Bulgaria Has Highest Proportion of People at Risk of Poverty in the EU

Bulgaria has the highest share of people at risk of poverty or social exclusion in the European Union (EU). ! The main reason for this has been rising unemployment and declining government expenditure on social security and welfare in the context of a contracting economy. The recovery of the Bulgarian economy will be highly dependent on the performance of the rest of the EU, on which it is heavily dependent for foreign investment, trade and remittances.

Persons at Risk of Poverty or Social Exclusion: 2010

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Source: Eurostat

Note: Persons are considered to be at risk of poverty or social exclusion when falling under at least one of three criteria: living in a household with a disposable income below 60.0% of the national median disposable income, severely materially deprived or living in households with very low work intensity.

  • Bulgaria is the EU member state with the highest share of persons at risk of poverty or social exclusion, according to Eurostat data. In 2010 (the latest year available), 41.6% of Bulgarians were at risk of poverty, compared to an EU-27 average of 23.4%. Severe material deprivation was also highest in Bulgaria, at 35.0% of the total population in 2010, significantly above the EU-27 average of 8.1%;
  • The Bulgarian economy contracted by 5.5% in real terms in 2009 as a result of declining foreign direct investment and international trade amid the global financial crisis of 2008-2009. Real GDP growth had not recovered to pre-crisis levels by 2011, when the economy grew by only 1.7% in real terms compared to 6.2% in 2008;
  • Disposable incomes stood at BGN 4,532 (US$3,084) per capita in 2011, with real annual growth at only 0.3% on average between 2006 and 2011. By comparison, the average per capita disposable income in the EU was US$22,378 in 2011.

Implications

  • Rising unemployment is one of the key reasons for the high share of Bulgarian population exposed to a risk of poverty and social exclusion. The unemployment rate increased from 5.6% of the economically active population in 2008 to 11.2% in 2011;
  • Government expenditure on social security and welfare declined by 2.2% year-on-year in real terms in 2011, as the government strove to cut expenditure amid declining tax receipts. The government budget went from a small surplus in 2008 to a deficit in every year between 2009 and 2011. Nevertheless, prudent public finance management throughout the period of 2006-2011 means Bulgaria is less exposed to a fiscal crisis than many other EU member states, with the government budget deficit representing only 1.2% of GDP in 2011;
  • The elderly are disproportionately affected by poverty as many of them rely on very low state pensions for their income. According to Eurostat data, 55.9% of those aged 65+ were at risk of poverty and social exclusion in 2010, compared to 36.9% of the working-age population;
  • In 2011, the average Bulgarian household devoted 21.2% of their total expenditure to food and non-alcoholic beverages, with a further 19.4% spent on housing. Stagnating incomes and rising prices have negatively affected consumer spending on non-essentials, with leisure and recreation expenditure accounting for 5.3% of total household expenditure in 2011, at BGN 856 (US$608) per household in 2011. As a result, market opportunities for non-discretionary goods and services (ranging from communications, leisure and recreation to education and luxury goods) will be restricted, but producers, wholesalers and retailers of basic consumer goods can still seize significant opportunities for growth.

Structure of Household Expenditure in Bulgaria: 2011 % of total household expenditure

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Prospects

  • The Bulgarian economy is forecast to contract by 0.5% in real terms in 2012, and only grow by 1.4% in real terms in 2013. The slow recovery of the economy will continue to limit disposable income growth as many Bulgarian consumers restrict their expenditure to only the most essential goods and services;
  • The recovery of the Bulgarian economy will be highly dependent on the performance of the rest of the EU, on which it is heavily dependent for foreign investment and trade. In 2011, exports to the EU-27 represented 62.5% of the country’s total exports of goods. Furthermore, the recovery of job markets in Western European countries is key for the ability of Bulgarian migrants to maintain the high inflows of remittances Bulgarians have enjoyed from relatives abroad since the 1990s. In 2011, the Bulgarian National Bank reported remittances amounted to €770 million (US$1,018 million), or 2.0% of total GDP;
  • The rapid ageing and shrinking of the population is one of the most significant long-term challenges for the government’s social and healthcare spending as well as the competitiveness of the overall economy. The old-age dependency ratio (65+ year-olds as % of the working-age population) is set to increase from 24.9% in 2006 to 31.3% in 2020.