Weekly Briefing, Vol. 65. No. 2 (BG) September 2023
Main Trends in the Development of the Bulgarian Economy for the first half of 2023
Summary
At a meeting on 13 September, the Council of Ministers approved the report on the financial implementation of the so called consolidated fiscal program for the first half of 2023. Based on the data from the quarterly reports on the implementation of the budgets of the primary budgetary authorities, the budget balance of the consolidated fiscal program for the first half of 2023 is positive in the amount of EUR 88.9 million (0.1% of the estimated GDP) and is formed by an excess of revenues over expenditures in the national budget in the amount of EUR 82.3 million and in the European funds in the amount of EUR 6.5 million. At the same time, data from the National Statistical Institute show that in the second quarter of 2023 gross domestic product (GDP) grew by 1.9% and gross value added by 2.2% compared to the second quarter of 2022.
The slow cooling of the Bulgarian economy, which started at the beginning of the year, continued in the second quarter. Data from the National Statistical Institute show that the country’s GDP grew at a slightly slower pace compared to the first quarter of the year – by 1.9% on an annual basis and by 0.4% on a quarterly basis. Consumption continues to be the main driver of the economy, but while its growth rate is slowing, that of net exports and investment is slightly higher. According to the statistics, the Bulgarian economy is growing at the slowest pace in more than two years.[1]
This was very much expected since the forecast for Bulgarian economy was to slow down this year to 1.3-1.8%. The influencing factors are mainly external and are related to the slowdown of the European economy, high inflation and rise in interest rates as well as China’s slow recovery.
In the second quarter of 2023, the GDP produced amounts to EUR 21 635 million at current prices according to preliminary data. The per capita value of the indicator is EUR 3 356. The gross value added (GVA) generated by the sectors of the national economy in the second quarter of 2023 amounts to EUR 19 104 million at current prices.
In the second quarter of 2023, the relative share of the agricultural sector in the value added of the economy is 4.2%, an increase of 0.2 percentage points compared to the second quarter of 2022. The industrial sector decreased its relative share in the value added of the economy by 2.0 percentage points to 30.0%. The relative share of value added generated by service sector activities increased to 65.8 percent in Q2 2023 from 64.0 percent in Q2 2022.
In the second quarter of 2023, 79.7% of GDP is spent on final consumption. Investment (gross fixed capital formation) accounts for 17.6% of GDP. The external trade balance of goods and services is positive (but it is not the case when it comes to the whole 6 months period).[2]
The growth of Gross Value Added is determined by the increase in the following economic activities: construction – 5.8%, trade, repair of motor vehicles and motorcycles; transportation, storage and post; hotels and restaurants – 4.6%, professional activities and scientific research; administrative and support service activities – 4.4%, agriculture, forestry and fishing – 4. 2%, Creation and distribution of information and creative products; telecommunications – 3.1%, Public administration; education; human health and social work activities – 1.9%, Financial and insurance activities – 1.8%, Culture, sport and entertainment; other activities – 1.0% and Real estate activities – 0.9%.[3]
In terms of Bulgaria’s foreign trade, National Statistics data show that for the first half of the year Bulgaria’s exports of goods to the EU decreased by 5.4% compared to the same period of 2022 and amounted to 14 472 million euro. Bulgaria’s main trading partners are Germany, Romania, Italy, Greece and France, which account for 61.9% of exports to EU member states.[4]
Regarding the export of goods from Bulgaria to the EU, the highest growth compared to the same period of 2022 was recorded in the sectors “Non-alcoholic and alcoholic beverages and tobacco” (16.7%). The largest decrease was observed in the sector “Animal and plant fats, oils and waxes” (71.5%).
Imports of goods into Bulgaria from the EU in the period January – June 2023 increased by 1.0% compared to the same period of 2022 and amounted to EUR 14 939 million. The largest value volume of goods imported from the EU is from Germany, Italy, Romania, Greece and the Netherlands.[5]
Regarding imports of goods from the EU, the largest increase compared to the same period of the previous year was recorded in the “Machinery, equipment and vehicles” sector (20.7%). The largest decrease was observed in the sector “Mineral fuels, oils and related products” (65.5%). Bulgaria’s foreign trade balance with the EU in the first six months of 2023 was negative and amounted to EUR 466.4 million.[6]
As for Bulgaria’s trade with non-EU countries, for the first six months of the year Bulgaria’s exports of goods to third countries decreased by 4.6% compared to the same period of 2022 and amounted to 8 975 million euro. Bulgaria’s main trading partners are Turkey, the US, China, Serbia, Ukraine, the Republic of North Macedonia and the UK, which account for 52.5% of exports to third countries.[7]
Regarding the export of goods from Bulgaria to non-EU countries, the highest growth compared to the same period of 2022 was recorded in the sectors “Fats, oils and waxes of animal and plant origin” (29.0%) and “Machinery, equipment and vehicles” (21.3%). The largest decline was observed in the sector “Mineral fuels, oils and related products” (38.5%).[8]
Imports of goods to Bulgaria from third countries for the first half of 2023 decreased by 20.0% compared to the same period of 2022 and amounted to EUR 11 230 million. The largest value volume of imported goods is from Turkey, the Russian Federation, China and Serbia.
The largest increases were recorded in the Food and Live Animals (18.1%) and Soft and Alcoholic Drinks and Tobacco (16.6%) sectors. The largest decrease was observed in the sector “Animal and plant fats, oils and waxes” (39.8%). Bulgaria’s foreign trade balance with third countries for the first half of the year was also negative and amounted to EUR 2 254 million.[9]
Meanwhile, on 13 September 2023 the Council of Ministers of the Republic of Bulgaria took a decision on the approval of the report on the cash execution of the so called consolidated fiscal program for the first half of 2023.[10]
The data show that the budget balance under the consolidated fiscal program for the first half of the year is positive in the amount of EUR 88.97 million (0.1% of the estimated GDP) and is formed by an excess of revenues over expenditures of the national budget in the amount of EUR 82.3 million, and European funds – EUR 6,5 million. The results are based on a database of the quarterly reports on the cash execution of the budgets of the first-level budgetary organizations.
As of June 30, the revenues, aid and donations received amounted to EUR 16.022 billion or 45.2% of the annual estimates. The total increase in tax and non-tax revenues compared to the same period last year was EUR 1.71 billion (12.6%), and receipts from aid and donations (mainly grants under EU programs and funds) were less by EUR 107 million (15.1%).[11]
The Ministry of Finance has calculated that the total amount of tax revenues, including income from social security contributions, amounts to EUR 12.540 billion, which represents 46.2% of the tax revenues planned for the year.
Non-tax revenues bring to the treasury EUR 2.867 billion, which represents 50.4% of the annual estimates. Non-tax revenues are formed mainly from revenues from state, municipal and court fees, from property income, from concessions as well as from the sale of quotas for greenhouse gas emissions.
The expenses, which include Bulgaria’s contribution to the EU budget, amounted to EUR 15.979 billion at the end of June, which is 42.2% of the annual estimates. Compared to the same period last year, they increased nominally by 15.4% or EUR 2.121 billion.
In the individual expenditure indicators, the most significant growth is in pension costs, where the increase is EUR 1.040 billion), as well as in the part of personnel costs and capital expenditure. The increase in expenditure is due to regulations that have entered into force, including changes in the pension sector, active programs for paying compensation to consumers of electricity, payment of budget obligations of the regional ministry, as well as for increased amounts of remuneration in a number of administrations that came into force.[12]
The size of the fiscal reserve of Bulgaria at the end of June was EUR 6,5 billion, and it includes deposits of the fiscal reserve in the BNB and other banks, as well as receivables from the funds of the European Union for certified expenses and advances.[13]
Conclusion
The slow growth of the Bulgarian economy is due to the weakening of Bulgaria’s major trading partners, which are experiencing difficulties due to the increase in interest rates, and this is already partly affecting Bulgarian exports.
The good news is that according to the Eurostat data, despite the slowdown in the development of the economy, Bulgaria is still in the top half of the European Union level in terms of GDP growth. It remains to be seen how the economic situation will develop in the second half of the year.
[1] https://www.nsi.bg/sites/default/files/files/pressreleases/GDP2023q2_5YKLDOP.pdf
[2] Ibidem.
[3] Ibidem.
[4] https://www.nsi.bg/sites/default/files/files/pressreleases/FTS_Intrastat_2023-06_5QSICR3.pdf
[5] Ibidem.
[6] Ibidem.
[7] https://www.nsi.bg/sites/default/files/files/pressreleases/FTS_Extrastat_2023-07_5QSICR3.pdf
[8] Ibidem.
[9] Ibidem.
[10] In Bulgaria, fiscal policy has been managed for almost two decades at the level of the so-called Consolidated Fiscal Program. It contains the expenditure of the government for a one-year period. Alongside the national budget, the consolidated fiscal program also integrates the budget of the judiciary, the budgets of municipalities, the budgets of social and health insurance, the budgets of higher education institutions and other scientific and cultural institutions, as well as the revenue and expenditure of extra-budgetary accounts and funds established with ministries and departments (including EU funds).
[11] https://www.gov.bg/bg/prestsentar/zasedaniya-na-ms/dneven-red-na-zasedanie-na-ministerskiya-savet-na-13-09-2023-g
[12] Ibidem.
[13] Ibidem.