Following the enlargement of the European Union with new members from Central & Eastern Europe in 2004, when eight of ten new entrants were ex-Communist countries, Bulgaria joined the European Union in 2007. Bearing completely different economic and socio-political features than most of the older EU members, particularly its Western partners, Bulgaria is one of the poorest among the EU-27 member states. However, despite the difficulties to transit smoothly from a centrally-planned economy to a fully-functioning market, the country's regime has accomplished a lot since it started altering the political and economic environment in order to acquire the EU membership. In fact, the lowering of trade barriers in the EU trading block signified a new era for foreign direct investment and particularly, in Bulgaria trade liberalization seems to be the key driver for further economic growth. On the other hand, radical reforms are still required in the areas of crime, corruption, border controls and obsolete ways of administration.
The National Development Plan 2000-2006 was developed to achieve a sustainable low-inflation economic growth as a precondition for increasing incomes and improving living conditions in the country. To join the EU Bulgaria finalized its structural reform, harmonized its institutional system with European legislation, increased the competitiveness of the economy through improvements in basic infrastructure such as transport, energy, and telecommunications, improved education, proceeded to reforms in healthcare and social insurance, improved the quality of manpower and human resources, and focused on key export-oriented sectors with good long-term prospects. Having introduced measures to decrease its deficit and by maintaining a macroeconomic stability, Bulgaria makes a steady progress on structural reforms, which improve the economic and investment climate and attract substantial amounts of foreign direct investment. The establishment of competitive markets and the limitation of state interference in the economy have brought economic and political stability as well as international recognition.
One major implication for the Bulgarian economy is the fact that Bulgarian Lev is pegged to the Euro (1~ = 1.96486248 BGN), and therefore it has little control over its interest rates that are linked to the European Central Bank (ECB) levels. Bulgaria will adopt the Euro in 2009. Another implication is inflationary pressures. In December 2007, Bulgarian inflation was 12.5%, which is the second-highest in the European Union after Latvia. Bulgaria has to control inflation through a sustainable budget because it may produce an unsustainable situation in consumer credit and spending in the near future.
Moreover, corruption in the public administration, a weak judiciary, and the presence of organized crime remain the largest challenges for Bulgaria. Also, the privatization process is complex. Bulgarians are not enthusiastic to participate in a new system of ownership, which favors foreign involvement while locals endure job loss. The biggest sectors undergoing privatization are agriculture, construction, and the food-processing industry.
Bulgaria continues to attract a lot of foreign companies through FDI and will proceed to further privatization of Bulgarian companies through the Bulgarian stock exchange. Moreover, given that Bulgarians would like to keep their national identity as they step towards a new future in Europe, the Bulgarian government will continue to put great effort in making Bulgarian people feeling secure enough to start generating extra revenue. The question is how quickly Bulgarians could step up spending, especially as, still, there seem to be few ways of generating this revenue.
Overall, Bulgaria is a slowly running economy with upward macroeconomic potential. Having become a large pole of attraction for foreign direct investment, it has done a great progress in privatizations and has achieved high rates of consumption expenditure and real GDP growth. On the other hand, the progress is also partially superficial. The race against Crime and Corruption has made large steps towards the right direction, but only regarding the legislation. High levels of corruption reduce the level of international trade and the economic growth rate thus hurting the economy.
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