OUTLOOK: 2022 Bulgaria

OUTLOOK: 2022 Bulgaria
By bne IntelliNews January 19, 2022


Bulgaria went through its toughest political year for decades in 2021 as it had to hold three general elections before a new coalition government was finally formed at the end of the year. Led by two reform-minded Harvard graduates, Prime Minister Kiril Petkov and his deputy Assen Vassilev, the new government has set ambitious goals including tackling corruption and mending relations with neighbouring North Macedonia, as well as steering Bulgaria through the pandemic and its economic fallout. 

Changes already started in 2021, under the caretaker government installed after the first two general elections, in April and July, failed to produce ruling coalitions. The two interim governments, whose members included Petkov and  Vassilev, initiated investigations into the work of the previous regular government led by Boyko Borissov and started revealing corrupt schemes in various areas.

After an unsuccessful attempt by popular showman Slavi Trifonov’s There Are Such People (ITN) to become the next ruling party, a new and attractive formation appeared led by Petkov and Vassilev. During their time as caretaker ministers, the pair gained significant attention and popularity when revealing some of the cases of misuse of funds or alleged corruption.

The two Harvard graduates quickly became popular enough to decide to set up their own political formation, Change Continues. The party won the largest share of votes in the third general election in mid-November and Petkov and Vassilev managed to bring to the negotiating table three other formations that would not have agreed to form a coalition otherwise – the Bulgarian Socialist Party (BSP), ITN and Democratic Bulgaria. In December, they signed a coalition agreement and a new regular government, led by Petkov, was elected.

Petkov has set goals including to find a quick solution to the problems blocking the start of EU accession talks with North Macedonia, reforms to the judiciary that would eventually lead to accountability of the chief prosecutor and replacement of the current one, Ivan Geshev. As the government sought to clean up the judiciary and prosecution, an open war between Interior Minister Boyko Rashkov and the prosecution started in December and is expected to evolve in 2022.

The new government has pledged to put an end to widespread corruption and theft of state funds, lift pensions above the poverty line, modernise the country’s economy and deal with the coronavirus pandemic. The country remains the least vaccinated in the EU and a global leader in terms of deaths from coronavirus.

Meanwhile, President Rumen Radev, who won a second term in November, is believed to have strong influence on the new government. However, analysts believe that Petkov and his cabinet would quickly come out from under his influence and act independently.



GDP growth: Bulgaria’s central bank expects economic growth to reach 3.9% in 2021 and to significantly speed up in 2022 – to 4.7% – then to slow down to 3.8% in 2023. In 2022, the economic activity is expected to reach its pre-crisis level set in 2019, mainly thanks to higher internal demand and increasing net exports. Private consumption is expected to remain the main contributor to the economic growth, but its pace of growth is seen slowing down compared to 2021 due to the lower wage hikes and net fiscal transfers to households. Investment in base capital is seen rising in 2022, also contributing significantly to the economic growth.

Meanwhile, the International Monetary Fund (IMF) made a more optimistic forecast that Bulgaria’s economy will expand by 4.5% in 2021 and by 4.4% in 2022.

The European Commission projected the lowest economic growth – of 3.8% - for 2021, assessing that the country’s recovery has been held back by high economic uncertainty and coronavirus containment measures. In 2022, the economy is seen picking up to 4.1% growth, and is set to remain stable at 3.5% in 2023 thanks to expected funds under the Recovery and Resilience Plan.

The European Bank for Reconstruction and Development (EBRD) has projected the most modest economic growth for 2022 – 3%, followed by a 4.5% expansion in 2023.

Bulgaria’s seasonally adjusted GDP expanded by 4.6% y/y in the third quarter of 2021, according to preliminary statistics office data.

The main risk for Bulgaria’s economy remains the uncertainty related to the coronavirus pandemic. If the vaccination rate remains low, the country will face new waves of the pandemic, which would hamper its economic growth.


External environment: The IMF has projected that Bulgaria will post a current account surplus of 0.5% of GDP in 2021 from a deficit of 0.7% of GDP in 2020. The surplus should fall to 0.3% of GDP in 2022.

The World Bank’s forecast is that the current account surplus will expand to 1.8% of GDP in 2021 from 0.1% in 2020 and go up to 2.5% in 2022.

Bulgaria reported a current account deficit of €50.3mn (0.1% of GDP) in the first nine months of 2021, compared to a surplus of €598.8mn reported a year earlier, according to preliminary central bank data.

In January-September, the goods deficit stood at €1.96bn, up 90.9% y/y, while the services surplus expanded 43.7% y/y to €3.42bn. The primary income posted a deficit of €2.25bn, up 36.3% y/y. The secondary income surplus contracted 17.3% y/y to €744.8mn.

Exports of goods rebounded in Bulgaria in 2021 thanks to the stronger summer tourist season, while service exports also expanded significantly, but that was not enough to compensate for the still large gap with pre-pandemic levels, according to the EBRD.

Inflation and monetary policy: In line with global trends, inflation in Bulgaria increased in the autumn of 2021, due to a combination of rising food and energy prices, as well as strengthening domestic demand weighing on core inflation. International institutions expect that the price hikes will ease off in the second half of 2022.

Bulgaria’s consumer prices increased by 6% y/y in October, beating the nine-year peak reached a month ago when CPI grew by 4.8% y/y. The consumer price index (CPI) moved up 5.4% compared to December and by 1.8% month on month, according to statistics office data.

Food prices increased by 5.9% y/y in October, after rising by 4.4% y/y in September. Annual consumer price inflation was more significant in transport (up 19.7% y/y), housing (up 9% y/y), arts and entertainment (up 6.9% y/y) and alcoholic beverages and tobacco (up 5.9% y/y).

The IMF has projected an annual average consumer price inflation of 1.6% for 2021, after a deflation of 1.1% in 2020. The consumer price index (CPI) is expected to rise also by 1.6% in 2022. According to the World Bank, consumer price inflation should reach 3.2% in 2021 and 3.3% in 2022.


Industrial production: Bulgaria’s industrial sector was hit by the coronavirus pandemic in 2020, but as the authorities lifted most of the restrictions in the spring of 2021, it started picking up from May.

Industrial production increased 10.5% year on year in September, after rising by a revised 10.6% y/y in August, according to statistics office data.

Manufacturing production increased 7.1% y/y in September, after rising by revised 8.8% y/y in August. Within manufacturing, the biggest y/y increase was registered for the production of computers and communication equipment (up 69.8% y/y) and for the manufacturing not classified anywhere else (up 49.3% y/y) in September. Manufacturing of drinks posted the biggest decline in September, falling by 40% y/y, followed by basic metals (down 22.8% y/y).

Mining output increased by 20.1% y/y, after rising by 15.7% y/y in August.

Utilities output increased by 28.5% y/y in September, following a revised 19.6% y/y rise in August.


Real economy 

Retail: Retail trade in Bulgaria was affected by the coronavirus pandemic during the lockdowns imposed by the authorities in 2020 and the first months of 2021. However, as private consumption remained stable despite the constraints, the retail sector remained rather stable. After most of the restrictions were lifted in April 2021, retail sales improved further. Rising fuel prices have also affected the sector.

Retail sales (at constant prices) increased 8.4% year on year in September, after growing by 12% y/y in August, according to the statistics office data. The rise in September was due to increasing motor fuel sales, food and non-food product sales.

Retail sales of food, beverages and tobacco went up 5.9% y/y in September, after rising 10.5% y/y in August. Sales of non-food products (except fuel) expanded 11.8% y/y, after increasing by 14.2% y/y in August. Automotive fuel sales increased 3.5% y/y in September, after rising by 8.5% y/y in August.

In 2022, retail trade is expected to keep the positive trend from 2021 thanks to expected strong private consumption and high energy prices.


Banks: Bulgarian banks remained stable amid the coronacrisis and posted solid profits. The country joined the EU’s banking union in 2020, which was an additional guarantee for the stability of the sector.

The aggregate net profit of Bulgarian commercial banks increased 57.9% y/y to BGN1.2bn (€610mn) in the first ten months of 2021, according to Bulgarian National Bak (BNB) data.

Through October, the liquidity coverage ratio was 313.5% compared to 281.9% at the end of September. The liquidity buffer stood at BGN33.4bn.

The net stable funding ratio (NSFR), applied since June28, 2021, was BGN103.7bn as of end-September, and the required stable funding (the denominator of the NSFR) was BGN63.6bn. The net stable funding ratio as of end-September amounted to 163.0%, way above the minimum regulatory requirement of 100%.

Gross loans and advances in October increased by 5.5% y/y to BGN88.6bn, mainly thanks to the claims on credit institutions, which grew by 37.4% y/y to BGN14.0bn.

Compared to end-September, the banking system's gross loan portfolio reported a growth 1.1% y/y to BGN74.5bn. Claims on non-financial corporations increased by 1.5% y/y, while those on households moved up by 1.1% y/y. Loans to other financial corporations and to the general governments sector decreased by 0.6% y/y and 1.4% y/y, respectively.

The deposits in the banking system increased by 0.6% y/y to BGN114.0bn. Deposits of households increased by 0.8% y/y, while those of credit institutions moved up by 7.7% y/y.

The banks' total assets increased to BGN133.6bn at the end of October, up by 0.7% y/y.

Industry: Bulgaria’s industry was affected by the coronavirus pandemic in 2020 but started recovering in 2021. However, some industries have been plunged into a fresh crisis by the hike in energy prices. They include arms manufacturer Arsenal, which has shut down production from January 17 to February 11.

Bulgaria is a producer of metals including lead, zinc and copper. Among the internationally listed mining companies active in Bulgaria, Dundee Precious Metals reported strong results for gold and copper production in 2021, while Velocity reported positive drill results from its Rozino gold project. 

Energy & power: Bulgaria’s energy sector will need deep reforms so that the country can meet the EU green goals. In its Recovery and Resilience Plan, Bulgaria aims to close its coal industry by 2038 or 2040. However, this would pose challenges to the country as nearly 40% of the energy in Bulgaria is produced by coal-fired power plants with more than 95% of the fuel being lignite. The biggest coal-fired power plant is the state-owned Maritsa East 2 with capacity of 1.61 GW of the total 3.85 GW capacity of all coal-fired power plants.

On the other hand, 38% of the €6.6bn Bulgaria should receive under the Recovery and Resilience Plan would be used for the transition from coal to green energy.

Meanwhile, new renewable energy projects are being implemented in the country. In November 2021, the Bulgarian investment group Renalfa and Danish developer Eurowind Energy set up the EURA Energy, a co-owned joint venture company that will operate on the Bulgarian renewable energy market.

The first project to be carried out by EURA Energy is expected to be the 200+ MWp solar project Tenevo, located in southeastern Bulgaria. The construction of the solar park should begin in the first quarter of 2023.

Also in November, the Spanish energy company Factorenergia said that it will open an office in Bulgaria and intends to operate on the natural gas and electricity market in the country. The company, specialised in the supply of electricity and natural gas, is currently obtaining the necessary documents to start operations in Bulgaria.

The company intends to work in Bulgaria with local associates, including football star Hristo Stoichkov who for years played for the Barcelona football club.

In the shorter term, Bulgaria has to deal with the surging energy prices that are affecting the business and households amid the already tough economic situation. In an attempt to find a short-term solution, the parliament decided to freeze the prices of electricity, water and heating until the end of March in order to tackle the crisis with surging energy prices.

Bulgaria will also ask the EU to approve a reduction of VAT on electricity and gas by half, to 10%, in the first four months of 2022 to compensate for rising energy costs for companies and households. The country will also ask the EC to approve plans for state aid for electricity distribution companies to soften the expected hike of prices for households. The price for households is regulated by the state.

In November, the EC added three Bulgarian projects, including the construction of the gas link to Serbia, the expansion of the Chiren underground gas storage and rehabilitation of the local gas transmission network to the list of projects of common interest.

The expansion of Chiren, which is the country’s sole gas storage facility, has been delayed for years. Bulgartransgaz hopes to get funds under the Connecting Europe Facility – CEF.

Following the expansion, the capacity of the Chiren storage will reach 1bn cubic metres (bcm) from the current 550mn cubic metres. This is expected to stimulate the diversification of gas supplies and increase competition, Bulgartransgaz said in a statement.

The project to build the gas link with Serbia aims to connect the gas transportation networks of the two countries, securing new capacity for transportation. The new network should have capacity to transport 1.8 bcm of gas per year. So far, the project has been co-financed under the CEF with €28.2mn.

The third project, on the rehabilitation and expansion of Bulgaria’s gas transmission network, should be carried out in three phases and should increase the country’s annual transportation capacity to 2.4 bcm.

Construction: Bulgaria’s construction sector was among those seriously affected by the coronavirus pandemic and the lockdowns imposed by the authorities in 2020 and the first months of 2021. However, it started showing signs of recovery in the second quarter of 2021 to swing to a fall in the third quarter of 2021.

According to the GDP data, the construction sector contracted by a real 4.8% y/y in Q3 2021.

In 2022, construction could pickup if the new government restarts the procedures for the construction of Hemus motorway as indicated. In 2021, the caretaker government has revealed schemes to siphon off hundreds of millions of levs paid in advance for the construction of stretches of the motorway.

Another project that could improve the construction sector’s performance is the completion of the pan-European Corridor VIII. In October 2021, Bulgaria, Albania and North Macedonia signed a memorandum of cooperation for the construction of sustainable infrastructure along the pan-European Corridor VIII.

The completion of Corridor VIII, which includes road, rail and port infrastructure, will lead to better transport and economic connectivity, as well as improved efficiency of transport services. Corridor VIII connects the Bulgarian and Albanian coasts via North Macedonia.

Major Sectors: The tourist sector, which is among the most important for the Bulgarian economy, is still struggling to recover from the coronacrisis. The authorities had to support the sector since the outbreak of the pandemic in spring 2020. The support will be needed in 2022 as well.

In December, the government approved an additional BGN6mn (€3.1mn) in state aid for tour operators. The funds will be provided to tour operators to compensate their clients for trips cancelled due to the pandemic. The funds are part of a BGN70mn package included in the 2021 budget plan that should help the tourist sector to survive the pandemic.

The funds will be distributed proportionally depending on the number of requests for state aid and on the turnover of the companies for 2019. The individual aid provided to each company would be up to the loss it has suffered.

Meanwhile, foreign tourist numbers were rising since the summer. In October, they jumped by 46.1% y/y, going also around 0.3% above the pre-pandemic level, according to latest statistics office data.

Bulgaria has a growing IT and technology sector, and the development of the local financing ecosystem was supported by the launch of Vitosha Venture Partners, a new €26mn venture fund launching out of Bulgaria, and backed by the government. The fund aims to invest in around 100 companies that are based in or related to Bulgaria. International venture capital funds are also eyeing Bulgarian companies, with TA Associates and LEA Partners acquiring Bulgarian IT company Chaos in January. 

In 2021, local company Dronamics, which produces and operates middle-mile cargo drones, attracted attention after signed a partnership agreement with DHL to jointly develop solutions and offer same-day cargo drone deliveries to customers using the drone delivery network and Black Swan drones from Dronamics. Dronamics Capital, a company established to invest in the cargo drone manufacturer, successfully completed an IPO on the Bulgarian Stock Exchange, raising BGN6mn (€3.1mn).


Budget and debt 

Bulgaria will aim for a budget deficit of between 3.5% and 4.5% of GDP in 2022 and will have its budget for the year by the end of January, according to a preliminary agreement reached by representatives of the four political parties forming the new ruling coalition – Change Continues, the Bulgarian Socialist Party (BSP), There Are Such People (ITN) and Democratic Bulgaria.

The members of the ruling coalition have also agreed that a budget revision will be made in July when there is more clarity on revenues.

Bulgaria also does not intend to change the value added tax (VAT) in 2022. However, a further analysis will be carried out of BSP's proposal to lower the VAT on medicines and basic goods and services.

In 2021, Bulgaria is expected to post s budget surplus. In the first eleven months, the finance ministry reported a consolidated budget surplus of BGN570mn (€291.4mn), equalling to 0.4% of the projected end-year GDP.

In January-November, revenues and grants increased by BGN7.4bn year on year to BGN47.79bn. They were equal to 94.5% of the plan for the year. Expenditures increased to BGN47.22bn in the first eleven months from BGN39.91bn a year ago, equalling to 85.6% of the plan for the year.

Bulgaria has set a budget deficit of 5% for 2021, with economic growth seen at 2.5%. In 2020, the deficit was 5.2% of GDP due to increased spending related to the coronacrisis, while in 2022 the deficit is anticipated to fall to 1.9% of GDP.

In September, parliament adopted a budget revision, proposed by caretaker government of Prime Minister Stefan Yanev. It would allow the spending of BGN1.8bn (€920.3mn) more than the initial plan, which would be compensated for by an additional BGN2bn revenue thanks to efforts at better tax collection.

Bulgaria’s central government debt increased 6.8% year on year to BGN31.12bn (€15.91bn) at the end of October, after rising by 2.3% y/y in September.

In month-on-month terms, the debt stock increased 3.3% in October after moving up 3.5% in September. The debt-to-GDP ratio stood at 24.2% at end-October, up from 23.5% the previous month.



Bulgaria’s stock market has revived in 2021 following deterioration in 2020 caused by the coronacrisis. Several IPOs were carried out, including some delayed from 2020.

In October, Bulgarian real estate investment company Infinity Capital raised nearly BGN1.36mn (€715,800) in an initial public offering (IPO) on the Sofia bourse's BEAM, which was created to allow small and medium-sized enterprises (SMEs) to seek listings under simplified procedures as compared to the regulated market. The IPO was delayed a few times due to the coronavirus (COVID-19) pandemic and market conditions.

Investors subscribed and paid for a total of 847,198 company shares with a nominal value of BGN1 and an issue price of BGN1.60 each, Infinity Capital said in a bourse filing. The company intends to use the proceeds from the IPO for the development of its project for the Aristocrat Hills residential complex near Sofia, which envisages the construction of 13 luxury houses.

In December, the IPO of Dronamics Capital, a company established to invest in Bulgarian cargo drone manufacturer Dronamics, was oversubscribed almost 4.5 times. In the IP the company raised BGN6mn (€3.1mn), in line with the target.

Looking forward, Gambling company Telematic Interactive Bulgaria plans an initial public offering (IPO) on the Sofia bourse in the first months of 2022 and has already started the procedure for it. This will be the first company from the gambling industry to be listed on the bourse in Sofia.

The company’s owners have the ambition to turn the company into one of the ten largest in Europe in the online industry within five years, and to expand to a leading global player within ten years, Forbes Bulgaria reported.

The IPO should be held at the end of January and is the first announced for next year.