Bulgaria, which has been a member of the European Union for many years, began to cause concern with its weak investment potential before switching to the Euro.
Bulgaria is in a state of investment stagnation, and productive capital spending will reach about 18% of GDP by 2024. Compared to neighbors such as Croatia and Romania, Bulgaria lags 5-6 points behind. Secretary of the Council for Economic Analysis Associate Professor, PhD. Plamen Nenov, in his statement on Bloomberg TV Bulgaria, stated that one of the most important factors of this downturn is the relatively low level of investment by Bulgarian companies in machinery, equipment and innovation. Professor Nenov presented the main findings of a joint study he conducted with Atanas Pekanov and Daniel Vassilev, examining the impact of European subsidies on Bulgaria's economic growth. Citing a pre-pandemic survey, he noted that 80% of Bulgarian businesses operate with machinery considered outdated by European standards. He noted that systemic difficulties in accessing finance (both bank loans and capital constraints for SMEs) are the main obstacle to further investment in modern equipment and innovation. BANKS CAN RELAX AFTER SWITCHING TO EURO Following Bulgaria's adoption of the euro on January 1, some improvements in credit conditions are expected, with banks being subject to lower minimum reserve requirements. However, Professor Nenov emphasized that increases in productivity and corporate profits are likely to have a stronger impact on investment decisions. He emphasized the role of grants under the Operational Program “Innovation and Competitiveness” (OPIC), which plays a role in injecting equity capital into companies. These grants have demonstrated long-term positive impacts by increasing investment, revenue, profits, labor productivity and even labor demand, including higher wages. However, Professor Nenov emphasized that subsidies are not a universal solution and need to be carefully targeted, preferably towards companies with strong long-term investment potential. RECOMMENDATION FOR STRUCTURAL REFORM The analysis also recommends structural reforms to improve the functioning of the Bulgarian financial market. Professor Nenov explained that improving judicial administration, restructuring stock exchanges and making them more attractive to investors and companies could encourage businesses to raise capital from these sources. Another proposal is to use public funds more flexibly through targeted instruments such as grants, loan guarantees, export guarantees and equity financing. Analysts also recommended improving policy targeting to encourage companies with high growth potential. Professor According to Nenov, accelerated depreciation in accounting law can be an effective tool that allows companies to invest more to benefit from higher tax deductions, thus encouraging further investments.
