In the 20th century, postwar Bulgaria saw its economy in a downturn following Germany’s defeat. This was a country shaken by the war, but not crippled. And there was ample space for growth. After the Bulgarian Communist Party rose to power, the country followed the Soviet model of economic development more closely than any other country in the eastern Bloc. Bulgaria subsequently experienced immense growth rates, partly because the country was in a state of low economic development. Contributing to this growth was a stable political climate unheard of in other Eastern European countries during that period.
But what goes up, inevitably, must come down. By the early 1960s, low capital and labour productivity, combined with expensive inputs constricted the economy. The government clamoured for solutions to end the downward spiral. Many of their attempts ran along the lines of the socialist economic framework, but never got close to the laissez-faire market economy.
Misguided ideas and irrational economic policies unnecessarily prolonged economic hardship. By the 1980s, demands for democratic reforms swept over Eastern Europe. Fed up with vague and failing economic policies, Bulgarians said, “it’s been a nice ride, but some bread on the table would be nice”, and went on to topple Todor Zhivkov, long time party BCP leader and head of state.
A considerably more liberal communist, Petar Mladenov, replaced Zhivkov. Under his lead, Bulgaria moved in the direction of the market economy. Still, years of inefficient resource allocation had left the economy in a state of disrepair. The previous government had racked up a gargantuan amount of debt, external and internal. At that time, the manufacturing sector was internationally uncompetitive. The agricultural sector, once the crown jewel of Bulgaria’s economy, could scarcely produce enough to feed the people. Depleted currency reserves restricted trade with traditional partners, imposing limits on raw imports of raw materials and technological improvements. Inflation went through the roof, standard of living was almost halved, and skilled labour was hard to come by. In short, it was a mess. Bulgaria was still licking its wounds, but recovery was slow.
Bulgaria wouldn’t see recovery until 1994. Inflation was still high, hovering at 122%. But GDP growth was positive, and by 1995, inflation was reined in at 32.9%. Things started looking up.
In 1996 however, following the fall of the socialist government, the economy collapsed again. This time, it was due to poor economic decisions and a shaky banking system. Inflation hit 311% and the lev collapsed. By 1997, the United Democratic Forces coalition came to power, and brought along with it an economic reform package. State owned enterprises were to be privatised, or liquidated, and agricultural policies were to be liberalized. Even then, change was a tumultous affair, and did not come easy.
It took a few changes of hands, but by 2003, Bulgaria’s economy finally took a turn for the better. GDP growth floated between 5.0% and 6.6%. Around this period, there was a boom in the real estate market as well. Inflation was kept low around 5%, miles away from the double and triple digits seen during the 1990s.
Bulgaria joined the European Union in 2007. Trade liberalization, topped with low interest rates and corporate tax rates encouraged investment and consumption. Despite its GDP being only 20% of the average EU country, Bulgaria ranks 51st in the Ease of Doing Business list, outranking most Eastern European countries. And today, Bulgaria’s foreign direct investment stands at EUR 1.18 billion, almost 2.8% of the national GDP. The country is the world’s largest producer of lavender and rose oil, and the Bulgarian lev is the strongest and most stable currency in Eastern Europe.
Frequently overlooked, Bulgaria’s economy is nothing short of a success story. Undoubtedly, low innovation and chronic corruption pose significant challenges to the economy’s expansion. There is still a lot to be done, but Bulgaria has come a long way. To transform a decimated economy into a flourishing one is no small feat. And in this area, Bulgaria has, in every sense of the word, succeeded.