A new OECD Economic Assessment of Bulgaria, says the recovery from the economic shock caused by COVID-19 will take time.
Bulgaria remains exposed to further shocks to external demand, even though prudent management of public finances has put the country in a solid position to provide continued support.
There is also room for investment in areas like transport, energy and digital infrastructure, which would invigorate the recovery.
Prior to the pandemic, a series of structural reforms and sound macroeconomic policies had led to five years of growth rates above 3%, a rapid rise in real wages and a drop in unemployment to historic lows.
The Assessment now projects a GDP contraction of 4.1% in 2020, followed by a return to growth in GDP of 3.3% in 2021 and 3.7% in 2022.
Covid-19, big impact on jobs
Bulgaria’s wage subsidy scheme has protected jobs and household incomes from the worst of the impact, but the COVID-19 shock has caused a drop in output not seen since the 1996-97 banking crisis.
Youths have been particularly affected by job losses in in a country already challenged by high income inequality and relative poverty.
Another key challenge Bulgaria faced even before the pandemic is an ageing and rapidly shrinking population, with young people migrating in search of work, and the large impact this demographic change has on rural areas.
Increasing productivity growth will be vital to raise living standards
The OECD Assessment recommends reforms to improve the business environment and enhance education and adult skills, including through retraining programmes to help unemployed workers find new jobs.
Infrastructure investment should focus on improving Internet and transport connections and other services in rural regions.
Housing reform has become more urgent to foster mobility and to ensure there is enough affordable housing in cities for workers taking up new jobs.
The Paris-based OECD is an international organisation that promotes policies to improve the economic and social well-being of people worldwide.