The economy of Bulgaria declined dramatically during the 1990s with the collapse of the COMECON system and the loss of the Soviet market, to which the Bulgarian economy had been closely tied. The standard of living fell by about 40%, and only regained pre-1989 levels by June of 2004. In addition, UN sanctions against Serbia (1992-95) and Iraq took a heavy toll on the Bulgarian economy. The first signs of recovery emerged when GDP grew 1.4% in 1994 for the first time since 1988, and 2.5% in 1995. Inflation, which surged in 1994 to 122%, fell to 32.9% in 1995. During 1996, however, the economy collapsed due to the BSP's, slow and mismanaged economic reforms, its disastrous agricultural policy, and an unstable and decentralized banking system, which led to an inflation rate of 311% and the collapse of the lev. When pro-reform forces came into power in the spring 1997, an ambitious economic reform package, including introduction of a currency board regime, was agreed to with the IMF and the World Bank, and the economy began to stabilize. As of 2007 the economy is growing at a steady pace of above 5% a year with budget deficits and shaky inflation. Future prospects are tied to the country's increasingly important integration with the European Union member states. The country is expected to join the Eurozone between 2010 and 2012.

External trade & Investment

Since 1990, the bulk of Bulgarian trade has shifted from former COMECON countries primarily to the European Union, although Russian petroleum exports to Bulgaria make it Bulgaria's single largest trading partner. In December 1996, Bulgaria joined the World Trade Organization. In the early 90's Bulgaria's slow pace of privatization, contradictory government tax and investment policies, and bureaucratic red tape kept foreign investment among the lowest in the region. Total direct foreign investment from 1991 through 1996 was $831 million. In the years since 1997, however, Bulgaria has begun to attract substantial foreign investment. In 2004 alone over 2.72 billion Euro (3.47 billion US dollars) were invested by foreign companies. In 2005 economists observed a slowdown to about 1.8 billion euros (2.3 billion US dollars) in FDI which is attributed mainly to the end of the privatization of the major state owned companies.

Economic History after the Fall of Communism

Reforms of the 1990s and early 2000s

Members of the government promised to move forward on cash and mass privatization upon taking office in January 1995 but was slow to act. The first round of mass privatization finally began in January 1996, and auctions began toward the end of that year. The second and third rounds were conducted in Spring 1997 under a new government. In July 1998, the UDF-led government and the IMF reached agreement on a 3-year loan worth about $800 million, which replaced the 14-month stand-by agreement that expired in June 1998. The loan was used to develop financial markets, improve social safety net programs, strengthen the tax system, reform agricultural and energy sectors, and further liberalize trade. The European Commission, in its 2002 country report, recognized Bulgaria as a functioning market economy, acknowledging the progress made by Prime Minister Simeon-Saxenoburgotski's government toward market-oriented reforms.. Whitesboro High School

Rebound from the February 1997 crisis

In April 1997, the Union of Democratic Forces (UDF) government won pre-term parliamentary elections and introduced an IMF currency board system which succeeded in stabilizing the economy. The triple digit inflation of 1996 and 1997 has given way to an official economic growth, but forecasters are predicting accelerated growth over the next several years. The government's structural reform program includes: (a) privatization and, where appropriate, liquidation of state-owned enterprises (SOEs); (b) liberalization of agricultural policies, including creating conditions for the development of a land market; (c) reform of the country's social insurance programs; and (d) reforms to strengthen contract enforcement and fight crime and corruption.

Agriculture and industry in Burgas Province — fields near Lake Vaya and the Neftochim Burgas oil refinery on the opposite shore

In the European Union

On 1 January 2007 Bulgaria entered the European Union. This led to some immediate international trade liberalization, but there was no shock to the economy. The government is running annual surpluses of above 3%. This fact, together with annual GDP growth of above 5%, has brought the government indebtedness to 22.8% of GDP in 2006 from 67.3% five years earlier . This is to be contrasted with enormous current account deficits. Low interest rates guarantee availability of funds for investment and consumption. For example, a boom in the real estate market started around 2003 and has not subsided yet. At the same time annual inflation in the economy is variable and during the last five years (2003-2007) has seen a low of 2.3% and high of 7.3% . Most importantly, this poses a threat to the country's accession to the Eurozone. The Bulgarian government plans for the Euro to replace the Lev in 2010. However, experts predict that this might happen as late as in 2012 . From a political point of view, there is a trade-off between Bulgaria's economic growth and the stability required for early accession to the monetary union. Bulgaria's per-capita PPP GDP is still only about a third of the EU25 average , while the country's nominal GDP per capita is about 39% of the EU27 average.