Bulgaria: reforms to improve competition, governance and skills would boost recovery from COVID-19, says OECD
The COVID-19 pandemic hit Bulgaria at a time when its economy was doing well. Along with continued support for households and businesses to overcome the crisis, reforms to modernize the economy, improve the business environment and upskill the workforce would help strengthen the country’s recovery, according to a new OECD report.
The new OECD Economic Review for Bulgaria (OECD Economic Survey of Bulgaria) states that recovery from the economic shock caused by COVID-19 will take time. As an open economy heavily dependent on commodity exports, Bulgaria remains vulnerable to further shocks related to external demand, although sound public finance management has kept the country in a stable position in terms of ensuring continued support. There is scope for investment in areas such as transport, energy and digital infrastructure, which would help boost the recovery process.
“The COVID-19 crisis hit Bulgaria during a period of strong economic growth and rising incomes. Overcoming the crisis and a favorable exit from it will require continuous support for people and businesses, as well as investments and reforms to stimulate productivity and raise the standard of living of all Bulgarians”, said the Secretary General of the OECD, Angel Guria, when presenting the economic review within the framework of an event held online with Prime Minister Boyko Borisov.
Before the pandemic, a series of structural reforms, the successful integration of Bulgarian manufacturing firms into global production chains and sound macroeconomic policies led to five years of growth exceeding 3%, a rapid rise in real wages and a drop in unemployment to historic lows. The Economic Outlook now projects 3.3% GDP growth in 2021 and 3.7% in 2022, after a 4.1% decline in 2020.
While Bulgaria’s wage subsidy scheme protects jobs and household incomes from the worst effects, the shock of COVID-19 has caused a drop in output not reported since the banking crisis of 1996-97. Young people are particularly affected in terms job losses in a country that already suffers from high levels of income inequality and relative poverty.
An aging and rapidly shrinking population, the migration of young jobseekers and the serious impact of this demographic decline on rural areas are a major challenge facing Bulgaria even before the pandemic. Increasing productivity growth will be vital to raising living standards. The Economic Review recommends reforms to improve the business environment and increase the education and skills of adults, including through retraining programs to help the unemployed find new jobs. Infrastructure investment should focus on improving internet access, transport links and other services in rural areas. Urgent housing reform is needed to encourage mobility and ensure that cities have enough affordable housing for workers starting new jobs.
Reducing regulatory barriers and red tape for businesses, modernizing competition policy and improving the governance of state-owned enterprises would all contribute to boosting business dynamics in an economy where nearly a third of public procurement contracts are awarded without a call for tenders for submitting bids. A faster framework for insolvency proceedings would reduce the incidence of non-viable firms holding back financial resources and bank loans. The recovery process should also be used to accelerate the transition to a low-carbon economy, including by mobilizing sufficient EU funds.
This review calls on Bulgaria to continue its efforts to fight corruption and organized crime. Important steps have been taken towards judicial reform, but more needs to be done to strengthen accountability, ensure the independence of the judiciary and establish a coherent system of public integrity. Further action is also needed to regulate lobbying and protect media independence.