Bulgarian political crisis could threaten achievements

08/03/2013

Some of the demands raised by protesters in Bulgaria could be harmful for the country's economy, Bulgarian EU Commissioner Kristalina Georgieva warned.

By Svetla Dimitrova for Southeast European Times in Sofia -- 08/03/13

Protests over unemployment and monopoly control continue in Bulgaria. [AFP]

The continuing protests and the resignation of the government may slow down the pace of reforms or the conclusion of certain investment deals, but should not have a direct impact on the Bulgarian economy, experts said.

"The [2013] budget has been approved ... so, there is no drama with the economy … but there is a drama with the monopolies, with the [utility] bills, with incomes and the lack of jobs," Peter Ganev, senior researcher at the Sofia-based Institute for Market Economics, told SETimes.

While those are mostly long-term problems, he added, in the short-term, it is critical to have "a really strong caretaker government" made up of people fit for the positions they will take.

The calls by protesters for stronger control over monopolies and for steps to improve the efficiency of the social system in the 27-nation bloc's poorest member were well-founded and reasonable, the Balkan country's EU Commissioner, Kristalina Georgieva, said.

Many Bulgarians took to the streets on February 10th to protest their high electricity bills. Calls emerged quickly for the nationalisation of the three power distributing companies on the local market -- the Czech Republic's CEZ and Energo-Pro, controlling western and northeastern Bulgaria, respectively, and Austria's EVN, providing electricity to consumers in the southeast.

Georgieva echoed warnings by many other Bulgarian economists about the detrimental effect of a move in that direction.

"Nationalisation could lead to greater risks and inflict major economic damage," she told Bulgarian National Radio.

While being the poorest EU nation, Bulgaria has been boasting about its financial discipline and stability. The country's sovereign debt stands at 15 percent of GDP, making it one of the lowest within the Union.

The Balkan nation also continues to top the EU shadow economy ranking. An EC communication of June last year said it was estimated to account for 32.3 percent of Bulgaria's GDP in 2011.

According to a recent study by Sofia-based think-tank Centre for the Study of Democracy, hidden economy in the country declined slightly between 2011 and 2012, but still accounted for more than 30 percent of GDP.

"The rising unemployment and lack of labour force re-entry is most probably compensated by an increase of employment in the informal economy that could be also contributing partially to the decrease of undeclared employment," Martin Tsanov, Centre for the Study of Democracy analyst, told SETimes.

Other factors included "a decline in tax evasion practices" and "reforms to improve VAT compliance," such as "the introduction of a mandatory real time link between fiscal devices and NRA [National Revenue Agency] servers."

But Dimitar Manolov, vice-president of Bulgaria's Podkrepa Labour Confederation, said even a modest decrease in the level of hidden economy could be reversed as a result of the political turmoil in the country.

"It would be logical to expect such a turnaround if the institutions tasked with ensuring the observance of the rules are not working properly," he told SETimes.

He said he was concerned that this could lead to a drop in tax collection and the payment of social security contributions, both elements of hidden economy.

This content was commissioned for SETimes.com.