Bulgaria - The Economy

For more recent information about the economy, see Facts about Bulgaria.

The economy

FROM THE END OF WORLD WAR II until widespread revolution in Eastern Europe swept aside most communist governments in 1989, the Bulgarian Communist Party (BCP) exerted complete economic control in Bulgaria. The party's ascent to power in 1944 had marked the beginning of radical economic change for Bulgaria. After World War II, Bulgaria followed the Soviet model of economic development more closely than any other East Bloc country. The new regime shifted much of the labor force from the countryside to the city to provide workers for new large-scale industrial complexes. At the same time, the focus of Bulgarian international trade shifted from Central Europe to Eastern Europe.

These new policies resulted in impressive initial rates of growth. But this was partly because the country was starting from a low level of economic development. Throughout the postwar period, economic progress also was assisted substantially by a level of internal and external political stability unseen in other East European countries during the same period and unprecedented in modern Bulgarian history.

Nonetheless, beginning in the early 1960s low capital and labor productivity and expensive material inputs plagued the Bulgarian economy. With disappointing rates of growth came a high degree of economic experimentation. This experimentation took place within the socialist economic framework, however, and it never approached a market-based economy.

In the late 1980s, continuing poor economic performance brought new economic hardship. By that time, the misdirection and irrationality of BCP economic policies had become quite clear. Finally, on November 10, 1989, a popular movement toppled Todor Zhivkov, long-time party leader and head of state; orthodox communist dictatorship ended. But unlike the communist parties in most other East European states, the BCP retained majority power after the transition in Bulgaria by winning the first free national elections in June 1990. By that time, however, changes in party leadership and reduction of its power base permitted economic reorientation toward a market system. This difficult transition combined with political instability to seriously worsen economic conditions during 1990.

Bulgaria's success in transforming its economy from central planning to a market-based system remained unmeasured in 1991. Undoubtedly, any form of Bulgarian government faced a daunting task at that point. Because its financial and productive resources had been allocated ineffectively for many years, the economy urgently needed major reforms. The manufacturing sector was uncompetitive in world markets, was technologically outmoded, and consumed energy and materials at enormously wasteful rates. The agricultural sector, once the most productive sector of the Bulgarian economy, had degenerated to the point that the country could scarcely feed its own people. A new trade regime with traditional partners would strain already low hard currency reserves, restricting access to raw materials and sophisticated technology. External and internal debt were enormous when Zhivkov fell. Inflation was high, environmental problems were severe, and skilled labor was insufficient.

Several factors complicate the quantification of socialist economies from a capitalist perspective. Prices in socialist economies serve primarily an accounting function; they do not reflect relative scarcities and demand for a product as they do in capitalist economies. Hence, comparisons of value indicators are difficult. In addition, some socialist statistics simply are calculated differently. For example, the socialist equivalent of national income, referred to as net material product (NMP), excludes the value of most services, including government, that are unrelated to physical production.

Accurate assessment of Bulgarian economic policies and performance under communist regimes also is complicated by incomplete, inaccurate, or misleading statistics. Some Western economists have attempted to extrapolate data based on a combination of Bulgarian statistics, various economic assumptions, and statistical techniques.

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