Bulgaria Economy Essay

Alongside the north coast of Black Sea, the Bulgarian state was first founded in 635 A. D with the Slav and Bulgar peoples. Between the year 893 and 927 the first Bulgarian Kingdom was established which is known as the â€Å"Golden Age† in the history of Bulgaria. In the early 20th century social and political disorders blemished Bulgaria and forced the country to participate in the First Balkan War in 1912 and then in the Second Balkan War in 1913. Bulgaria also took a part in the World Wars first by associated with the Central Powers and then with the Axis Powers. In the beginning of the Second World War, the country united with the Germany, but towards the end of the war it changed its position for fighting with the German troops that resulted in the killing of 30,000 Bulgarian soldiers. Communism came forward and materialized dominantly in the political environment of the country in 1944 when the Soviet soldiers entered into the territory of Bulgaria and the Axis power crushed in the Second World War. Gradually the country turned as the protectorate of the Soviet Union during the era of Cold War. With dethrone of Todor Zhivkov, thethen head of the Communist Party of Bulgaria, democratic change took place in the country. In 1991 the first egalitarian parliamentary elections occurred in Bulgaria. In 1992 the country experienced its first ever direct presidential elections. Bulgaria, which comes out through the agonizing struggle and trouble of communism, faced various social disorder and economic turmoil that ultimately ended with the huge economic and financial crisis in the period of the late 1996 and the early 1997. However, the economy of Bulgaria came back to the stabilizing path with a series of reforming initiatives taken by Ivan Kostov, the former prime minister of the country. (Background Note: Bulgaria, November 27, 2009). Overtime, Bulgaria has gradually emerged as a market-driven economy from an old command economy. In 1996, the country experienced major economic crises in the form of banking system disorder, depreciation of currency, reduction of production as well as foreign trade. Dwindling foreign exchange reserves and significant increase in rates of interest further aggravated both the burden of domestic debt and growth of the country. Within a period of one year gross domestic product dropped by almost 11% in 1996 while it experienced a 2% increase in 1995. In the late 1996 privatization model was accepted, but the privatization of the public sector industries declined. During this period the IMF disbursed almost $580 loan to Bulgaria. But the country failed to augment its structural reform process. This lack of progress of Bulgaria insisted the IMF to postpone the loan sanctioned to the country. For avoiding needless spending and huge inflationary pressure, the IMF proposed to form a currency board to renovate the confidence of the country. In this case Mr. Ivan Kostov (UDF), the former Prime Minister of Bulgaria, who got the crown in 1997, played the leading role to launch the ambitious reform programs. With such initiatives the currency board was set up on July 1, 1997 to bring back the stability and growth in the economy of Bulgaria. The outcome of the formation of the currency board was seen by the fall in inflation rate. While the rate of inflation was a three digit number in 1997, it was slashed to 1% in 1998. A decrease in the inflation rate, a decrease in interest rate and an increase in the foreign investment were followed by the formation of the currency board. The government of Bulgaria also assured to sell off some of the assets of the country. Though the country faced a 7. 4% drop in its GDP in 1997, it expected the GDP to bounce back in 1998 to an estimated level of 2%. The government of Bulgaria also took some other initiatives like achieving the success of land reform policy, the process of privatization and the reform of the banking system, etc. as its other prime objectives. The government of Bulgaria has taken the steps to provide a strong and sustainable growth in the GDP of the country by learning the lessons from the fall of GDP in the years 1996 and 1997. For reducing the level of unemployment and sustaining the growth of production of the economy, Bulgaria has taken all the required steps from time to time. The governments have taken the necessary measurements to reduce the level of both the individual and the corporate taxes, curb the corruption and draw the flow of foreign investment into the country. The government of Bulgaria has also taken the steps to restructure the foreign debt policy of the country, restore and stimulate the stock market and aggravate the process of privatization of the some of the major state monopolies. All such steps of the country have led the European Commission to declare that Bulgaria is â€Å"Functioning Market Economy† in October 2002 as its main economic policy. (Background Note: Bulgaria, November 27, 2009). All the successive governments have maintained such reform and ultimately Bulgaria has taken the membership of the European Union in 2007. A World Bank report suggests that Bulgaria has been able to draw the maximum levels of flow of foreign direct investment among all the nations of Eastern Europe as a percentage of GDP in 2006. The government of Bulgaria has brought down the rate of corporate tax to 10% in 2007 to magnetize the additional flow of foreign capital in the country. Such a corporate tax rate has been reported as the lowest rate in the whole Europe. The cost of domestic labor has also dropped through the legislation of the flat personal income tax level of 10% in January 1, 2008. To enhance the stability in local economic functioning, the Bulgarian parliament has taken the policy of fiscal decentralization for the municipalities so as to provide them the power of collection and supervision of some taxes. Such a step was taken by responding the increasing demand for independence of financial procedures of the local governments of the country. The achievement of the country towards the restructure of its fiscal policies and tax reforms, however, somewhat wiped out by the recent global financial crisis and economic turmoil that started from the middle of 2007. Such a worldwide global dwindling phase has forced the Bulgarian economy to be trapped by the vicious circle of recession at the end of 2008 after experiencing a prolonged 10 years steady growth. The effect has been seen in the mounting household debt and the increased rate of unemployment in the country. In this situation the government has responded by taking an â€Å"anti-crisis† strategy for strengthening fiscal recovery and promoting economic stability. To increase the power over the funds of the European Union, the government has also given its commitment. Such governmental steps are also expected to fight the crime and the corruption in the Bulgarian economy in an organized way. (Economy in Bulgaria, n. d. ). Let us look at some of the basic statistics which are very helpful to assess the present economic structure of the Bulgarian Economy and its overall development. It is a known fact in the history of mankind that the identification of the goals of economic development has not been properly done by human. (Todaro and Stephen, 2009, p 16) The Bulgarian economy has been designated as an economy with an upper and middle income nation by the World Bank. Though in the recent past the country has exhibited a steady trend in its growth, it is one of the least developed nations of Europe. The economy of Bulgaria heavily dependent on the industrial sector, but in recent past the service sector has also contributed to the growth of the country’s GDP. Petroleum, copper, gold, coal, beverages and tobacco, fruits, electronic tools and items, vehicle machineries, nuclear fuel, iron, construction items, sunflowers, wine, barley, etc. , are some of the major products of the country. From 1996 to 2008, over a period of 12 years, the country has able to maintain a growth of 6% and more. The huge inflow of foreign direct investment in the country has helped it to maintain such a significant rate of growth. However, the latest global recession has adversely affected the country on its export sector as well as on its capital inflow. This in turn has affected the growth of the country. The GDP of the country has fall to 5% in 2009. In terms of purchasing power parity, the GDP of Bulgaria has dropped to $90. 54 billion in 2009 from the level of $95. 1 billion of 2008. In terms of absorption of the work force of the country, the agriculture sector contributes 7. 5%, whereas industry contributes 27. 6% and service sector contributes 64. 9%. According to the estimation of 2009, the total work force of the country is 2. 63 million. The share of unemployed population in 2009 stands almost 9. 1% in the total working population. The corrupted system of public administration, feeble judiciary system and the increasing criminal activities has led almost 14. 1% of the population of Bulgaria to live their lives below the poverty line and under a greater hardship. (Bulgaria Economy, n. d. ). The estimated per capita GDP of the country has dropped to $12,600 in 2009 from the level of $13,100 in 2008. The estimated percentage of GDP of the country in agriculture, industry and services sector are 7. 5%, 27. 6% and 64. 9% successively. The estimated level of unemployment of Bulgaria has risen to 9. 1% in 2009 in comparison with 6. 3% in the previous year 2008. Total estimated gross investment in 2009 of the country is 28. 6% of GDP. The estimated amount of public debt has risen to 21. 4% of GDP in 2009 from the level of 14. 1% in 2008. The growth rate of industrial production in 2009 has been estimated as negative and stands at -14% of GDP. The estimated foreign exchange reserve and gold has also dropped to $16. 49 billion on December 31, 2009 from the level of $17. 93 billion on December 31, 2008. In response to the unfavorable effect of the global financial turmoil on the economy of Bulgaria, the government has taken many steps to strengthen the economy. Such governmental initiatives are supported by various statistics. The estimated public debt of Bulgaria has dropped to 21. 4% of GDP in 2009 as compared to the 14. 1% of the year ago. Estimated rate of inflation in terms of consumer prices has also decreased to 2. 7% in 2009 from that of 12. 3% in 2008. The prime lending rate of the central bank of Bulgaria has been increased to 10. 86% in December 31, 2008 from that of 10% in December 31, 2007. The stock of domestic credit has increased to $32. 04 billion in December 31 which was $17. 03 billion in December 31, 2007. (Bulgaria Economy 2010, February 8, 2010). According to the latest available data as published by Nation Master, the external debt of Bulgaria has increased to $3488 million which is a very high amount. In terms of Gini index, which is the measure of degree of inequality in the distribution of family income, the country has been ranked as 103rd out of 133 nations in case of its equal distribution of family income. (Economy, 2010). For analyzing the socio-economic structure and development issues of Bulgaria we should study the basic education system, healthcare system, urbanization process and migration and the strategies of the country to develop the economy in the presence of corruption. The minority communities of Bulgaria are protected by many international instruments according to the 1991 new Bulgarian constitution. Such a constitutional structure has established the superiority of the international law over the national law of Bulgaria. Such international norms and regulations have made the basic principles of the legislation of the country through which the government of Bulgaria is able to control and adjust the common rights of its citizens who vary across the languages of their respective communities, religions and cultures. However, there are many problems in the country associated with the minorities. Such problems are not only related with the cultural or religious variations but also basically with the economic and social values of the citizens. (Karasimeonov, n. d. ). The government of Bulgaria is very concerned to respect its citizen’s human right. In past, there were, however, some problems in many areas. The citizens who were the member of minority population of the country were suspected by the law enactment officials. The prisoners were also mistreated and misbehaved. The degree of arbitrary arrest, police violence and exploitation were very common in the country. The prevalence of corruption and other problems associated with the system led the judicial structure of the nation to suffer greatly. The press was also restricted to freely expose the views. In Bulgaria there were also many barriers on some of the religious groups of the nation. They were strictly deterred to present their cultural and religious outlooks. Communal harassment was very common in the country. Social discrimination between the men and women was very high and the violence against the women was vastly prevalent in the society. The increasing problem of child labor in the country have also setback the economy of Bulgaria. Throughout the ruling of all the political organizations in Bulgaria, corruption and crime has remained the basic concerning factors of all the governments. To fight against the corruption and to increase the awareness of its citizens, the government of Bulgaria has formed the inter-ministerial anticorruption commission in 2002. To combat against corruption though the Bulgarian government has taken various methods, the European Union, however, has argued that the country is still facing many problems associated with the presence of corruption in the economy. The Union has recommended for the requirement of rehabilitated efforts to tackle such advanced and sophisticated corruption. (Corruption and Anti-corruption Policy in Bulgaria, 2002, pp 102-104; Bulgaria, February 28, 2005). The education system of Bulgaria is basically national in nature, but also affected significantly by foreign controls. In the 19th century the educational system of the country was highly motivated and influenced by the impact of Soviet Russia. The influence of Western Europe and the American educational culture are also significant on the overall educational environment of Bulgaria. However, to bring the country’s educational system in the line of Western European process of education the educational system of Bulgaria has been reformed. With such initiative to reform the educational system of the economy, Bulgaria has supported the agreement with the European Union. (Bulgaria- Educational System- overview, 2010). Development is the concept of freedom of human. The Human development index consists of the status of health, education and the income (Todaro and Stephen, 2009, p 19-21). The Human Development Index of Bulgaria is . 808 which has given it the rank of 55 among the 178 nations. (Economy 2010). In the early 20th century the proportion of residents who lived in the cities with their counterparts who lived in the villages were merely 20 percent. In 1945 the proportion has increased to almost 24 percent and at the end of 1990 it has been seen that more than 6 million people resided in the cities while less than 3 million population of Bulgaria resided in the villages. Such a change in demographic movement is well enough to argue that Bulgaria has experienced the pace of urbanization with the passage of time. Since almost 66% of Bulgarian migrants has relocated in the same states of the country, so there has not been seen any sharp decline in the regional population ratio. The demographers, however, are very concerned over the decline of the population of the villages. They are very concerned over the skewed distribution of population towards the cities. The 1990 democratization activities have raised many debates over the issue of agricultural privatization program of the government. (Curtis,1992). References: 1) Todaro, P, M and S, C, Stephen (2009), â€Å"Economic Development†, Pearson Education Limited, 10th Edition, England. 2) â€Å"Background Note: Bulgaria† (November 27, 2009), Bureau of European and Eurasian Affairs, U. S. Department of State. Available at: http://www. state. gov/r/pa/ei/bgn/3236. htm Access On: May 18, 2010 3) â€Å"Economy in Bulgaria† (n. d. ), World66 Available at: http://www. world66. com/europe/bulgaria/economy Access On: May 18, 2010 4) â€Å"Bulgaria Economy† (n. d. ), EconomyWatch Available at: http://www. economywatch. com/world_economy/bulgaria/ Access On: May 19, 2010 5) â€Å"Economy† (2010), Bulgaria, Europe, NationMaster. com Available at: http://www. nationmaster. com/country/bu-bulgaria/eco-economy Access On: May 19, 2010 6) â€Å"Bulgaria Economy 2010† (February 8, 2010), Countries of the World. Available at: http://www. theodora. com/wfbcurrent/bulgaria/bulgaria_economy. html Access On: May 19, 2010 7) Karasimeonov, G, (n. d. ), â€Å" The constitutional Rights of Minorities in Bulgaria† Available at: http://www. cecl. gr/RigasNetwork/databank/REPORTS/r9/BU_9_Konstantinov. html Access On: May 20, 2010 8) â€Å"Corruption and Anti-corruption Policy in Bulgaria† (2002), Open Society Institute Available at: http://info. worldbank. org/etools/antic/docs/Resources/Country%20Profiles/Bulgaria/OpenSocietyInstitute_CorruptionBulgaria. pdf Access On: May 20, 2010 9) â€Å"Bulgaria† (February 28, 2005), Bureau of Democr