SOFIA (Reuters) - Bulgaria is struggling to spur its small and open economy after a deep recession, but protests against tight fiscal policy and low living standards forced the rightist government to resign in February.
Sometimes violent protests, initially prompted by high electricity prices, continued for nearly three weeks and before it stepped down, the government also started the process to revoke Czech utility CEZ’s license, raising questions over the investment climate in the European Union’s poorest country.
Here are the main political risks for Bulgaria:
Outgoing Prime Minister Boiko Borisov has kept a tight rein on fiscal policy to maintain a currency peg to the euro but did little to improve living standards, which are less than half the EU’s average.
With an early election expected in May, Borisov’s GERB party is neck and neck with the Socialists. Whoever wins will almost certainly have to strike a coalition deal with a smaller party.
Borisov was hospitalized with high blood pressure after his resignation, adding to a sense of political limbo.
What to watch:
- Who will President Rosen Plevneliev appoint in an interim government, due to be formed next week? Investors are looking for an experienced professional to maintain fiscal discipline at a time when protesters are demanding spending be increased.
- Who will win the early election? A hung parliament and horse-trading over a coalition look almost certain. Investors are wary of the Socialists, who lost power during an economic crash in 2009 and have pledged tax cuts and wage hikes. If GERB wins, there will still be pressure to roll back austerity.
The EU forecasts growth at 1.4 percent this year, compared with 6-7 percent before the economic downturn in 2009, but that is doing little to improve the lot of most Bulgarians. The average monthly pension is just 135 euros ($180) and the average salary 400 euros.
Bulgaria has managed to cut its deficit to one of the lowest levels in the bloc, at 0.5 percent of GDP last year, which is important to maintain confidence in the lev currency’s peg to the euro.
What to watch:
- Will the interim government stay the fiscal course in the face of protesters’ demands to cut electricity bills and raise wages and pensions? Will it be efficient enough to ensure budget revenues?
Corruption and organized crime still blight Bulgaria 20 years after the end of communist rule, deterring investors, hindering growth and delaying its entry into the EU’s Schengen zone of borderless travel.
The Balkan country has failed to uncover details on over 100 contract killings in the past decade and has yet to jail a single senior official for corruption. The EU has its justice system, along with Romania‘s, under special monitoring.
What to watch:
- Will the country’s courts succeed in convicting a top official? This might not move markets in the short term but would signal that Bulgaria was becoming an easier place to do business.
($1 = 0.7649 euros)
Editing by Alison Williams