Fast-growing impoverishment in Bulgaria

Economists call for urgent measures

published on 2/23/22 3:52 PM

Bulgaria’s inflation accelerated to a 9% annual rate in January 2022, compared to 7% in December 2021. According to the National Statistical Institute, this is the fastest year-on-year rise since November 2008.

Inflation is apparently continuing to rise and is likely to reach double digits, economists predict. Main upward pressure came from food & non-alcoholic beverages (11%); transport (21%); and housing and utilities (13%). For some vegetables, such as cucumbers and peppers, the increase was again in double digits.

Electricity and heating costs, as well as medical and dental services, are already noticeably higher.Within a month, there has also been an increase in prices for entertainment and culture - by as much as 3.8%, and for restaurants and hotels - by 2%.

Fuel, electricity and oil prices are also rising, which will inevitably lead to even higher levels of inflation, with no prospect of stabilization at least by the middle of the year - economists and analysts report. They point out that the main reason for the surging inflation is the geopolitical situation and especially the excess of demand compared to supply. Natural resources are gradually being depleted worldwide, and this reflects on trade and prices on world markets. "In Bulgaria we are unlikely to get rid of inflation soon. The government needs to find other fiscal and economic measures that will to some extent alleviate this state of continuous impoverishment of a large part of the population," financial expert Mika Zaykova told BNR-Stara Zagora:

Talking about inflation rates we need to keep in mind that this is an average index, but if we take just the food and the goods in the small basket, which reflects the shopping of the poorest, then the growth is rampant.

In order to reduce inflationary pressures, value added tax should be decreased, or rather - VAT on food should be differentiated.

In 19 European countries, VAT on food is between 0% and 10%. For example, Malta has 0% VAT on food, Poland - 3%, Portugal – 8%, while in Bulgaria it is 20%.

I did an experiment with several journalists: we took the wholesale prices of 11 products that a household with children cannot do without, like rice, minced meat, cheese, milk, and bread, and compared them to the price tags in one of the low-priced supermarkets in Sofia. The result was appalling - the difference between wholesale and retail prices was 85% on the average.

This is not due to speculation by traders, they know that money is made from turnover, but they cannot afford to lower those prices, because apart from VAT, all food shops use electricity for freezers, for lighting, and they pay also for water and hygiene products. And the electricity for these shops is at a stock exchange price. My question is, why do they have to pay this high price when there is a regulated price for domestic consumers?"

Social and financial challenges await Bulgaria in 2022

More and more people in Bulgaria are living on the poverty line because the galloping inflation cannot be compensated by incomes. According to the statistics, about 600 thousand people in our country receive the minimum wage of 650 leva (332Euro), 42 thousand of them are working in the state administration. "Even those employed in the private sector used to receive cash in hand in addition to their salary, but this is already in the past because the business itself is now in a difficult situation," says Mika Zaykova.

"The cost of living for a person in December, when inflation was lower, was 1148 Leva (587 Euro), and imagine what a person working for a minimum salary can buy with it now, that inflation is higher, Zaykova explains. - But the problem is that no one is talking about introducing a tax-free minimum in our country. The poverty threshold also needs to be reviewed. It is now 413 Leva (211 Euro), but according to EU rules for 60% of the average income, the threshold in this country should be 609 Leva (311 Euro). Again, the poor are getting poorer, the rich - richer, so something in our tax policy needs to change.