Bulgaria's Potential for Sustainable Growth and Shared Prosperity : Systematic Country Diagnostic

Abstract

After years of strong performance in the run-up to the European Union (EU) accession, Bulgaria's growth has slowed down and poverty remains the highest in the EU. Bulgaria achieved the highest recorded growth rates between 2000-08 on the back of exceptionally high capital inflows, structural reforms, sound fiscal management and the prospects of EU accession. Employment boomed and poverty fell steeply. Since 2008 – the year of global economic crisis – economic growth has been sluggish, poverty on the rise and income gains of the bottom 40 percent. Recently, labor markets and poverty have shown some signs of respite but new growth drivers and a sustained reform commitment will be needed for the current generation of Bulgarians to obtain EU living standards. This Systematic Country Diagnostic (SCD) identifies three policy areas with the potential to transform the economy and achieve this objective: (1) strengthening the institutional and legal framework for good governance; (2) boosting the skills and employability5 of all Bulgarians; and (3) improving the effectiveness and efficiency of public spending. Drawing on an extensive body of previous and current work carried out by the Bank, as well as local and foreign experts, the SCD discusses drivers and constraints to growth and uses an asset-based framework to understand how micro and macro-economic forces shape the income profile and dynamics of the bottom 40 percent of the population.