1, 2021. In January-March, all retired people will receive bonuses of BGN50 too.

The wages of everyone involved in the coronavirus pandemic response, including in the state administration, will be hiked by 30% as of 2021.

The minimum wage will also be increased, to BGN650 from BGN610. The government also plans to spend 1.69% of GDP for defence.

 

5. REAL ECONOMY OUTLOOK 

The coronavirus has seriously affected many sectors of the Bulgarian economy. Tourism, which is a major contributor to GDP, faced a collapse in income of around 80% through 2020 and the perspectives for 2021 do not seem much brighter.

The tourist sector is pessimistic regarding the winter season with expectations that hotels and ski resorts will stay empty. According to industry experts, the country could return to 2019 levels of revenues and occupancy rates only after at least 40% of the population gets the coronavirus vaccine.

The transport sector was also badly hit by the pandemic, as were owners of restaurants, cafes, bars and other leisure facilities. 

The government claims it is spending significant sums to support the most affected sectors. However, a survey carried out by the Bulgarian Industrial Association (BIA) showed that 68% of Bulgarian employers do not approve of the government’s measures aimed at easing the impact of the coronacrisis.

72% of owners say the situation in their companies has deteriorated since the start of the pandemic. The majority of companies claim that they have not received any financial support from the government so far.

Political instability and the coronacrisis have negatively affected investments in the country with no major projects expected to be launched by private investors in 2021.

 

6. MARKETS OUTLOOK 

Bulgarian Stock Exchange (BSE) saw a plunge in its main indexes since March when the coronavirus outbreak was registered. Unlike other exchanges in the region, there was only a small uplift from the positive vaccine news in November. 

As the coronacrisis is expected to strongly influence the market in 2021 as well, the bourse would most likely recover slowly from the negative trend in 2020.