The European Commission has considered Bulgaria a functioning market economy since 2003. Bulgaria has made good progress in structural reforms over the last few years, particularly through privatisation and the reduction of state aid, the positive development of the banking sector and some improvements in the regulatory framework.

Macroecomomic situation

GDP growth reached 5.7% in 2004 and is forecast to accelerate to 6% in 2005 and to moderate 4.5% in 2006. Growth in 2004 was based on strong domestic demand fuelled by increase in net income, employment and bank credit. The catching-up in terms of GDP per capita, however has been very slow remaining at only 29% of the EU-25 average in 2003 (just a 3% increase as compared to 1997).

Unemployment decreased further to 12.0% in 2004 since jobs were created in the private sector and in government schemes for long-term unemployed. Continued net employment gains should allow reaching an unemployment rate around 10% in 2006.

Foreign direct investment reached a record high of 1957.7 million EUR in 2004, accounting for 9,2% of GDP. FDI in 2005 is expected to amount to 1684.5 million EUR.

Competitive advantages of Bulgaria

• Economic and political stability
• Functioning market economy
• Minimum investment risk
• Incentive investment policies
• Competitive labor force price and reduced production cost compared to those in the European countries
• Strategic geographic location
• Liberalized access to markets with over 560 000 000 consumers
• Reduced Corporation tax: from 19.5% in 2004 to 15% in 2005.
• Increased depreciation norms (to 50%) for investment in new machines, production equipment and appliances; computers, peripheral systems and software
• Zero percent corporation tax in more than 100 municipalities with high unemployment rate
• Reduced time for reclaiming VAT from 45 to 30 days during 2005 for companies-exporters
• Removed or facilitated are 160 regulatory regimens that comprise to 83% from all regimens proposed to be facilitated in compliance with IMF (International Monetary Fund)
• NATO membership
• Forthcoming EU membership in January 2007
• Stimulation of consumption by reduced Income tax