The Institute for Market Economics’ (IME) published White Paper, Unlocking Growth: The Path Forward After the Elections in Bulgaria. The chapters cover (1) state finances, (2) human capital, (3) the rule of law, and (4) economic growth policies. But what are the goals we can realistically achieve in the medium term? The IME team presents below, eight fundamental Bulgaria’s goals with a four-year horizon that are fully attainable and would significantly improve the country’s development potential and quality of life.
Reaching 75% of the EU average in GDP per capita based on purchasing power parity. In the long term, Bulgaria’s overarching goal should be increasing wealth and converging with the major European economies. Bulgaria has moved from under 30% of the EU average at the turn of the millennium to 64% in 2023—more than two decades of sustained economic growth. However, nearly all other countries in Central and Eastern Europe have reached levels between 75% and 90% of the EU average. Reaching the 75% mark is achievable in the next four years, provided there is active policy support for competitiveness and the full use of the country’s physical and human potential. Aligning with the successful countries in the region also means a substantial increase in wages across the economy and overall disposable income for households.
Returning investment levels in the economy to 20-25% of GDP. Gross fixed capital formation (investments) in Bulgaria has consistently remained below 20% of GDP in recent years, making it a key area where Bulgaria lags behind other Central and Eastern European countries. All successful examples in the region achieve accelerated growth and convergence with investment levels around 25% of GDP. Increasing investment activity is possible through improvements in the business environment, tax measures to support capital and innovation investments, and a clear development model for industrial zones in the country. Implementing program budgeting and executing the government’s capital program with a medium-term horizon also supports investments in the economy.
Achieving a Gini coefficient within the 30-35 range in the medium term. The narrowing of inequalities in recent years shows that economic growth in Bulgaria can benefit all social groups without dismantling the tax system. The Gini coefficient has dropped from over 40 in the years before the pandemic to 37.2 in 2023. Maintaining low unemployment, activating people outside employment and education, increasing labour productivity and wages, and targeting social policies for the most vulnerable groups could sustainably reduce inequalities to levels typical of the Central and Eastern European region.
Improving PISA scores by 25-50 points and reducing the share of underperforming students. In the latest PISA survey, Bulgarian students scored 78 points below the OECD average in reading, 63 points lower in math, and 70 points lower in science. The share of functionally illiterate students is around 50% across various subjects. Research and the experience of other Central and Eastern European countries indicate that raising the average level and reducing the share of low-performing students are the two factors that have the greatest impact on economic growth. In the medium term, catching up with some countries in the region facing similar challenges but with better PISA performance is entirely feasible. This requires reformatting policy and funding towards quality education, as well as structured efforts and a special program to support underperforming schools.
Increasing life expectancy to 77-78 years in the medium term. Life expectancy in Bulgaria (75.8 years) remains the lowest in the EU (average 81.5 years). A major factor behind this lag is a significantly higher mortality rate, particularly preventable mortality, which is 2.3 times the EU average. Reducing the high mortality rate and increasing life expectancy requires profound changes in Bulgaria’s healthcare system, including reforming the financial model and the National Health Insurance Fund’s monopoly, reducing out-of-pocket costs for patients, directing resources towards prevention, a targeted pro-generic policy, broader access to medicines, raising nurses’ wages, and measures to attract professionals to the healthcare field.
Sustainably reversing migration trends and achieving a net migration gain of over 50,000 people per year. Migration trends in Bulgaria have reversed since the pandemic. In 2023, net migration reached 42,000 people, or 6.5‰ of the total population. Higher incomes, career opportunities, and improved health and quality of life at the local level are key to a sustainable reversal of migration trends. Achieving a net migration gain of 50,000 people annually would help stabilize the country’s population.
Increasing municipalities’ financial autonomy, with local revenue covering more than 40% of total expenditures. Over the past decade, municipalities’ own revenues have fallen significantly behind expenses, covering only 25-30% of total local budgets. Fiscal decentralization measures, including allocating a portion of personal income tax revenues, could increase municipalities’ financial autonomy and incentivize local authorities to actively pursue investment attraction and economic development.
Effective fight against corruption and moving up from the bottom in EU rankings for rule of law. Despite over two decades of economic reforms and deeper integration into the EU’s single market, weakened rule of law still differentiates Bulgaria from successful European economies and limits growth potential. To unlock growth and achieve its convergence goals, increase incomes, reduce inequalities, and improve the overall quality of life, Bulgaria must make clear progress in its justice system. This includes removing political and economic influences from the courts and prosecution, thereby curbing corruption channels that drain public resources. The lack of convictions against high-ranking officials is one indicator of the judiciary’s ineffectiveness. The absence of uncovered connections between the judiciary and political figures, alongside unpunished magistrates, only fuels crime that is shielded by politics.