Why the Bulgarian Government could be bolder

Bulgaria is doing well economically: GDP is growing by over three per cent annually, state debt is below 30 per cent of GDP, unemployment has fallen to below six per cent and the fiscal budget has a small surplus.

But: on a purchasing power parity basis, Bulgaria’s income per head is still only 50 per cent of the EU average, although this gap is closing slowly. Why not be bolder?

The maths

Taking nominal GDP as 48 billion euro and state debt as 14 billion euro (thus 29 per cent ratio) – if GDP continues to grow at three per cent, after 10 years GDP will reach 63 billion euro. If there is no fiscal deficit (and ignoring any asset sales) debt will still be 14 billion euro and the ratio down to 22 per cent.

There is no obvious merit in continuing to lower the debt ratio. The Eurozone allows a 60 per cent debt ratio, Germany is at 68 per cent and the EU average is nearly 90 per cent – so in any event Bulgaria is one of the lowest. There is no need for Bulgaria to deliver a budget surplus.

Simply aiming to keep the ratio at 29 per cent allows a further four billion euro of debt to be invested in a Keynesian fashion within a decade. Boldly targeting a 35 per cent ratio would allow eight billion euro of investment. And the beauty is, IF this investment increases the rate of GDP growth by another two per cent (making five per cent) – in 10 years the GDP will reach 75 billion euro and the debt at 22 billion euro will be only 29 per cent again.

How to invest it?

In the last decade, with EU help, a great deal of infrastructure improvements have been made: roads, bridges, Sofia metro, harbours etc. I would make the following additional investments from this eight billion euro Development Fund: upgrading schools, upgrading hospitals, raising state pensions much faster, raising public sector salaries even faster, improving pedestrian pavements, providing underground parking facilities in major cities. I am sure other people could add to this list.

The politics

Of course, this would be very popular in Bulgaria. Massive Keynesian investment in productive areas is what other democracies did for decades.

Would the EU allow such short-term deficits? This is exactly what Germany did for many years while integrating eastern Germany, to raise living standards quickly to closer to western German levels – so the precedent is there.

The Eurozone has been criticised for its one-size-fits-all policy and this would have to be agreed as an exception. But again, given Bulgaria’s firm economic management and excellent debt ratios, the EU would look both enlightened and far-sighted by agreeing – they could even be given a role in the eight billion euro Development Fund’s oversight.

With Bulgaria about to take the rotating Presidency of the EU Council, now is the point of maximum political capital for bold decisions.


An eight billion euro Development Fund (invested over the next decade) aimed at boosting GDP growth from three per cent to five per cent, thus closing the gap in Bulgarian living standards towards the EU average. At worst, the debt ratio may reach 35 per cent – still low – but if the plan succeeds in delivering the GDP growth, the ratio will still be only 29 per cent.

What’s not to like?

Howard Rosen is writing in a personal capacity, having invested in Bulgaria for a decade as a partner of Cleves, the premier owner and operator of rental accommodation in Sofia.

(Photo: G Schouten de Jel)