Bulgaria: Will the new anti-corruption government pave the way for a new era?

Event

After months of a political crisis marked by three elections this year, a majority coalition consisting of four parliamentary groups, has finally agreed to form a government. The latter is led by 41-year-old PM and businessman Kiril Petkov who is a co-founder of the newly formed ‘We continue the change’ (PP) centrist party. The PP won the latest elections by securing over 26% of the vote.

Impact

The new Bulgarian government, led by the new PP party and its co-leader who is new in politics, brings much-needed leeway after a decade of ex-PM Borisov’s rule, characterised by slow reforms and frequent protests against corruption. It is expected that the new governing alliance – approved by the Parliament and gathering centrists, socialists and liberals – will be able to stay together and run the country thanks to the main goals they share and their opposition to Borisov. The priorities of this unprecedented government are multiple and highlight their policy-related challenges. Zero tolerance for corruption is a top priority and largely explains the population’s choice for political alternation. Bulgaria – together with Romania – indeed has the highest corruption perception level in the EU, according to Transparency International. Therefore, a justice reform, better governance and transparency are high on the agenda and progress is likely. Nevertheless, it will be challenging to overcome the resistance expected within the public administration, and to deliver results. Other clear goals in the Covid-19 context are the modernisation of the health sector and the acceleration of the vaccination programme. Over the past months, Bulgaria has indeed reported one of the world’s highest death rates per capita, which is explained by the fact that the country has the lowest vaccination rate within the EU (26% on 10 December) and an underdeveloped medical system.

On the external front, PM Petkov has highlighted his pro-European stance, which will quickly require tough government commitments to phase out coal production and to reform the rule of law if the country wants to have early access to the EU recovery plan next year. He also pledged to set up working groups to solve the dispute with North Macedonia, as last year Sofia vetoed the start of their EU accession negotiations. Adopting the euro by 2025, supported by domestic reforms is probably also in the government’s plans. Another point of attention is the energy policy. Current high energy prices and tensions between the EU and Russia support PM Petkov’s intention to lower Bulgaria’s gas dependence on Russia. Therefore, his future priority will be for Bulgaria to complete the gas pipeline coming from Azerbaijan and transiting through Greece.

More generally, the new government has a huge task ahead: stirring renewed optimism among the population and making the country more attractive through long overdue reforms in order to stop the endless demographic exodus. This will not be easy in a difficult health context and amid gradual economic recovery (around +4.5% in 2021 and in 2022). When it comes to political stability, the risk outlook is positive for 2022 but more uncertain after that, as the wide coalition is in essence fragile and is likely to be vulnerable over time to diverging views between coalition members. Based on the latest political developments, Credendo’s political risk ratings will not move from their low levels, whereas the business environment risk remains in E/G for the time being, due to the combination of the persisting pandemic and the low vaccination rate.

Analyst: Raphaël Cecchi – r.cecchi@credendo.com