Economist Stoyan Panchev: Against the backdrop of inflation in the Eurozone and insecurity over the war in Ukraine, we should be in no hurry to replace the Bulgarian Lev with the Euro

Bulgaria’s Recovery and Resilience Plan has been definitively approved by Brussels, Prime Minister Kiril Pertkov announced, and went on to describe it as “a very good workable plan” which will contribute to guaranteeing the country’s energy security. The document focuses in particular on the plans to keep the capacities of the Maritsa coal mining basin running on the lignite mined in the region, as well as on investments in renewable energy sources, geothermal energy etc. More funding is also expected for innovations in business, and most of all in start-ups. The Bulgarian Prime Minister pointed out that rule of law has been “put on a pedestal”, with a mechanism envisaged “that will strengthen control of the prosecutor general – a judge who will temporarily assume the role of investigating prosecutor, and who will then go back to being a judge, so that there will be no conflict of interest”. There will also be progress in rail transport “with 62 new trains and new urban railways”. To confirm the approval of the development priorities, the President of the European Commission Ursula von der Leyen is paying a visit to this country today.

What will the real effect of the Recovery and Resilience Plan be on the Bulgarian economy, and will it serve as a stimulus for attracting foreign direct investments, Radio Bulgaria asked economist Stoyan Panchev:

“If we take a look at the economy as a whole, I do not believe that the plan will have any particular economic effect. Economic history shows that European funding of this kind cannot be the driving force in the development of any economy and does not engender a wave of investor interest. This is especially true in the current context. You are familiar with the problems of inflation in Bulgaria, and in the whole of the Western world and the countries of the Eurozone which are our primary trade partner,” the economist says. “We are seeing the first signs of a possible recession which is turning into a major problem for the economy. If they want to stop inflation, central banks will have to trigger some kind of recession. In this context the 13 billion Leva in question, distributed over a period of several years will not have a particular effect on what is going to happen in that time.”

As to the reforms necessary for the more efficient spending of the funding from the Recovery and Resilience Plan, Stoyan Panchev is sceptical that the government will be able to put them through in their entirety.

“Regrettably, the current government is demonstrating it is not coping particularly well with some of its priorities. There is still no significant headway on the chapter “Justice” even though we are expecting the Specialized Prosecutor’s Office to be done away with. New heads of key state bodies and regulators have still not been appointed, there is a delay in the formation of the ministries of digitization and of innovations. Being unable to find capable people and appoint them to these positions, as well as the forthcoming budget update are all things that are blocking all avenues for reform.” 

The high inflation rate in the Eurozone as well as the insecurity on the continent as a result of the war in Ukraine ought to be a red light for the government regarding their stated priority of Bulgaria’s adopting the single European currency, the economist says.

“And one more thing - according to my own rough estimates, at this time Bulgaria does not meet the inflation criteria. There is still no Bulgarian National Bank analysis of the benefits and drawbacks of the country’s joining the Eurozone. Unfortunately, questions such as this get politicized instead of being put to serious expert discussion. We can’t just keep reassuring ourselves that we are joining the “club of the rich”, without taking a look at what the real consequences will be for the country of changing over from the Lev to the Euro.”