Core Views
Bulgaria’s economic recovery will continue to be primarily export-led, driving the economic expansion to our forecast of 2.7% this year. As such, revised data which shows Q111 real GDP grew by 3.4% over Q110, with exports increasing by 56.2% y-o-y over the same period, are supportive of our forecast. We forecast domestic demand will stage only a moderate recovery in line with the improving economic situation facing the consumer.
We expect Bulgaria’s current account deficit to increase to 2.6% of GDP this year, from 1.0% in 2010. Stronger domestic demand will work to push the merchandise trade account deeper into deficit. While we forecast the services account to remain in surplus, it will not be sufficient to prevent a widening of the current account deficit. We forecast Bulgaria’s fiscal deficit to narrow to 2.7% of GDP this year from 3.9% in 2010. We believe that the improving economy will work to drive government tax receipts higher despite our expectation for VAT revenues to remain constrained by the only gradual recovery in the labour market. Furthermore, we note that there is scope for government expenditures to rise ahead of October’s presidential election, which would put our current forecasts in jeopardy.
Major Forecast Changes
We have raised our end-2011 harmonised index of consumer prices (HIC P) target to 6.0%, from 5.8% previously. This is on account of our expectation for the recent rise in producer prices in Bulgaria to feed through to the consumer in the second half of 2011. Our continued expectation for global commodity prices to decline in H211 leads us to believe that a more significant increase in consumer prices is unlikely this year.
Key Risks To Outlook
Given that Bulgaria’s economic recovery continues to rely heavily on the external sector, a pronounced slowdown in the eurozone or an escalation in the eurozone debt crisis would likely have a highly deleterious impact on all aspects of Bulgaria’s economy.
The government’s ongoing efforts to tackle corruption and attempts to improve the business environment could result in a credit rating upgrade from international ratings agencies. This would be highly beneficial to Bulgaria, helping to anchor foreign investor sentiment and raise the country’s future growth prospects over the longer term.
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Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
GER B Support Still Strong
We maintain our view that Bulgaria’s Citizens for European Development of Bulgaria (GER B) party will maintain
strong popular support this year and may receive a slight boost from recent anti-Islamist incidents carried out by
the National Union Attack party
Table: Political Overview 8
Long-Term Political Outlook 9
Challenges Remain Despite EU Membership
We expect EU membership to remain key to Bulgaria’s long-term political outlook, helping to underpin investor
sentiment in the country and steady economic growth
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Exports To Continue Driving Economic Recovery
Bulgaria’s economic recovery will continue to be primarily export-led, driving the economic expansion to our
forecast of 27% this year
Table: ECONOMIC ACTIVITY 14
Balance Of Payments 15
Widening Trade Deficit To Expand Current Account Shortfall
We expect Bulgaria’s current account deficit to increase to 26% of GDP this year, from 10% in 2010
Table: BALANCE OF PAYMENTS (Euro) 15
Fiscal Policy 16
Rising Revenues To Shrink Fiscal Deficit
We forecast Bulgaria’s fiscal deficit to narrow to 27% of GDP this year from 39% in 2010
Table: FISCAL POLICY 16
Monetary Policy 17
Consumer Prices To Rise Through 2011
We expect the recent rise in producer prices in Bulgaria to feed through to the consumer in the second half of 2011
Banking Sector 18
Subdued Recovery Ahead
We forecast Bulgaria’s commercial banking sector to experience a subdued recovery in 2011 with both client loans
and the deposit base to expand moderately
Chapter 3: 10-Year Forecast 21
The Bulgarian Economy To 2020 21
Economic Growth Slashed In Half Over Long Term
We believe that the unsustainable credit boom prior to the global financial crisis, which has left the private sector
heavily indebted, will leave an indelible mark on Bulgaria’s longer-term economic outlook
Table: Long-Term Macroeconomic Forecasts 21
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Table: BMI Business & Operation Risk Ratings 26
Table: BMI Legal Framework Rating 27
Infrastructure 28
Table: Labour Force Quality 29
Market Orientation 30
Table: Emerging Europe – Annual FDI Inflows 30
Table: Trade And Investment Ratings 31
Operational Risk 32
Table: Top Export Destinations 32
Chapter 5: Key Sectors 35
Pharmaceutical 35
Table: OTC Medicine Sales Indicators 2007-2015 36
Table: Medical Devices Sales Indicators 2007-2015 37
Telecommunications 38
Table: Telecoms Sector – Internet – Historical Data & Forecasts 42
Other Key Sectors 43
Table: Autos Sector Key Indicators 43
Table: Food & Drink Sector Key Indicators 43
Table: Oil & Gas Sector Key Indicators 43
Table: Infrastructure Sector Key Indicators 43
Table: Defence & Security Sector Key Indicators 44
Table: Freight Transport Sector Key Indicators 44
Chapter 6: BMI Global Assumptions 45
Global Outlook 45
Second Half Risks
TABLE: GLOBAL ASSUMPTIONS 45
Table: EMERGING MARKETS AGGREGATE GROWTH 46
Table: DEVELOPED STATES REAL GDP GROWTH FORECAST 46
Table: REAL GDP GROWTH CONSENSUS FORECASTS 46

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