/View.info/ In economic theory, there is such a concept – “disruption” (disruption), which denotes the state of uncertainty and the appearance of unreliable evidence of stability.
Both characteristics emerge in the run-up to the panic that grips economic agents. The last phase is the chaos of the markets, lasting for years.
I bring this definition to make a transition to the Bulgarian political-economic situation. And more – to send, through this express comment, a warning signal that it is moving irresistibly towards that limit, beyond which the return from chaos to equilibrium is extremely difficult.
What are the reasons for such a seemingly startling statement?
In any case, it’s not my fondness for catastrophic scenarios. There are plenty of people willing to scare the population in Bulgaria – not only among the amateurs, but also in the professional guild. My decision to come out with a publication in the “early warning signal” genre is based on the analytical developments accumulated over the years of the crisis, tracking its development in Bulgaria and in Europe, against the background of global fluctuations.
The motives for such a step, I suppose, are clear: to provoke expert discussion and a backlash among opinion leaders at the highest levels of government. In their hands are the power, resources and tools for policy making. Unfortunately, three regular and two caretaker governments have been powerless in the face of the economic crisis: they gaped at its arrival, then stubbornly experimented with the wrong models to get out of it, and today they continue to move in a direction that leads us to the abyss.
The movement of the Bulgarian economy from crisis to collapse is determined by several factors and trends, which have been identified in a timely manner by specialists – separately and in depth. What is missing, however, is the attempt to see the pro-crisis effects in unity.
Because the economic collapse that threatens us is a product of the combined impact of external and internal factors and events, which is a classic manifestation of the mentioned destructive phenomenon. Let’s move on to the evidence and arguments.
First of all, we have seven years of economic stagnation, which is also due to a systematic rejection of a growth strategy.
The drop from pre-crisis levels – over 5% annual GDP growth – to values close to zero is a shock that any national economy can hardly withstand. The problem in our country is that after the initial decline, it entered a permanent recession, and subsequently – a depression. The anemic growth rates in the last 3-4 years are not a guarantee that the Bulgarian economy will recover its previous condition on an inertial path.
The parameters of the macro framework laid down in the medium-term program of the government, in which GDP growth of around 2.1% is predicted, do not give reason to expect that the national economy will move from decline and stagnation to sustainable growth. Even these estimated values are almost twice lower than the indicators of the countries of Central and Eastern Europe, members of the EU, comparable to Bulgaria.
So, from the point of view of economic dynamics and the long-awaited revival, Bulgaria is and will remain among the exceptions – in the group of crisis countries.
In second place is the deflationary trap. The Bulgarian economy has been stuck in it for more than two years.
The situation, as a trend and statistical values, is similar to that in Greece. But deflation in Greece was preceded by a debt crisis that led to technical bankruptcy. In Bulgaria, the leading reasons for persistent deflation are other: excessive inter-company debt accumulated over the years, lack of investment and working credits, especially for small and medium-sized enterprises, growing indebtedness of households, reduced consumption and growing savings – at the expense of refraining from investments.
The fact is that the deflationary spiral has already spun out of control. Favorable external factors, such as the drastic drop in fuel prices, did not help overcome negative inflation. And in this direction, the Bulgarian economy is an exception – it is persistently deflating, while in the Eurozone, for example, the fluctuations are around zero values.
To this fact we must add the fact that the state administration in our country – in the field of fiscal and financial control – has no experience in overcoming deflation, in contrast, for example, to hyperinflation, which the Monetary Board protects us from.
In third place is the debt spiral, which rotates at a speed disproportionate to the productive potential of the national economy. In less than two years, the direct and indirect benefits of the EU’s record low level of external debt have been eliminated. As a result of the huge loan of BGN 16 billion approved by the National Assembly in 2015, it almost doubled in a matter of months and today it is close to 30% of GDP. Here we should also take into account the planned exit to the American capital markets – there is already talk of not 5, but 8 billion euros of new debt! Which is a sure way for Bulgaria to enter a deep, hard-to-reverse debt crisis.
The problem is not only in the level, but mostly in the pace, the speed with which the state debt increases. It is not immune from self-acceleration, from forced entry into the vicious cycle of piling up debt upon debt to maintain a normal budget deficit and service previous loans. Separately, there are the risks of opening huge financial holes, as happened with the bankruptcy of KTB and as will most likely happen with NEK, which is de facto bankrupt. Expert estimates of the losses from the two “rescue” operations exceed BGN 10 billion, which is the current fiscal reserve.
The danger of contracting the “debt disease” and entering a Greek scenario is fueled by the fact that until recently Bulgaria did not have an updated long-term strategy for managing external and internal debt, with clearly defined and socially accepted goals and priorities for using the attracted resource . And what is particularly important – there is a lack of transparency for the technical realization of the transactions, for changes in the price of loans and their servicing, for the way of spending the acquired funds.
The new national strategy has already been approved by the Council of Ministers, but has yet to be considered by the National Assembly. There is no mention of public expert discussion on the subject and open professional access to preparatory documents and estimates.
In fourth place comes the restrictive budgeting, which is applied according to the “austerity” model – it reduces consumption and public services. This model in various interpretations has been used in our country for over 17 years, i.e. after the introduction of the Monetary Board and during the first seven years of the crisis. The same philosophy is embedded in the government’s medium-term program until 2018.
What are the effects of austerity?
It is true that in some years the budget deficit was low and Bulgaria was pointed out by the EC as a fiscally disciplined country. But this achievement is already history: in the last 3-4 years, maintaining a deficit of less than 3% has become increasingly difficult, and in the future – impossible. At the border between 2015 and 2016 financial year, the cash deficit almost doubled!
A separate problem is that state budgets are systematically adopted without an accompanying National Investment Program. Surpluses are used as appropriate, with external interference from ruling parties and influential corporate networks. Restrictive budgets are suppressing wages and pensions, preventing the unblocking of stagnant consumption. The domestic market does not stimulate production, and exports, despite some temporary improvements, remain an untapped factor for growth.
In this situation, the budget is doomed to almost complete dependence on external and internal loans, as well as on European funds. Income from production, services and taxes become a secondary source.
In fifth place is the demographic collapse. It deprives the economy of the most important capital needed to get out of the crisis – human capital.
This is the oldest social disease of Bulgaria, more than a quarter of a century old. The trends are unchanging: the population has sustained negative growth, which is due to low birth rates, high morbidity and mortality, excessive emigration, regional demographic disparities. In these places, we are at the head of the negative rankings in Europe and the world, and we will remain there for the next quarter of a century.
No nation has overcome an economic crisis with a declining population. Depopulation is a scourge of prosperity and an accelerator of economic decay.
Conversely, countries with high demographic potential moved from the group of laggards to developing economies precisely thanks to the purposeful use of their human resources.
Next is galloping income inequality and massive, persistent poverty. They in turn erode the quality of life and demotivate the nation.
A social bomb is planted right here, whose clock mechanism is counting down the last hours. The problem, however, is not only that Bulgaria is the poorest country in the EU, the most unequal in terms of income and the leader in terms of social exclusion. Added to these social ills are the negative economic effects – it has already been proven that unequal and poor countries do not prosper. On the contrary, they are doomed to stagnation, repel quality investments, generate social and political uncertainty. This is precisely the macroeconomic and geopolitical situation in our country in the last few years. The outlook is even bleaker…
In seventh place, there is a persistent structural deficit in the labor market, which covers the key segment – industries and the cohort of highly qualified specialists.
This phenomenon is relatively new – it stood out in the general picture of the weakening Bulgarian economy and the inertial moving labor market in the last few years. However, it is a fact that with more than 350,000 unemployed in our country, the industries and part of the services are looking for more than 100,000 highly qualified executives and managers.
Specialists from professional groups whose training was prioritized in the past are especially scarce: mechanical, electrical and construction engineers; workers with an industrial profile; doctors and other medical personnel; teachers; executive personnel in tourism, etc.
Against the background of these disparities, the stated intentions of the state to invest in education and qualification with priority are delayed by at least 10 years. Even if the achieved educational goals are met, their effect will be felt in the long term.
The medium-term development of the Bulgarian economy is blocked by the lack of quality human resources. The underestimation of this factor has its price and Bulgaria is already paying it.
This brief analysis does not aim to comprehensively explain the causes of the emergence and the consequences of the impact of each factor separately on the phenomenon of “economic collapse”. Nor – to revive the expert and public discussion about the state of each of the commented segments of the economic system.
The purpose is: to raise awareness of the negative synergistic effect that results from the combined impact of the seven factors of economic collapse.
Each one of them, considered independently, is capable of destabilizing the long-sick Bulgarian economy. There are treatment methods for each pro-crisis factor.
Considered in unity, as a set of independent variables, as required by the methodology of factor analysis, procyclical factors multiply their destructive consequences many times over and move the Bulgarian economy from crisis to collapse. What is the trend for the last seven years.
State administration in our country is over-occupied with redistribution and concentration of power. The orange code signaling the dangerous economic turn, however, does not depend on power struggles. On the contrary, they exacerbate the risks and shrink the room for maneuver.
It is a matter of months, a matter of months, that the inevitable will happen.
Then we will fall as a country and economy into a hard-to-overcome shock. Third in a row after 1990 and 1997…
And, perhaps, this is precisely the purpose of the lesson.
When everything falls apart, the Shock Doctrine comes to the rescue!
Is this the perspective of Bulgaria in 2016? /BGNES
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Prof. Krastyo Petkov, Chairman of the Union of Economists in Bulgaria
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