Economist Warns: Euro Brings Benefits, but Bulgaria Must Address Structural Problems

Economist Dimitar Sabev, from the Institute for Economic Research at the Bulgarian Academy of Sciences, has assessed the draft budget and broader economic situation in Bulgaria, highlighting both opportunities and persistent challenges. Speaking to Bulgarian National Radio, Sabev said the most significant risks to the budget include Lukoil and potential destabilization arising from trade disputes with the United States. He suggested that while the global economy is experiencing turbulence, the gloomy projections for Bulgaria’s budget may be overstated. He noted that the increase in social security contributions should be seen as a unifying measure rather than a divisive one.

According to Sabev, Bulgaria is on the verge of becoming a wealthier society and requires only careful steps to stabilize. He observed that despite repeated warnings of economic collapse, the country’s economy has remained resilient. The economist stressed that the transition to the euro represents a bold leap, making it difficult to predict developments for the first half of the coming year. He expressed confidence that Bulgaria will gain from adopting the euro, though unresolved structural problems persist, requiring careful attention.

Sabev emphasized the need for a comprehensive discussion not just about the budget, but about building a stable economic foundation. He argued that Bulgaria relies too heavily on exporting raw materials instead of producing finished goods and recommended state-facilitated consortia between business and science, supported by the Bulgarian Development Bank, to foster innovation and targeted economic development. He illustrated this with an example: instead of exporting raw grain, Bulgaria could process it into products such as salami, ham, and cheese, thus retaining more value domestically.

The economist also stressed the importance of reasoned dialogue on fiscal priorities. He praised Prime Minister Rosen Zhelyazkov for approaching the budget pragmatically, without political bias, and noted that while some areas of spending could be optimized, essential sectors like education and healthcare must be preserved. Sabev highlighted the need to address bloated administration, corruption, and infrastructure weaknesses, including the railway network, while avoiding unsustainable debt. He warned that decisions must balance cuts and revenue distribution in line with European practices.

Sabev analyzed Bulgaria’s tax system, describing it as regressive despite a flat 10% income tax. He explained that high earners effectively pay lower contributions due to the mechanism of maximum insurance income, which results in a lower effective tax on salaries of 10,000 leva compared with those of 4,000–5,000 leva. He argued for a gradual Europeanization of taxation and public services, emphasizing collaboration among employers, unions, and the government to modernize the system and reduce inequalities.

Finally, Sabev addressed misconceptions about Bulgaria’s shadow economy, noting that it accounts for about 19% of economic activity - significantly lower than in Greece (36%) or Italy (60%). He criticized the pervasive national pessimism and argued that demographic challenges are not solely the result of market forces but of insufficient state engagement in the economy. He concluded by stressing the importance of retaining talent and economic participation within Bulgaria, rather than relying on success abroad, urging policymakers to better integrate citizens into the country’s economic framework to secure long-term prosperity.

Source: BNR interview