HUMAN DEVELOPMENT REPORT ! BULGARIA 1996
24
Box 2.1.
The state was quick to withdraw from the management of
the economy
The entire period between 1990
and 1994 was marked by the
states withdrawal from the
economy. While in 1990 state in-
come and expenses accounted
for 53 and 66 per cent of the
GDP, respectively, in 1994 the
figures were 25.9 and 32.5 per
cent. They were retained in
1995. In advanced market
economy countries the share of
state expenses in the GDP is
some 40 per cent. Provided that
the share of servicing the na-
tional debt within the overall
volume of Bulgarias state ex-
penses is remarkably big ac-
cording to international stan-
dards, the states withdrawal
from its objectively needed
functions becomes even more
substantial.
access to bank loans. Initially they will be
budget-financed, and gradually subsidies
will diminish. The mass privatization is
expected to tangibly change the manage-
ment of the real sector. Special attention is
devoted to the attraction of foreign invest-
ments in major enterprises. A package of
tax reliefs for local and foreign investors is
under consideration now.
2.2. Structural changes in the
gross domestic product
The structural changes have developed
in a decentralized way under the impact of
market factors, but in the conditions of in-
complete information and imperfect com-
petition. In 1993 the level of industrial pro-
duction dropped to 58.3 per cent of that in
1990. Export and import went down by the
same proportion. The drop in GDP and
real incomes was somewhat less. The situ-
ation was characterized
by high inflation,
quick monetary turnover, reduced amount
of real money, devaluation of national cur-
rency, increasing national debt, and grow-
ing bad debts in the banking system.
Contrary to forecasts, the structural
changes in the GDP in the transition from
a command-style
to market economy fol-
low the trends typical of countries with a
relatively high level of economic develop-
ment. The major difference is that in Bul-
garia they take place not against the back-
ground of economic growth, but in the con-
ditions of an economic crisis comparable
only to that of 1929-1933. This means that
the economic structure of former socialist
countries does not differ fundamentally
from their relative advantages on an inter-
national scale. The adaptation to market
demands has taken place mainly as improv-
ing the economic systems by freeing them
from individual ineffective production
units. The claims that command structures
are completely inadequate to the demands
of the world market have proven wrong.
The structural changes in Bulgarian
economy are manifest above all in the di-
Because of the delayed privatization,
the states withdrawal from processes of re-
distribution was not accompanied by a par-
allel withdrawal from its functions as an
owner. The private sector quickly devel-
oped and became dominant in the field of
trade and partially of the financial and
credit system. The symbiosis between a
state sector in industry and a private sec-
tor in the field of distribution and re-distri-
bution (trade and finances) took place un-
der weakened re-distributive functions of
the state administration. This brought forth
deformations in the functioning of market
mechanisms that had negative social and
economic effects. The stepping-up of
privatization, and more particularly of the
mass privatization programme provides
conditions for a gradual overcoming of this
structural asymmetry of the transformation
process in Bulgarias economy.
The strengthening of fiscal discipline
in the banking system and real economy is
a condition for the successful implementa-
tion of the reforms now underway. A
programme for healing up the banking sec-
tor has been adopted. It envisages recapi-
talization, consolidation and privatization
of state banks. Part of the state enterprises
that are in dire financial straits will be
closed down. The number of their employ-
ees is relatively small, so the social price of
this measure would be bearable. Compa-
nies working at a loss will have a limited
The changes are
following trends
typical of advanced
countries
25
ECONOMIC RESTRUCTURING AND
PROBLEMS OF THE HUMAN FACTOR
minished relative share of industry. In 1991
it generated 46.8 per cent of the GDP and
in 1994 - one third of it. In 1995, however,
this share grew again as a result of the eco-
nomic enlivening that has taken shape. The
GDP growth rate of 2.5-3 per cent is mainly
due to the increased heavy industry output
and export.
The share of farming and forestry
also tends to diminish. The crisis in farm-
ing, mainly due to the radical land reform
and the overall restructuring of the agri-
cultural sector, was manifest in the reduced
relative share of farming - from 15.3 to 11.0
per cent of the GDP. This result can be
further explained by the major foreign com-
petition brought forth by the easy access
to the Bulgarian market of subsidized farm
imports from the European Union mem-
ber-states, that came as a result of the
agreement for Bulgarias joining the Union.
Another factor is the retained gap between
the prices of fertilizers, chemical products
and farm products used, and the purchase
prices of farm staples. Also retained are
the negative differences between domestic
and international prices that assist the stag-
nation in Bulgarian farming.
Many problems of farming stem from
the one-sided approach to this sector. It
was believed that the restored ownership
of arable land would automatically lead to
better motivation and possibilities for un-
leashing private initiative. The fact that the
real shift of ownership leads to vagueness
and a temporary increase of transaction
expenses, has not been considered. Both
these circumstances make market mecha-
nisms less effective. At the same time farm-
ing is a sector characterized by specific
price-formation, seasonable and cyclic
price dynamics. Given these circumstances,
farmers have to rely either on a clear-cut
state mechanism of regulating prices and
stock of basic farm produce, or on well-
developed future markets. At the current
stage of market reform development in Bul-
garia only the first version is feasible.
Immediately upon the start of eco-
nomic transformation, the regime of sub-
sidizing and granting loans to farm produc-
ers, as well as the regulation of foreign trade
with farm produce are characterized by a
complex and changing nature. It is often
inherently inconsistent, does not guaran-
tee transparency of procedures and full
information to regulating authorities. The
adoption of the Law on the protection of
farm producers in June 1995 created pre-
requisites for establishing an overall sys-
tem for support to producers and for a
gradual stabilization of agricultural produc-
tion.
The tertiary sector (transport, commu-
nications, trade, finance, etc.) is character-
ized by an instability of its relative share in
the GDP which, according to estimates of
some international institutions, is about 60
per cent. This growth pertains mainly to
the stepped-up development (including
through the re-distribution of surplus value
from the secondary to the tertiary sector)
of trade, the finance and banking sector.
Irrespective of the crisis phenomena,
the processing
industry continues to form
the core of Bulgarian economy. The most
dramatic structural processes in industry
are the reduced relative share of the out-
put of metal-working industry within the
total industrial output (from 16.6 per cent
in 1991 to 9.8 per cent in 1994), and that of
What is needed is state
support to farming
Figure 2.1.
GDP by economic sectors (relative share - %)