site.btaCan Bulgaria Shake Off Stigma of Being "EU's Poorest Member"? - IME Analysis

Bulgaria's gross domestic product (GDP) per capita based on purchasing power parity (PPP) reached 64% of the average level in the European Union in 2023. This is one of the most accurate indicators for convergence within the bloc as it takes account of prices in individual countries and therefore provides absolutely comparable values. It is this indicator that is normally used to justify the well-known description of Bulgaria as "the poorest EU member state". Judging by the dynamics of the national economy, it seems likely that the country will push off the bottom of the "poor-rich" ranking in the coming years, Institute for Market Economics (IME) senior research fellow Petar Ganev says in an analysis published on the IME website on Friday.

The last two decades have seen a steady rise in Bulgaria's convergence indicators, Ganev says. Although the country has been hit by at least three crisis over the period, which brought about times of negative growth (first, the recession of 2009, caused by the global financial crisis; second, the shallow recession and low growth of 2012-2013 in the aftermath of the European debt crisis; and finally, the deep recession of 2020 inflicted by the COVID pandemic and the tight social restrictions that came with it), the national economy has grown almost invariably faster than the EU average. Bulgaria's GDP per capita based on PPP increased from under 40% of the EU average before the country joined the bloc in 2007 to 64% in 2023. Remarkable growth has been registered here since the pandemic, partly because population data was corrected after the 2021 census. The indicator has gone up by 9 percentage points in just three years.

In all other "new" EU member states of Central and Eastern Europe (CEE), including Romania, GDP per capita based on PPP fits into the range of 70-90% of the average EU level. By 2021 Bulgaria was the only member with a rate of under 60%, which left it 10-15 percentage points behind even the worse performing "new" EU countries in CEE. With 64% in 2023, Bulgaria narrowed the gap separating it from the "70-90%" group. Only Czechia and Slovenia have surpassed 90%, while Latvia, Slovakia, Hungary, Croatia and Romania fall between 70% and 80%, according to the IME.

An interesting comparison can be drawn with Greece, where convergence indicators have worsened significantly over the last 20 years. Two decades ago, the gap between Greece and Bulgaria was huge as our southern neighbour hit an all-time high of 98% of the EU average in 2004, while we were at 35%. The difference was more than 60 percentage points. In other words, the Greek economy was three times that of Bulgaria in terms of physical volume per capita, with price differences taken into account. By 2023 the gap was a mere 3 percentage points (64% for Bulgaria and 67% for Greece). If Bulgaria keeps catching up and achieves decent economic growth in the coming years, it is perfectly possible to push off the bottom of the "poor-rich" ranking and come close to 70% of the EU average.

The question of where Bulgaria and the other CEE countries stand vis-a-vis the average EU levels is particularly relevant today amid yet another domestic political crisis and with elections on the horizon, Ganev says. Leaving noisy day-to-day affairs aside, the overriding goal for the Bulgarian economy over the short term is to reverse the slowdown of the last two years, and over the long term, to achieve a third decade of steadily catching up and getting even closer to the more successful CEE countries. This requires macroeconomic stability and reforms which can boost investments and limit wastefulness. Whether before or after elections, this should be the main objective of politicians, who have become again a risk factor for economic growth, the analysis concludes.