Over the past 20 years, the Bulgarian economy has been moving at two speeds: Sofia with a 6% GDP growth per year and the rest of the country with a 3% GDP growth per year, Plamen Nenov, Secretary General of the government's Council for Economic Analyses, told journalists at the Council of Ministers as he presented the Council's first analysis.
He argued that Bulgaria needs a comprehensive economic policy that sets purely economic goals rather than aims to fight the social inequalities in the country. This can be done with regional policies aimed at human capital development, services for small and medium-sized companies, development of the property market or the industrial space market. The local economy can also be helped by reducing administrative burdens and building infrastructure, Nenov said.
Along this line, in the new EU programming period the focus is outside Sofia and on this we have an agreement with the European Commission, Caretaker Deputy Prime Minister for European Funds Atanas Pekanov said at the presentation of the report. The money from the EU programmes will come after the necessary reforms are made and the changes in the necessary laws adopted, Pekanov added.
Sofia is the main beneficiary of EU funds, Nenov said. There has been an acceleration in transfers from the central budget to smaller cities, but it is not substantial and does not overcome the diverging economic fundamentals. The reason is that the population is declining faster in smaller municipalities, Nenov said.
Bulgaria has a number of professors in economics who publish at a high level, and the creation establishment of this Council was included in the National Recovery and Sustainability Plan, Pekanov recalled. Economics is not an easy science, it does not provide the answers to every question, but it helps us think about the changing circumstances of the world. We need empirical facts and theories to explain those facts and tell us why things are happening. All economic models are wrong, but some of them are useful to explain the world around us, how to achieve goals and navigate in an uneasy world, Pekanov said. The subway map, for example, doesn't give us every street in the city, but it helps us get where we want to go, Pekanov said.
People's wages in the country didn't differ much by region until 2000, but by the end of 2019, we're already seeing that wages in Sofia and the surrounding area are twice as high as the rest of the country, Nenov said.
Based on the facts presented in the analysis, several generalizations can be made. First of all, in the 21st century, there is a serious economic divergence between Sofia and its surroundings and the rest of Bulgaria, which turns the Bulgarian economy into a two-speed economy. Second, Bulgaria is experiencing persistent regional disparities in local economic activity, as measured by the ratio of employment to the working age population, with a significant share of the country's regional economies having seriously depressed economic activity. Thirdly, after the 2009 crisis, employment outside Sofia and the surrounding area is in a permanent stagnation, with the employment-population ratio outside Sofia recovering only partially, the main factor for the "recovery“ being the demographics (migration), the report says.
Fourth, outside Sofia and the surrounding area, there is a mismatch between local GDP growth and wage growth. In terms of the country's economic policy, the analysis shows that EU transfers are mainly directed to Sofia or smaller municipalities with low unemployment rather than to local labor markets with depressed economic activity. Moreover, fiscal transfers from the central budget respond poorly to widening regional economic inequalities, with relatively low levels of risk sharing across regions.
The highly heterogeneous regional profile of the Bulgarian economy makes it imperative to regionalize economic policy in Bulgaria by implementing specific and targeted regional economic policies, the report says.
The Council for Economic Analyses was established by a decree of the Council of Ministers at the beginning of this year, following best practices from other countries. Its aim is to prepare independent analyses and opinions on individual issues concerning the state of the Bulgarian economy, the challenges and risks it faces, as well as possible policies and recommendations to address them, Pekanov recalled.