The Events of 2024 and the Way Forward
Bulgaria enters 2025 without a regular government or an adopted budget, but with membership in Schengen and a real opportunity to adopt the euro. On the domestic political scene, 2024 was a lost year, marked by chaotic budget votes in parliament and institutional paralysis. Political instability has exerted immense pressure on the budget, raising concerns about the country’s fiscal stability. However, the economy performed much better, breaking out of its slowdown and accelerating economic activity throughout the year.
In the Rich Club
In early 2024, Bulgaria was finally classified as a high-income country by the World Bank. All other EU member states in Central and Eastern Europe (CEE), including Romania and Croatia, had already achieved this status in the years leading up to the pandemic. This milestone reflects Bulgaria’s long-term trajectory of robust growth and deeper integration with Europe’s advanced economies.
Convergence Continues
In 2023, Bulgaria’s GDP per capita in purchasing power standards reached 64% of the EU average, up from below 55% just before the pandemic. Despite a prolonged political crisis, the country maintained its convergence trajectory, narrowing the gap with the CEE group, whose members now fall within the 70-90% range of the EU average.
Wages on the Rise
The average wage in Bulgaria reached BGN 2,296 in the second quarter of 2024, marking a year-on-year growth of 17.3%. The manufacturing sector, employing 450,000 people, also experienced double-digit wage growth, with average earnings reaching BGN 1,928. Over six years (2018–2024), wages in Bulgaria have doubled, as have employers’ labor costs. However, by the end of 2024, the rate of wage growth had begun to slow.
Record Growth in Housing Loans
Mortgage lending saw record growth in 2024, with year-on-year increases exceeding 25%. In recent months, new bank loans have surpassed BGN 700 million per month. Despite turbulent market conditions, interest rates on mortgage loans remained at historic lows. In response, the Bulgarian National Bank introduced stricter credit standards for loans secured by residential real estate.
Price Stabilization and Euro Aspirations
Annual inflation in the EU stabilized at 2-3% in 2024. The European Central Bank (ECB) reversed its monetary policy, cutting key interest rates in four steps. In Bulgaria, average annual inflation fell below 3% by the end of 2024, paving the way for an extraordinary convergence report in early 2025 and a decisive step towards euro adoption.
Schengen Membership Brings Opportunities
Full Schengen membership opens new opportunities for Bulgaria and Romania, with potential economic benefits estimated at around BGN 1.5 billion annually. However, poor road infrastructure and artificial (non-tariff) barriers to free movement could limit the benefits of open borders with Romania and Greece.
Demographic Challenges Are Manageable
Since the pandemic, Bulgaria has experienced positive net migration. In 2023, net migration added nearly 42,000 people, offsetting natural population loss of 40-45,000 annually (excluding excess mortality during the pandemic). Sustaining this trend depends on improving quality of life and employment opportunities.
Decline in Economic Freedom
In 2024, Bulgaria fell out of the top 50 in global economic freedom rankings. While Hong Kong, Singapore, and Switzerland lead the list, Bulgaria’s performance worsened due to weak rule of law, increased public spending and regulation, and high inflation. This decline distances the country from successful examples in the CEE region.
A Retrograde Year for the Judiciary
Bulgaria, alongside Hungary, remains at the bottom of the EU in rule-of-law rankings. In 2024, the Constitutional Court annulled the amendments to the Constitution related to the judiciary, no progress was made on key judicial appointments, the Prosecutor General remains omnipotent and the mechanism to investigate him has produced no meaningful results. The Supreme Administrative Court, for its part, has established itself as a major player on the political scene. Against this backdrop, the judiciary’s budget is set to reach a record high.
Growth Amid Uncertainty
Despite political instability and judicial setbacks, economic forecasts for Bulgaria remain optimistic. Growth is expected to approach 3% in both 2025 and 2026, driven by private consumption – supported by high employment and wage increases, as well as projected export growth and rising fixed capital investment. However, economic and political uncertainties remain significant risks.
Medium-Term Objectives
In 2024, the Institute for Market Economics (IME) published a White Paper, Unlocking Growth: The Way Forward After the Election. The document outlines a potential roadmap for Bulgaria’s development, addressing fiscal policy, demography, human capital, rule of law, investments, competitiveness, and economic growth. It also sets out nine achievable goals with a four-year horizon that could significantly enhance the country’s development prospects and quality of life.