We live worse because we earn much less, even though goods and especially services are cheaper, says economist Lachezar Bogdanov in an interview with Ivaylo Noizi Tsvetkov.
Let's start with something simple: is it too expensive in Bulgaria (especially when it comes to food and services) or are incomes low?
L. Bogdanov: Let's start, okay - but "simple" is not simple at all. Let's take a few steps back - to the shortest definition of the science of economics. Here it is: economics deals with the choices and actions of people in the use, management and distribution of scarce (limited) resources. In other words - if something is not limited (scarce), it is not a resource in the economic sense of the term; conversely, when you ask an economist to explain a phenomenon, a decision, a human interaction, you must always assume that there is a scarcity, a shortage, that desires and needs by design exceed what is available and accessible.
Needs always exceed possibilities, income is never "not enough", it is always "expensive", because it is better to be cheaper, and best of all - free. When you hear someone say that they have everything they want, that their income is sufficient, this is bragging in front of the audience and at the table.
What can an economist answer you, but without pretending to resolve the emotional charge with which the question is loaded? According to Eurostat data, in 2024 the average price level in Bulgaria, as measured by household expenditure, is about 60 percent of the EU average. For comparison, in Italy it is slightly below 100, in Germany - slightly above 100, so the total basket is significantly cheaper in our country. But the difference in income is greater and in this sense - yes, incomes are low. The average hourly wage with all taxes and social security contributions included in our country is nearly 11 euros, but for the EU it is 33 (i.e. three times higher), in Germany, for example, it is 43 euros per hour. Bulgarians gain a small advantage due to the lower tax burden, but still the difference is significant and cannot be compensated by the lower average price level.
I.e. we live worse because we earn much less, even though goods and especially services are cheaper.
"There are problems, but the CPC does not see them"
But how do we explain to a person with a salary around the average that it is not expensive? What does he care about inflation data and the scientific economic view in general?
L. Bogdanov: This person's problem is that in Bulgaria, in general, salaries are much lower than those in most European countries (on the other hand, if compared with the global population, he would fall into the richest quarter of humanity). Even more so - what average salary? Because if we do not count the capital, maybe Kozloduy, Radnevo and a few smaller municipalities with a successful large enterprise, everyone else receives a salary far lower than the average for the entire economy. If the average for the country is over 2400 BGN. per month, for Sofia and the mentioned few settlements it is over 3400, but in most of the country it is around 1700-1800 leva, gross. And before we envy those working in Sofia - the rents there are high, the costs of parking and transport too, there are not enough places in kindergartens, and private kindergartens and babysitters are expensive, etc. And again we come to the obvious - Bulgaria is among the less developed economies in Europe and almost any comparison of purchasing power, whether of pensioners or workers, will lead to the same unpleasant conclusion - that on average Bulgarians can afford fewer goods and services.
Apart from the issue of food quality (a match that we lose 0:6 to almost everyone from our group), I have sad comparative examples of food prices from Greece and even Italy. Not to mention London, where my favorite cheese costs a pound and a half, i.e. to 3.50 leva, and in our country it is to five leva.
L. Bogdanov: The example is good and I will not try to refute it with the cold numbers from Eurostat. Since the entire wide consumer basket in our country is 40 percent cheaper than the EU average, the difference in food is only 13 percent. However, this is common to all foods - dairy products and eggs in our country are 26 percent more expensive than the EU average, 30 percent more expensive than in Germany and 35 percent more expensive than in Poland, the Czech Republic and Slovakia. As for fats - oil, olive oil, butter - in Bulgaria it is 18 percent more expensive than the EU average, and 25-30 percent more expensive than in Italy, Spain, Romania, Poland.
Can we talk at the present time (before the euro) about speculation and hidden cartelization?
L. Bogdanov: Let's start from what was discussed above - why, since most goods and services in Bulgaria are cheaper than almost anywhere else in Europe, are some specific products in our country significantly more expensive? We have cheaper labor and lower taxes, most raw materials are cheaper, rents for shops and warehouses are lower, etc., and on the other hand - purchasing power is lower, people are poorer and should be sensitive to prices. However, some types of goods in Bulgaria are more expensive. This certainly raises doubts - although a cartel is extremely difficult to prove. But we know that, for example, in the case of fresh milk, one producer holds 80 percent of the market, this is not even a secret. The Commission for Protection of Competition establishes it, but does not see a problem, since others could (in theory) enter the industry or there could be imports.
"In a competitive environment, it is inappropriate to talk about speculation"
Could the state (in the person of the NRA, the CPC and the CPC, which even gave a press conference on how they will cooperate) be able to combat individual cases of speculation?
L. Bogdanov: "Speculation" is a literary and colloquial term, not an economic one. If we could still use it for some life situation, it would be, for example, for a territory devastated by war or a severe natural disaster, where essential products suddenly disappear, and - let's say - the only merchant with a surviving warehouse sells food to starving people at a hundred times the price. However, in a competitive environment, in an open European single market, and if you like - in refrigerators and freezers that allow you to have a reserve and not buy if the price irritates you on a certain day, we cannot speak in these categories. In 2022, they tried to sell oil for 7-8 leva, but in just a few weeks things normalized and by the end of the year they returned to pre-pandemic levels.
Should the state interfere in the free market at all, beyond the stated determination to chase violators?
L. Bogdanov: Violators of what? As far as I know, there is no state price regulation in Bulgaria. If there is an abuse of a dominant position or a cartel - that is another thing, the CPC should establish, punish and dismantle it there. Surprisingly, over the past 15 years, most complaints have been about too low prices, about dumping - in other words, traders not only cannot raise their selling prices, but even have to lower them under pressure from competition and imports.
And the idea of having a state-owned chain of stores for the most necessary things?
L. Bogdanov: The idea is insane from the point of view of thinking people. At the moment, it seems like a mechanism to spend a little state money on research, paying directors' salaries, maybe even desks, computers and cars for the management of the newly created thing. On the other hand, it would really be useful to try it - because many people have forgotten socialism with all its inefficiencies and madness, poor quality, deficits, empty stands, etc. So let's have this store and see how it will sell good goods at low prices and crush the private stores in the village or neighborhood. Even more - let's see how it will align in variety and prices with the large chains of modern trade.
"I believe that good things will happen and it is possible to get rich"
What will Bulgaria look like at the end of 2026 in a financial sense? I am asking about both the macro and the micro.
L. Bogdanov: Both philosophically and quite pragmatically, everyone should switch to a wave of "deflation" - because everything points to recession and stagnation, and even a drop in prices. And in the last 3-4 years we have been thinking only in an inflationary dimension, with expectations that everything will become more expensive, including salaries and profits. However, the international situation has turned around, China will flood Europe (and the entire world outside the USA) with cheaper goods, oil and fuels in general will be relatively cheap. That is - stabilization. And this means that both companies and the state must start thinking about savings, about cutting costs, about higher efficiency. Specifically, the state budget must be planned with a minimal increase in revenues and expenses - and this means political will to curb the ambitions of all sectors for more and more financing, for ever higher salaries and living expenses. If the trend of increasing expenses continues in this global market situation, large imbalances will quickly accumulate, the budget deficit and debt will grow, and this will soon explode public finances. And then we will see what a crisis means - something we do not remember from 2009-2010.
Lachezar Bogdanov graduated from the University of National and World Economy in Sofia. The focus of his research work is macroeconomic policy, public finances, the tax system and the labor market. Since June 2019, he has been the Chief Economist at the Institute for Market Economics. Photo: BGNES
Are you an optimist?
L. Bogdanov: Does all this sound optimistic? Not to me, the very fact that we continue to read about Bulgaria as the "poorest country in the EU" frustrates me enough. But otherwise, yes, I am optimistic - I believe that good things will happen and it is possible to get rich and live more freely and better. Let's just think about how bad we were in the mid-1990s and where we have come to - who realistically believed, for example in 1995, that we would be part of NATO, the EU, Schengen? That we would have one currency with Germany? That Bulgarians would fly to Rome or Paris for the weekend and celebrate the Unification of the islands in the Mediterranean?
How will the wars nearby affect the Bulgarian economy?
L. Bogdanov: For us, the downside is higher fuel prices, if they really are higher, because we are a net importer of oil and gas, and a plus in almost everything else. The structure of the Bulgarian economy suggests that we fill the niches vacated, for example, by Ukraine. If there is a strategic long-term decision in the EU for more defense spending, we can also - without being guaranteed, however - win, because Bulgaria has production capacity and with appropriate modernization our enterprises can take a "piece of the pie" in future orders. Separately, there will be a lot of investment in infrastructure, artificial intelligence, information technologies - all this will be an incentive for Bulgarian players, if they are ready and adequate.
"With good economic policy and the rule of law, we can quickly become a much more developed country"
Which industries should we bet on? Will we also have to import workers from poorer countries?
L. Bogdanov: This import is already a fact. I generally support the opening of the country - not only because of momentary deficits and imbalances, but in the long term. I believe that diversity in talents, knowledge and cultures is useful for creating a dynamic society that benefits and gains from change, development and constant adaptation to the outside world.
If we have a good economic policy and the rule of law, I believe that we can quickly become a much more developed country, and become a better place to live than many other countries that are currently ahead of us. Why not attract a population from, for example, Spain, Italy or Finland - with a quality of life, opportunities for entrepreneurship or with well-paid jobs in Bulgarian companies that are successful in the global market? There is no need for those who come to be seamstresses or fruit pickers - to maintain low-productivity activities with cheap labor in the long term is a lost and harmful cause. But what prevents good programmers or engineers from coming and creating top technological products and services here? Or top mathematicians from developing artificial intelligence models - skiing or hiking in the mountains until noon, in the laboratory in the afternoon, why not?
Finally: how will we catch up with the Romanians, and even surpass them - when?
L. Bogdanov: The Romanians are not without fault, the state spends unbridled there, which partly explains the growth and higher wages and consumption. But this cannot continue - they will either make a preventive adjustment, or they will cause a financial crisis and will have to suffer after it in order to recover. As happened in Greece.
So, one way to catch up with them is to wait for them to fall into crisis. The better one still assumes that we also have our contribution, i.e. to achieve sustainable high economic growth, driven by investment and higher productivity of human capital. Hence the recipe - all policies that encourage, facilitate and support better education, more competition, more conditions for innovation and entrepreneurship, investments in machinery and new technologies are good and will lead to rapid growth in the coming years. This is how we catch up with those who are ahead, and more importantly - this is convergence without accumulating imbalances or, more clearly, without borrowing from the future and creating a risk of collapse and loss of progress.