The World Bank: Demographic problems will slow down Bulgaria's economic growth in the coming years

Bulgaria has one of the most stable fiscal positions as a result of prudent and conservative budget policy over the years, but in order to ensure prosperity and a good quality of life for society, serious challenges must be overcome. This was made clear by a report by the World Bank, which examined the revenue, efficiency and effectiveness of government spending in some sectors.

Among the conclusions, however, there are also recommendations - to improve the collection of VAT, to achieve greater efficiency in public procurement.

The document was presented at a press conference attended by the Deputy Minister of Finance Georgi Klisurski, the permanent representative of the World Bank in Bulgaria Lese Melgard, Jasmin Chakeri, Manager "Macroeconomics, Trade and Investments" in the Europe and Central Asia region of the World Bank, Desislava Nikolova, senior economist at the World Bank office in Bulgaria, who is one of the main authors of the report.

"Our economy continues to grow much faster than the average for Europe and this must remain as a trend so that we can reach the standard of living in the EU faster," said Georgi Klisurski at the opening of the event. He announced that 2023 was a record year for recent years in the amount of public investments invested in the economy, which is nearly 98% of the planned BGN 8.1 billion, and expressed hope that in 2024 all planned funds will be invested.

"Gradually, Bulgaria's economy will slow down significantly in the coming decades, unless very serious reforms are undertaken in the short term. This slowdown will be a consequence of the extremely negative demographic trend, namely, the loss of the working population. These negative geographical trends will lead to very serious pressure on public finances and on the country's budget. In terms of revenue collection, Bulgaria can achieve a lot," commented Desislava Nikolova.

Nikolova described some of the challenges facing our country's fiscal policy, such as the continued effect of some anti-covid measures, which put pressure on Bulgaria's public spending. An example of this is the preferential VAT rates in tourism, for restaurants and gyms. "Only in 2023 were those for heating and natural gas dropped," noted Desislava Nikolova.

It is this indirect tax that is the main source of revenue for the treasury, which is heavily burdened by social and health costs, inefficient education costs and public procurement.

Greater efficiency is needed in public procurement, education spending.

"At the same time, Bulgaria is characterized by a lack of flexibility in fiscal spending, and only North Macedonia ranks behind it in terms of this indicator in the region. Over 60% of all spending is inflexible, which limits the government's ability to react to shocks and forces them to cut discretionary* expenses such as investments," said senior economist Desislava Nikolova.

If action is not taken now, in the long term the potential for economic growth will be severely limited. "By 2050, if the necessary reforms are not undertaken now, growth may slow down to around 1.25%," predicts Desislava Nikolova.

* All measures and actions of the fiscal authorities that have an impact on the budget parameters and the main fiscal indicators are considered discretionary.