The Economy in 2002 and the Transition Years   The released by the National Statistical Institute macro statistics for 2002 give us occasion to analyze the situation of the last year and the developments of the last 13 years of transition. In 2002 the inflation remains low, as was the case in all the years after the establishment of the Currency Board Arrangement. The year-end inflation was 4% (when we compare December 2002 to December 2001) and 5.83% on an annual average base. The GDP growth in 2002 was 4.8%, a little higher than in 2001. However, the growth in the last quarter shows some deceleration. The GDP in 2002 reaches 32 billion and BGN 323 million (EUR 16.5 billion). In 2002 the private sector growth increases (up to 7.6%) and the public sector continues to fall (-2.7%) despite the virtually absent privatization deals – only 1.16% of the state assets were privatized. The growth of export and import declines to 6.2% and 4.7% respectively. The growth of investments, measured by the gross fixed capital formation, also declined – from 23.3% in 2001 to 9.3% in 2002. As a whole in 2002 the economy develops because of the relatively fast growth of the private sector in a situation of macroeconomic stability. In this sense the economic growth can be increased by increasing the private sector, i.e. through a faster and full privatization.   Selected indicators, 2001 – 2002 (%)   2001 2002 Inflation, end of year 5 4 Inflation, annual average 7.43 5.83 GDP growth, forth quarter 4.3 3.4 GDP growth 4.1 4.8 Nominal GDP, thousands BGN 29 709 210 32 323 709 Per cent growth of:     Agriculture 0.3 5.1 Industry 4.1 3.5 Services 4.7 5.1 Private sector 6.6 7.6 Public sector -2.3 -2.7 Final consumption 4.4 4.1          individual 4.6 3.9          collective 2.9 6.2 Gross fixed capital formation 23.3 9.3 Exports of goods and services 10 6.2 Imports of goods and services 14.8 4.7   In the period 1990 – 2002, as we can see from the table below, it can be noted that: 1. In six of the transition years there is negative economic growth and in seven – positive, as five of the years with positive growth are after 1997, when the real economic reforms started. GDP in 2002 reached 83% of the 1989 level, which is 93% per capita. However, in the end of the period there exist a gray economy, which is at least 20-30% of GDP according to different estimates, so the conclusion is that the economy has exceeded its 1989 level. 2. There is a stable growth of GDP only in the period after 1997. This period is marked by economic reforms, such as: - low inflation because of the CBA - high share of the private sector due to the privatization and the drop of the public sector - foreign investments and positive financial account - deficit on the trade balance and the current account - tax rates cuts - liberalization of the foreign and domestic trade - balanced budget 3. In the period before 1997 the GDP shrank mainly because of the high inflation and the high share of the public sector in the economy, the state control over the prices and the high tax rates. Only in 1994 and 1995 there was some increase of GDP, but to a great extent it is because of giving bad loans to loss-making state-owned enterprises. In this respect the economic growth in 1995 and 1995 is artificial and its logical result is the crisis of 1996 – 1997. The years between 1992 and 1997 are lost for the economy in the sense that instead of making reforms and achieving economic growth, antireforms were made and economic slump was achieved. 4. Interestingly, there are only two years when a current account surplus is achieved and these are the crisis years 1996 and 1997. Therefore, the allegations that the exports must exceed the imports in order to have economic development are not justified. The opposite is the truth – when the import is higher than export this shows that more foreign investments enter the country and they are favorable for economic growth. 5. The inflation, before the application of the Currency Board rule in the monetary policy, is three digits in most years. After the establishment of the Currency board the inflation is one digit. Obviously, the inflation is a result of the monetary policy, but not from the actions of selfish speculators, as many politicians have believed for a good while. Also, it is obvious that the inflation does not lead to higher economic growth, and that should be kept in mind by all those who propose removal of the CBA and the previous pro-inflationary monetary policy. 6. The general conclusion is that the so-called slow and gradual reforms, implemented in Bulgaria, lead to much more social suffering than the “shock” therapy in Poland for example. That may have important consequences for the future government policy – if it wants to achieve “a bearable social price of the reforms” it has to implement them faster.   Selected Economic Indicators, 1990 - 2002 Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Economic growth -9.1 -8.4 -7.3 -1.5 1.8 2.9 -9.4 -5.6 4 2.3 5.4 4.1 4.8 GDP, 1989=100 90.90 83.26 77.19 76.03 77.40 79.64 72.16 68.11 70.84 72.47 76.38 79.51 83.33 GDP per cap. ‘89=100 91.93 84.93 79.76 78.79 80.52 83.28 75.84 72.10 75.46 77.57 82.17 88.34 93.14 GDP, euro, mln 13157 6462 6694 9263 8155 10020 7796 9140 11362 12164 13679 15190 16527 GDP per cap, euro 1518 752 789 1095 968 1195 935 1103 1380 1485 1678 1925 2107 Private sector, %   10.9 26.5 37.9 43 49.6 55.9 63.4 62.4 64 69.6 71.4 72.7 State sector, %   89.1 73.5 62.1 57 50.4 44.1 36.6 37.6 36 30.4 28.6 27.3 Inflation   473.6 79.5 63.8 122.0 32.7 311.6 547.7 1.6 7.0 11.3 4.8 3.8 Current account, mln $   -77 -360 -1098 -32 -198 164 1046 -61 -652 -704 -842 -677 Financial account   -429 613 759 1 360 -699 265 72 733 781 663 1253