Key Challenges

Need to improve
rule of law
Governments in Bulgaria face the challenge of breaking away from the tradition of conducting public affairs without dialogue while introducing greater freedom of expression and battling inefficiencies with regard to the rule of law. In addition, governments will have to contend with a prosecutor general who acts with impunity in protecting his friends in government.
Weaknesses and
During the review period, the industry, transport and tourism sectors have been challenged with high electricity prices. EU recovery transfers were delayed due to a postponed submission of the National Recovery and Resilience Plan and are therefore not likely to be received before the fall of 2022. The government failed in 2021 to outline judicial reform steps and plans to decommission the lignite-fired thermal power plants. Weaknesses in economic policy (i.e., government-mandated minimum-wage and pensions, public procurement and education) continued and even worsened in the run up to the 2021 elections.
Budget revenues for 2021 showed growth. Various economists and the Fiscal Council recommended a balanced budget in order to allocate 2022 expenditures. However, the government chose instead to spend in December, and to run a sizable deficit in 2022. The inflation that has since ensued is likely to compromise the plan to adopt the euro. Given the lack of consensus within the coalition, Prime Minister Petkov’s cabinet will also likely prove unable to reintroduce stricter than EU fiscal rules (a medium-term balanced budget target, 2% deficit allowance, a public spending and general government debt ceiling of 40% of GDP), which Bulgaria had adhered to since 2012.
Job creation rate has
fallen; greater
openness needed
Bulgaria’s average annual GDP growth rate of 2.5% for the years 2013-2019 was twice below the average of 5% recorded for the ten years before 2009. Due to demographic trends and labor market regulations, job creation is now only 1/2 of what it was from 2002 to 2008. Investment growth has fallen to 1/10 of the growth rate achieved in 2002-2008 as a result of much lower FDI. Productivity has grown at a rate 30% less than that recorded before 2013. In order for Bulgaria to achieve faster growth and reach parity with the EU, it will need greater access to foreign capital and improve its labor market flexibility. It will also need to open itself to Europe and the world, reform its education system, boost R&D in the country to improve its human capital, meet the demand for qualified labor, reduce NEET numbers among minorities and fix the pension system. Realizing the potential of key economic drivers (e.g., increases in skill levels, labor-force activation rates, innovation capacity, productivity and policy effectiveness) remains a serious challenge.
Unused potential in
energy sector
Bulgaria has developed various technologies (e.g., electricity from Black Sea hydrocarbons and sulfur hydrogen, carbon and power storage, as well as other alternative energy sources, especially in district heating and biological waste recycling) that may reduce its energy dependency and enhance its performance in terms of the Green Deal. However, this issue was not given its proper attention by the governments in 2021.
Judicial reform needed
Judicial reform, and in particular with regard to the prosecution service, is a key factor affecting Bulgaria’s ability to meet these challenges.
Pandemic takes
high toll in lives
As of 12 January 2022, Bulgaria has recorded the world’s second highest number of COVID-19 deaths per one million. The absolute number of deaths in 2021 (148,000) was the country’s second-highest since 1888 (the number of fatalities in 1918 due to war and influenza remains the highest at 151,000). In terms of deaths per 1,000 the 2021 number is 22, the country’s highest mortality rate since 1919. In 2020, this number fell to 18 (2014-2019 average of 15.3). Even if Bulgaria’s situation is arguably not unique in this regard, the entire healthcare system is in need of reform which, in terms of hospital beds and medical personnel, nonetheless has advantages compared to the EU.
Aging population
The 2021 census found that the population under 17 years of age declined to 15.9 (from 16.1 ten years ago), while the population of pensioners increased by 5.4%, from 18.5% to 23.9%, over the same period. Bulgaria’s pension policies, which remain centered on the State Pension Fund (SPF), are unsustainable. The pension system’s private pillar recorded a total of €19.5 billion in assets for 2021 (16.3% of 2021 GDP). Taxpayers’ transfers to the SPF amounted to 6% of GDP in 2021.
Gaps in infrastructure
Despite visible improvements over the last decade, infrastructure continued to be a challenge, especially at the regional level and with respect to protecting nature and the environment.
International tensions
Whereas polarization over internal policy issues may be fading, disagreements over relations with Russia, North Macedonia and NATO may bring about unexpected tensions and political instability.

Party Polarization

Nationalistic parties gaining influence
The November 2021 elections increased the bargaining power of the nationalistic parties, who used historical disputes and purported human rights issues as their primary justification for vetoing Bulgaria’s EU accession negotiations with North Macedonia (and, effectively, Albania). The issue was amplified by the campaigns that followed, with some parties using the policy as “red line” in interparty deliberations. Bulgaria’s traditionally nationalist parties failed to gain ground in the elections, but a new, even more radical, ethnonationalist political party, Revival, came to the foreground. Revival, like the more traditionally nationalist parties, opposes policies aimed at battling COVID-19, adopting the euro and Bulgaria’s membership in NATO and the EU. At the same time, it advocates cultivating closer ties with Russia and voices its support for the Kremlin’s policies.
Broad coalition government
The elections delivered a new pro-EU party, the Change Continues (CC), the largest gain in the number (77) of seats in parliament, though its total remained far below the 121 needed to form a cabinet. CC’s success demanded across-the-spectrum negotiations to form a cabinet. Bulgaria has not seen such a broad coalition government since the 1920s.
Divides within coalition
Party polarization within the ruling coalition becomes clear in any number of topics, including North Macedonia’s EU accession, relations with the Russian Federation, NATO security challenges in the Black Sea region and ROSATOM’s nuclear power station project.
Spending disagreements
The legacy of the pre-electoral period and the policy of high levels of government spending is another divisive topic.
Voters tiring of instability
Cross-party consensus on policy and legislative matters is still possible. With the exception of Revival, which calls for the government to resign and advocates a revolutionary occupation of the parliament, all of the country’s parties recognize voters’ weariness with regard to the frequency of elections, as evinced by the unprecedented low turnout in the November 2021 election. Revival’s radical rhetoric and actions, however unjustified and unconstitutional they are, will take dominate political theater in the country as long as the COVID-19 pandemic and economic difficulties continue, thus undermining cross-party consensus. (Score: 6)
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