Basis for Government Stability Still Lacking

Mass protests fueled by public anger over economic stagnation, rising unemployment, soaring utility costs, and official corruption forced the resignation of the minority center-right GERB government headed by Prime Minister Boyko Borissov in February, necessitating the scheduling on an early election on May 12.  As pre-election polling data indicated would be the case, the election failed to produce the seismic shift in the parliamentary balance of power that might have created the momentum for the reforms demanded by the protesters.  In fact, the voting consolidated the parliamentary control of the established parties.

Only four parties won enough votes to qualify for seats in the Parliament, and both of the most obvious combinations—a right-leaning coalition of GERB and the nationalist Ataka, and a leftist alliance of the BSP and the ethnic Turkish DPS—would control only 120 seats in the 240-member Parliament, one short of a majority.

With Borissov refusing to accept the legitimacy of the election result, responsibility for forming a government was turned over to the Socialists, who nominated former Finance Minister Plamen Oresharski to head a technocratic administration.  The government was confirmed in late May when Ataka skipped the parliamentary vote, thereby ensuring that the 120 votes of the BSP and the DPS would represent a majority of members present.

Oresharski now faces the difficult task of improving Bulgaria’s relations with the EU, which will require a commitment to fiscal orthodoxy and pro-business policies, while at the same implementing the agenda of the BSP, which includes increased social spending and a pro-growth fiscal strategy.  His task is made all the more challenging by his lack of a formal majority in the Parliament and a large opposition bloc committed to ensuring his government’s failure.

The BSP has promised to create 250,000 jobs over the next four years, bring unemployment down from an eight-year high, and cut taxes for low earners while containing the growth of the public-debt burden.  Given the economic realities, it will not be long before any Bulgarians who believe the Socialists are capable of achieving those mutually exclusive objectives come to realize that the promises are pure fantasy.

Whether the resulting disillusionment produces alienation and apathy, or outrage and militancy, is an open question at this point.  Given the toxicity of the political climate—highlighted by increasingly overt displays of animosity among the parliamentary parties, growing public disgust with all of the parties that held turnout for the recent elections to just 51.3%, and Ataka’s self-serving warnings of the perils posed by the country’s ethnic Turkish minority—there is a high probability that the government will confront a large opposition bloc committed to its failure, which will create a high risk of public disquiet.

Forecast Summary

SUMMARY OF 18-MONTH FORECAST
REGIMES & PROBABILITIES Center-Left Minority 50% Center-Right Minority 30% Center-Left Coalition 20%
RISK FACTORS CURRENT  
Turmoil Low SLIGHTLY MORE SLIGHTLY MORE SLIGHTLY MORE
Investment
Equity Moderate Same Same SLIGHTLY MORE
Operations Moderate Same SLIGHTLY MORE SLIGHTLY MORE
Taxation Low Same Same SLIGHTLY MORE
Repatriation Low Same Same Same
Exchange Low Same Same Same
Trade
Tariffs Moderate Same Same Same
Other Barriers Moderate Same SLIGHTLY MORE SLIGHTLY MORE
Payment Delays Low Same Same SLIGHTLY MORE
Economic Policy
Expansion Low SLIGHTLY MORE Same MORE
Labor Costs Low Same Same Same
Foreign Debt Moderate SLIGHTLY MORE SLIGHTLY MORE MORE
SUMMARY OF FIVE-YEAR FORECAST
REGIMES & PROBABILITIES *Center-Left Coalition 45% Center-Right Coalition 40% Center-Right Minority 15%
RISK FACTORS BASE  
Turmoil Low Same SLIGHTLY MORE Same
Restrictions
Investment Moderate SLIGHTLY MORE SLIGHTLY LESS Same
Trade Moderate Same SLIGHTLY LESS Same
Economic Problems
Domestic High SLIGHTLY MORE Same Same
International High Same SLIGHTLY LESS SLIGHTLY LESS
* When present, indicates forecast of a new regime

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