The Economic Performance of Bulgaria - Assignment Example

The Economic Performance of Bulgaria Introduction The economic performance of Bulgaria has been affected by the political development in the country. The change of the political system affected the economic performance in a positive manner since the economy was seen performing better than the time when it was under the communist rule. However, in as much as the economy of the nation has witnessed a lot of significant changes, there are some issues that plague the Balkan nation. This paper will look into the economic performance of Bulgaria using the income level and the poverty indicators and the national income statistics. Part A Income level Bulgaria is a country in the Eastern Europe that has the functionality of the free market system. The country has a large private sector, which is the main source of the resources for the people, and a small public sector that employs a few people. The country is yet to reach the first world classification but it is an industrialised nation that is in the upper middle-income range. The gross national income per capita was $ 6280 according to a survey conducted by the World Bank in 2010. This high average is mainly attributed to the rapid economic growth that the country has been experiencing of late (Konings and Rizov et al., 2003, pp. 253--258). The average income per month for the working adults is 812 leva or 554 USD. The country has been able to attract many foreign direct investments (Chukalev, 2002). The country’s national income was largely affected by the financial crisis of 2008 just like the other nations in the world. However, the country was able to have a rebound in 2010 from the 5.5 % decline to 0.2 % rise in the economic performance. This feat enabled the country to maintain tis national income at the levels that it had before the onset of the financial crisis  (Chary, 2011). The country’s rebound was better compared to the other countries in the Balkan region. The country is among the strongest economic powers in the Eastern Europe (Williamson, 1994). The currency is pegged at 1.95583 against the euro making it the most stable currency in Eastern Europe. The country generates the majority of its national income from the energy, mining, machine making, agriculture, metallurgy and tourism (Lampe, 1986). Exported Chart Bulgaria - Human Development Index Poverty and inequality In as much as the country has been able to maintain the status of the economic leader in the region, it still has issues with the distribution of income. The people that live in the country often have massive disparities when it comes to the income distribution (Miller and Petranov, 1996). According to the economic performance indicators compiled in 2005, the labour force and the consequential distribution of the labour was a major indicator of the level of labour disparities. The labour force that was estimated in 2004 indicated that the country had 3.3 million people employed in direct labour. 11 per cent of the people that are in gainful employment worked in the agricultural sector (European Dept, 2014). 33 per cent of the workers in Bulgaria work in the industrial sector and a final 56 per cent of the employed work in the service related industries. The income of the nation is not as well distributed as most of the people may think. The major development in the general economic performance rarely reflects on the rates of employment. The country has had double digits rates of unemployment (Miller and Petranov, 1996). After the end of communism, the unemployment rate peaked in 2000 at 19 per cent. Since 2000, the rate of unemployment has been witnessing a gradual subsiding following the adopting of foreign direct investment policies that have created jobs for the people (Chukalev, 2002). The state has also made some amends in its policy on employment such that it has ended up accommodating more people. However, in as much as the country has changed its policies with the aim of reducing the unemployment rates, the rates are still significantly high with 500000 Bulgarians being unemployed in 2005 official statistics  (Chary, 2011). The government approach to unemployment has led to increase in the income disparities since some of the people that have employment have high incomes compared to the majority that are underemployed or unemployed (Williamson, 1994). In addition to this, the people that are employed are not necessarily gainfully employed. They work for the minimum wages (Konings and Rizov et al., 2003, pp. 253--258). Lack of a consistent labour policy gives the employers the rights to come up with their own wage rates. The rates are rarely sustainable given the inflation rates (European Dept, 2014). This aspect has led to the development of new social issues that plague the nation such as the rates of human trafficking, migration to the western countries and the social deliquescence (Lampe, 1986). The structure of the economy The economy of Bulgaria borrows a lot from the west and it has been able to change over the years to reflect the western influence and diminish the eastern influence that came from the Soviet Union. The economy was initially oriented towards the inclusion of the government hand in all the affairs (Stefanov, n.d.). However, as the economy advances, the role of the government has been under a gradual decline with most of the industries in the economy being under the control of the private sector. The communism era also defined the rate at which the people would involve themselves with international community. The majority of the trading partners and the investors that the country had come from the communist Balkans. However, today the economic structure has assumed a more global outlook with the introduction of foreign direct investment (Chary, 2011). This also led to the creation of more involvement of the international players than the country allowed in the initial days (Jones and Miller, 1997). After 2001, the country has advanced the inclusion of other countries coming from outside the Balkans to come and invest. The main sectors that maintain the economy are industry related and agricultural as well as service orientation. Tourism is the main service oriented industries in the economy (Stefanov, n.d.). The other industries that the nation engages in include the manufacture of machines and other consumer goods manufacturing companies. Economic performance over the past five years 2013 was a year when Bulgaria witnessed a massive decline in its global competitiveness ranking. This is according to the IMD world competitiveness ranking. The country’s ranking decline from the position that it was placed at in 2012 by three points to 57th position globally (Minasi︠a︡n, 1992). The ranking is the lowest that the country has been able to attain since its inclusion in the IMD yearbook ranking in 2006. The position is 20 places lower than the highest position that the country has been able to attain in 2008 when the country was ranked at position 38 (European Dept, 2014). The country has been surpassed by the other countries that are normally ranked below it with only three of the lagging countries maintaining their position below it (Van Cleaf, 2008). Greece and Ukraine, which were ranked, below it were ranked higher than Bulgaria in that year. The main cause of the poor performance of the country over the years has been the inability of the country to come up with a modern approach to administration, which would be instrumental in the increase of the competitiveness and efficiency of the country in the international arena. The county also faces a large administration costs and it has to rely on the EU funding to improve its performance (Minasi︠a︡n, 1992). The corruption levels in the country are also high presenting the country with the major challenge when it comes to the international integrity. The energy sector, which the country relies on, also needs to be reformed if the country is to attain the global competitiveness that it previously enjoyed. The country also has to deal with the issues that of hidden labour inefficiencies too (Chary, 2011). Part B The domestic destiny of the country lies in the ability of the policy makers to come up with best polices that will address the issue of income inequalities. The policies that the policy makers are bound to come up with will definitely touch on the other issues that will accord the country the favourable ranking in the globe (Prazdny and Spenceley, 2011). However, the attainment of the most favourable ranking on the global arena is independent on the approaches that the government will take when making its internal policies (Minassian and Totev, 1996, pp. 49--92). The policies of the government will determine the capability of the country to attract the investors and sustain them for the long haul. This way the country will attain the international destiny as a secondary goal to the attainment of the national or internal destiny (Minassian and Totev, 1996, pp. 49--92). This part of the paper will focus on the inequality and the impact that it has on the attainment of the favourable economic destiny of the nation. The paper will cover more aspects apart from the issue of the attainment of favourable economic policies and conditions in the nation (European Dept, 2014). The issue of inequality is important in the assessment of the most important issues that will affect a nation in the face of the international financial crisis and the mixture of the pre-existing local impediments (Bristow and Bristow, 1996). The attention of this part of the paper will be on the capacity of the nation to attain the ideal relations with the labour force as a way of changing the economy of the nation. The issue of the inequalities might be traced back to the communism era. However, since the onset of the premarket reforms in the late 80s and through the 90s, the social economic transformations of the nation have passed through major levels of transitions that have ended up accelerating the polarization of the nation (Van Cleaf, 2008). The failure of the country to consider the issues that had been rooted in the society as a result of the communist practices has led to the creation of a condition whereby the nation has ended up developing on the international outlook while the people are not beneficiaries of the economic progress that most of the people see in the nation (European Dept, 2014). The result of the rushed transition from communism to the capitalism or market based system led to the polarization in the country. The deficiencies in the processes of policymaking have also affected the development of the economy. What the nation has is just but a growth that benefits the top people in the government (Prazdny and Spenceley, 2011). Little or no benefit trickles down to the final person that played an important role in the creation of the wealth that is used to rank the nation. The collapse of the Council for Mutual Economic Assistance led to a drastic decline of the industrial prowess that was manifested in Bulgaria (Neuburger, 2013). The collapse of the infrastructures and the first wave migration of the viable human capital have also played a vital role in the development of the nation (Bristow and Bristow, 1996). In as much as the people may have the view that Bulgaria has had some significant change, there are some aspects of the nation that are still lacking. One of the main issues that are facing the nation is the poor changes on the policies that would have determined its performance over the years. The country policies have done a little to cover the issue of social reforms. The result of the approach to the change has been the massive drop in the standards of living for the majority of the population (Williamson, 1994). This stand can be explained by a variety of obstructions that the government and other players erected in the path of implementing new reforms. The social mechanisms relating to the complex of the economic, psychological and social aspect of the lives of the people have been largely stalled by poor government policies and lack of commitment of all the regimes that come to the government (Van Cleaf, 2008). The transition government was exposed to major issues on the policy reforms of increasing the social equality and poverty (Prazdny and Spenceley, 2011). The policies were made while the nation was facing a massive external migration. This has led to the increase in the anti-poverty policies that have been ineffective on the increase even after the change of the mode of government (European Dept, 2014). The nation adopted a currency board arrangement CBA that was charged with the fixing of the national currency against the euro. The impact of the foresight in the decision has been the stabilization of the macroeconomic variables of the nation and a steady economic growth over the years prior to the accession of the EU (Stavreva and Quek, 2008). The growth of the real GDP ranged between 4.1% and 6.6%. From 2001-2008, the nominal GDP per capita has risen from 1919 euros in 2001 to 4475 euros in 2008. However, in as much as the nation has a positive image about the GDP growth, the nation is still ranked low among the newest nations to join the Eurozone (Neuburger, 2013). There are other aspects that are contrary to the common approaches used in the determination of the nominal GDP that can be used in the case of Bulgaria to determine the nominal GDP and hence used to rate the level of income inequality (Prazdny and Spenceley, 2011). The common approaches that the paper will use to determine the level of income inequalities in Bulgaria will be mainly assuming the socio-demographic approach in the assessment of the households and the entire nation (Van Cleaf, 2008). The variables that the paper will employ includes the ethnicity, the type of the settlement that the people have, the size of the household, the number of people that are unemployed, the number of children per household and the number of the pensioners. The above variables are not the common approaches used in the ranking of the inequalities (Stavreva and Quek, 2008). However, the approaches that are used in the paper are subject to contest since they are not the most accurate measures used to measure the level of income inequalities in Bulgaria. The paper will also place special emphasis on the studies in poverty and the attitudes of the people towards the direct and indirect social assistance. The approaches used in the assessment of the interrelation between the income inequality and other household variables will be quartile regression (Neuburger, 2013). General view of the inequality and poverty in Bulgaria and its effect on the domestic destiny of the nation In the past 20 years, Bulgaria has been a victim of many economic and demographic efforts that that had severe effects on the nation for the most part of the 1990s. The population of the Bulgaria decreased by about 13 per cent for the first 15 years of the transition from the time of communism to the era of market determination. The majority of the reasons for the decline in the population were the massive out migration. The other part was due to the natural cause of population decrease (Prazdny and Spenceley, 2011). These negative demographic indicators are mainly viewed as the main causes of the public assistance system in the country compared to other nations in the European Union. In addition to this, the model of the family in Bulgaria has undergone a significant change since the transition. An instance of the change in the marriage patterns include the change in the intensity of marriages and the decrease in the child bearing among the nations. The number of the children that are born out of the wedlock has also increased in the nation. The failure in marriages has led to increase in cohabitation (Prazdny and Spenceley, 2011). The above persistent social inequalities have increased the burden that is felt by the social assistance systems (Williamson, 1994). This has made it hard for the social assistance system to make proper inclusion of the vulnerable social groups (Bristow and Bristow, 1996). The other aspect that has led to the increase in the inequality has been the massive migration of the people from areas that are seen as underdeveloped to other places that are developed (Van Cleaf, 2008). This has led to the increase in the regional disparities that was already at a bad state (European Dept, 2014). Therefore, despite the increase in the income of the nation, there are rampant disparities that can be seen in the nation. The inequality and domestic outlook of the economy is not as promising as one would anticipate for a nation that has massive increase in the GDP. The doubling of the GDP may not be sustainable in the nation given that the majority of the nation citizens are pensioners. The country currently has over 2.2 million people being pensioners. The government has placed the focus on the provision for the pensioners (European Dept, 2014). The major part of the social assistance budget of the year was focused on the provision for the old people. The other part of the finds has been the targeted on the provision for the other vulnerable groups (Prazdny and Spenceley, 2011). The share is still inadequate to cater for the above groups of people and the approach that the government took was the provision of the amount of money to the two groups mainly during the transition phase of the nation. However, the people still need the funds even as after the accession of the Eurozone (European Dept, 2014). The inclusion of the people in the benefit groups has to ensure that it includes all the people. The government also ought to consider the fact that the majority of the people in the rural areas have no one to look after them given the fact that most of the young people moved to the other countries in the Eurozone that have a better promise for compensation. The burden on the government for the inclusion of the old people in the social assistance is still going to burden the government even more in the future and the only solution to the issue is to ensure that there are adequate measures to tackle the issue of the social assistance (Van Cleaf, 2008). The government also has the duty of ensuring that the people have the best chance of employment by creating more employment opportunities through the inclusion of all the unemployed people in its projects (European Dept, 2014). Therefore, the government expenditure will lead to the creation of jobs for the massive numbers of people that are unemployed or underemployed. The attraction of the other investors is the other option that the government can pursue in conjunction with the private sector players. This will ensure that the government is able to deal with the issue of unemployment among the youths and the rapid migration of the most viable talent of the nation to other parts of the Eurozone countries (Williamson, 1994). The common opinion in Bulgaria is that the social protection policy aims at the inclusion of the Roma ethnicity, which accounts for 5 per cent of the total population of the country. The ethnicity has a socio demographic policy that is characterized by incidences of high school dropout rates and high birth rates, early marriages and comparatively high rates of birth. According to the statistics from the Bulgarian National Statistical Institution, the chances of risk have stabilized over the years to the level of about 14 per cent in the period before the coming of the European Union and the period after the country joined the European Union. The poverty risk is going to increase in the event that the families have high rates of children, the old and the unemployed (European Dept, 2014). Comprehensive income inequality study in Bulgaria indicated that there are various aspects of the poverty levels, income inequality indicators and the main sources of the two undesirable situations. The use of a representative household sample can reveal the severity of the poverty and the income inequality in the society. The use of a regression models can indicate the determinants of a family falling into the poverty and adding to the income inequality in the nation. The econometric analyses have indicated that the large families have a higher risk of falling into the inequality trap. The households that have more than two children have a higher risk of being poor (Prazdny and Spenceley, 2011). The families that are run by the young single women still have the potential of falling into poverty. The households that have an old invalid or have two pensioners have the risk of falling into poverty in as much as the government may be providing them with the pension. In most of the cases, the pension is used for medication and food and the old are not capable of handling other issues that are still pertinent (Stavreva and Quek, 2008). The households that have the discouraged worker or people that are generally unemployed also face the risk of falling into poverty. This means that the nation has many instances that can lead to the creation of poverty situation (Prazdny and Spenceley, 2011). The ability of the nation to have a favourable domestic destiny depends on the capacity of the nation to come up with the right approaches that can be used in the creation of more wealth for the nation while increasing the distribution of the income to the people. The inclusion of the above groups when making the policy decisions will determine the success of the nation in future (European Dept, 2014). The government has to consider the issue of the old people in the population. The people may not be productive as now but they must have had their impact on the nation’s growth when they had the capacity to develop the nation (Prazdny and Spenceley, 2011). The government has to include the care for the old people since most of the young people that would have helped the old people are out working in other nations in the European Union. The government ought to come up with some programs that touch on the social welfare of the old people (European Dept, 2014). The other role that the government and other policy makers have to consider is ensuring that there are adequate work opportunities for the people. The job creation roles have to be undertaken in such a manner that will lead to the increase in the work and improve on the quality of the work that the people have. This will be instrumental in the reduction of the discouraged workers in the economy (Neuburger, 2013). It will also lead to the increase in the domestic product and taxes that the government can use to sustain the recurrent expenditure of the nation. The policy formulation also ought to be made in an all-inclusive manner such that the people will have a change in approaches where they will view it as a policy meant for all the people and not the Roma alone (European Dept, 2014). The government can attain the desired domestic destiny by increasing the investment in the public affairs. Conclusion In conclusion, the economic performance of Bulgaria is better compared to the performance of the other nations in the region. The country has a favourable economic growth even in the era when some of the nations are struggling to survive the aftermath of the global financial crisis and the Eurozone crisis. However, despite the massive economic strides that the country has made, there are rampant cases of income inequalities. The country also faces the constant challenge of outward migration, which is costing the nation a lot of human capital. The country can reverse the trend by creation of favourable and well-paying jobs that will be appealing to all the people. The other challenge that the country is facing is the rising recurrent budget given that the majority of the citizens are old and incapable of working. The government is spending a lot on the pensioners. 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