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16 May 2019

Bulgaria: more labour market policy reform and income convergence needed, according to the IMF

With a robust economic performance in Bulgaria in 2018, the possibility of deeper integration into the EU through the preparation process for joining the euro is coming nearer, according to an IMF-report. However, the task is to push ahead with broad-based labour market policy reforms, to improve education and healthcare sectors, and to address income convergence. Sustained reforms in these areas should also help slow emigration.

The annual economic assessment which the IMF makes for each Member State focuses in 2019 on the bid to join the EU Banking Union and the two-year currency mechanism for the introduction of the euro. The consultation normally ends with country-specific recommendations. According to the IMF, Bulgaria’s push to join the euro zone is having a beneficial impact on the country. The IMF's announcement states, however, that representatives of eurozone countries have stressed that Bulgaria has to carry out profound reforms in its judiciary, in the fight against corruption and organised crime, and in improving the efficiency of public spending and the quality of public institutions.

The IMF-report that provides a series of selected economic indicators reveals that the economy continues to grow strongly, supported by buoyant domestic demand. Growth exceeded 3% in 2018 and is projected to maintain its momentum in 2019. Capacity constraints are becoming more binding, yet inflationary pressure has eased after peaking in August 2018, reflecting developments in commodity and tourism-related prices. The unemployment rate has reached a historic low and wages are rising rapidly amid increasing skill shortages. Institutions are important to support inclusive and sustainable growth over the medium term. The report emphasises the importance of  effective labour market policies, with training and qualification programs for skilled workers to complement an upgrading of tertiary education upgrading. In the area of education, it is necessary to ensure equal access to quality education; reduce the high rate of early leavers from education and training; update curricula to better reflect evolving work demand; and attract young teachers given the fastest-aging teachers among EU countries.

Notwithstanding this rather positive assessment, the economic situation is likely to stay problematic for workers as the country faces a sizable income gap vis-à-vis the EU average and unfavourable demographic prospects. Income convergence has lagged since the global financial crisis, and the country faces medium- to long-term growth and fiscal challenges due to persistent emigration and population aging. Data from the trade union CITUB show that, during the last 10 years, the cost of living has increased by 25% (on average with 46.5 euro per family member) and salary by 65%. But, only 30% of Bulgarians receive average or higher-than-average salary. And, the average wage in the country that had reached 572 euro by mid-2018 covers 72% of the cost of living of a person.

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