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The priority of the previous government was to create conditions to attract foreign capital investments. The current Bulgarian government continues a policy which was created to make Bulgaria as an attractive country for investors. The primary regulations were low taxes – 10% CIT, 10% PIT, and 20% VAT. Taxes linear PIT and CIT are the lowest in European Union, which implemented since 2008. Investment support capabilities defined in the Act to support the project which, depending on the size of the investment and destination, provides mechanisms such as short-time administrative support, relief for the acquisition of property rights and limited property rights, financial support for vocational training, infrastructure support, and others. The membership of Bulgaria in the European Union has a decisive influence on the trade policy and market openness of the country.[1]

Block of centrist-right wing citizens for the development of Bulgaria (GERB) won in accelerated parliamentary elections, held on 5th October. However, the party led by former PM Boyko Borisov hasn’t obtained the majority of votes and will have to work with other parties in a highly heterogeneous parliament to former a government coalition. The new government will face the challenge of going away from the country’s worst banking crisis for almost two decades. Although the country has the political instability over the past two years, it’s expected that the economy will grow by 1.6% in 2014 and 2.2% in 2015.

According to the earliest data, Bulgaria’s GDP has increased in the second quarter of 2014 by 0.5%, compared to the first quarter of 2014 and gross added value grew by 0.6%.According to the earliest data for the second quarter of 2014, total consumption decreased by 0.4%, compared to the previous quarter and gross fixed asset increased by 0.8%, export of goods and services grew by 2.0% but import of goods and services dropped by 1.2%.According to the seasonally adjusted data, in the second quarter of 2014 GDP growth was 1.8%, compared to the same quarter of 2013. In the second quarter of 2014, gross added value increased by 2.3%, compared with the same quarter of previous year. In relation to GDP, which measured from the final result, a positive contribution to the economic growth was public consumption that increased by 2.3% and gross fixed assets which increased by 3.9%. Exports and imports of goods and services recorded an increase by 3.4% and 3.9%, compared to the same period of the last year.

According to the data of the Bulgarian National Bank, accumulated value of foreign investments in Bulgaria amounted to 38157.2 million euro at the end of 2013. In the context of foreign direct investments in Bulgaria, marketing investments and transactions related to real estate (7718.2 million euro) have the biggest share which followed by investments in the processing industry (6614.2 million euro), investments in financial intermediation (6330.1 million euro) significant investments have been made in the sphere of trade (5470,1 million euro) and transport services storage and communication (4235,0 million euro).

According to the preliminary Bulgarian National Bank, which will be subject to verification yet, in 2013, influence of the FDI to Bulgaria was at the level of 1092.4 million euro (2.7% of GDP RB) which represents 102% of the funds attracted in 2012, during which foreign direct investments amounted to 1070,3 million euro. For comparison it should be noted that the FDI in Bulgaria in 2008 was 67272.8 million euro, in 2007 – 9051.8 million euro, 2006 – 6221,6 million euro. As you can see, there was a multiple drop compared to the average results from the years before the crisis.

According to the preliminary data of the National Bank of Bulgaria, the cumulative value while Bulgarian investments abroad were 1653.0 million euro at the end of 2013.

The World Bank has confirmed its forecast that the economy of Bulgaria will rise by 1.7% in 2014. According to the expectations of the institution in 2015, the pace of growth of the Bulgarian economy will grow by 2.4% and in 2016 – 2.8%. Based on the forecasts of the International Monetary Fund (IMF), the current growth of the Bulgarian economy will reach 1.6% and 1.7%.

According to the European Commission forecasts, the GDP growth will reach 1.7% and 2% in 2014 and 2015, respectively. Risk for the future development of the GDP growth in Bulgaria is also an unstable political situation, resulting with the second parliamentary elections in less than 1.5 years’ period as well as the effects of the turmoil in the banking sector, which took place in June 2013. There was then a temporary destabilization of the Bulgarian banking system as well. This was the result of spreading information about the insolvency of two leading banks of Bulgaria (Corporate Commercial Bank and First Investment Bank) and caused the withdrawal of deposits from these banks.

Interventions of the Central Bank, the launch of a line of credit from the European Commission (BGN 3.3 billion), the provision of international institutions (European Commission, IMF) on the stability of the Bulgarian financial system and the solid foundations of the economy saved the situation in the markets. Instability in the Bulgarian banking sector, which has apparently been mastered by the determined action of the monetary authorities and international institutions, showed that the country's banking system is very sensitive to threats.[2]

[1] Polish Republic Embassy in Sofia, Department of Trade and Investment Promotion

[2] Polish National Bank, The economic situation in the countries of Central and Eastern Europe, 2014