After years of strong performance in therun-up to the European Union (EU) accession, Bulgaria’sgrowth has slowed down and poverty remains the highest inthe EU. Bulgaria achieved the highest recorded growth ratesbetween 2000-08 on the back of exceptionally high capitalinflows, structural reforms, sound fiscal management and theprospects of EU accession. Employment boomed and povertyfell steeply. Since 2008 – the year of global economiccrisis – economic growth has been sluggish, poverty on therise and income gains of the bottom 40 percent. Recently,labor markets and poverty have shown some signs of respitebut new growth drivers and a sustained reform commitmentwill be needed for the current generation of Bulgarians toobtain EU living standards. This Systematic CountryDiagnostic (SCD) identifies three policy areas with thepotential to transform the economy and achieve thisobjective: (1) strengthening the institutional and legalframework for good governance; (2) boosting the skills andemployability5 of all Bulgarians; and (3) improving theeffectiveness and efficiency of public spending. Drawing onan extensive body of previous and current work carried outby the Bank, as well as local and foreign experts, the SCDdiscusses drivers and constraints to growth and uses anasset-based framework to understand how micro andmacro-economic forces shape the income profile and dynamicsof the bottom 40 percent of the population.
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