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In recent months, the focus of the economic debate has been on the rise in prices, and rightly so. Bulgaria has not seen consumer price index increases of over 10% on an annual basis in decades. This raises the question of whether wage dynamics and household incomes are outpacing price increases or, on the contrary, if we are witnessing real impoverishment. The published data for wages in the second quarter of 2022 allow for such a comparison, and the results are concerning, as inflation exceeds wage growth in almost all economic activities.

Firstly, significant wage disparities between different economic activities in the country persist. The highest wages in the second quarter were in the ICT sector (4206 BGN gross monthly), while the lowest were in the hotels and restaurants sector (1058 BGN). Quarterly, the average national wage increased by 125 BGN, reaching 1730 BGN gross, and most sectors of the economy clustered around or below the average value.

To assess whether wage growth surpasses inflation, we compare the dynamics of the average gross monthly wage on an annual basis for the last three months for which there are data available (May, June, and July 2022) with the change in the consumer price index on an annual basis for the same months. The difference between the two indicators allows us to evaluate whether real impoverishment is occurring, at least in terms of workers' incomes.

The comparison is not encouraging. The average annual wage growth in May and June is slower than that of consumer prices, with a mere 0.5 percentage point difference in April. Price increases exceed the average gross wage by 4 percentage points in May and by 3.2 points in June 2022. This could be interpreted as an acceleration of wage growth in response to high inflation, but we can only speak of a lasting trend in this direction after the publication of third-quarter data.

Among the different sectors of the Bulgarian economy, only trade and administrative and support activities demonstrate faster wage growth compared to inflation over the three months, while some other economic activities such as mining, culture and sports, hotels, and restaurants managed to exceed price increases in May but not in the remaining two months. Of concern is the fact that the healthcare sector, which has already faced serious staffing problems due to external labor market pressures, experienced the fastest decline in purchasing power during the second quarter. There is also a significant decline in the public administration sector and municipal services.

A similar trend is observed when comparing the dynamics of consumer prices and wages at the regional level. Only in one region of Bulgaria do wages grow faster than inflation - Sofia (region), with a difference of less than 1 percentage point in May and June. Pleven and Gabrovo also show relatively good performance. Meanwhile, in regions where wage growth significantly lags behind inflation - Kardzhali, Razgrad, Lovech - the difference exceeds 10 points in June.

The wage data for the second quarter only provide an initial glimpse into the reaction of the Bulgarian labor market and employers to the sharp change in economic conditions following the outbreak of the war and the sharp increase in consumer prices. It is not unlikely that we will see more significant wage increases in the coming months as employers try to maintain the purchasing power and standard of living of their employees.

It is important to note that the presented data here only pertain to workers' wages. A more comprehensive view of purchasing power will be provided by household income indicators, which include all other sources such as pensions, social assistance, and the like. Nevertheless, these initial and incomplete indications point to significant restrictions and even a decline in the purchasing power of workers.

Which municipalities have the lowest and highest local taxes? To answer this question, the Institute for Market Economics (IME) collects data on the rates of several key local taxes through applications under the Access to Public Information Act and additional online surveys related to the "Regional Profiles: Development Indicators" study. The specific taxes examined are:

- Tax on real estate - non-residential properties for legal entities

- Tax on the remunerative acquisition of property

- Tax on vehicles and light automobiles with power exceeding 74 kW up to 110 kW

- Annual patent tax for retail trade up to 100 sq.m. net commercial area of the facility

- Tax on taxi transportation of passengers

The interactive map below presents a composite index of the tax burden in the 265 municipalities in the country. The levels of the five observed local taxes are normalized and averaged for each municipality and placed on a scale from 0 to 100, where 0 represents the lowest permissible tax burden according to the law, and 100 represents the highest. The actual indices for each municipality fall within the limits of the two constructed virtual municipalities, applying respectively the highest and lowest permissible rates for all the taxes considered.

Interactive version of the map

The map allows us to easily see which municipalities impose the highest tax burden on their residents. Sozopol is the municipality with the highest index value - 80.3. It is followed by the Sofia Municipality, where, however, the tax burden is significantly lower (68.4). The next positions are mainly occupied by municipalities along the Black Sea coast with an index level above 60 - Varna (64.7), Primorsko (64.7), Plovdiv (63.8), Pomorie (63), Burgas (62.9), Tsarevo (60.9). The municipalities with the lowest taxes are Kaloianovo (19.4), Medkovets (19.5), and Breznik (20.4), and the regions with the lowest rates are Vidin and Montana.

Looking back in time, we can see how often taxes have changed over the years. The graph below shows all cases of changes in taxes on real estate for legal entities, remunerative acquisition of property, vehicles with power from 74 kW to 110 kW, as well as the patent tax for retail trade with an area of the commercial facility up to 100 sq.m. We see that local taxes are less likely to be changed in years of local elections, such as 2015 and 2019, as we have commented before. It is also notable that as the election year approaches, fewer municipalities are inclined to increase local taxes. Decreases in tax rates are much less common than increases, although they have become more frequent in recent years. Interestingly, in election years, very few municipalities ease the tax burden.

For this year, there are 57 cases of increased taxes and only 19 cases of decreased taxes, breaking the record of the highest number of decreased rates in the past two years. The most changes occur in the tax on real estate - 23 increases and 7 decreases. For the other rates, changes are significantly rarer - there are 14 increases for the tax on remunerative acquisition of property, 12 increases for the tax on vehicles, and 8 increases for the patent tax for retail trade. Decreases are 2, 6, and 4, respectively.

Despite the COVID-19 pandemic and the measures taken to support the healthcare system, the problems it faces are far from resolved. One of the significant obstacles to the proper functioning of the system is the availability of healthcare professionals, which has deteriorated in recent years.

For the "Regional Profiles: Development Indicators" project, the team at the Institute for Market Economics (IME) developed an index that assesses access to specialist doctors in different regions of the country. The index is based on data on the territorial distribution of 17 groups of specialist doctors as of the end of 2020, measured by the number of doctors of each specific specialty per population. The access assessment for each group in the individual regions represents the distance from the region with the widest access to doctors of that specific specialty, while the overall accessibility index (presented in Figure 1) represents the average value of the assessments for the individual regions.

Figure 1: Accessibility Index of Specialist Doctors by Regions in 2019-2021, lower is better

Source: National Statistical Institute (NSI), calculations by IME

According to the IME index in 2021, access to specialist doctors remains the easiest in Pleven. This can largely be explained by the presence of a large medical university in the regional center, while the region is not among the most populous. As expected, the capital city ranks second with its large number of specialized medical institutions. Similar access is observed in Plovdiv and Varna, while Sofia-Oblast also ranks among the top five. Outside of the leading regions, most regions have relatively similar index values. The most challenging access is evident in Dobrich, Kardzhali, and Yambol. Most regions share similar problems with access, most commonly observed in cardiology, obstetrics-gynecology, and psychiatry. Compared to the previous year, access to specialized doctors has worsened in most regions (a lower index value is better) compared to the previous year. Exceptions are Pleven, Vidin, Kyustendil, Lovech, and Yambol, where improvements are visible, but they are most prominent in Pleven. It is noteworthy that some of the largest cities, including the capital, Plovdiv, and Varna, have experienced a decline in the index over the past year, likely reflecting the opposite dynamics of doctor concentration due to the treatment of COVID-19. In 2021, access to specialists deteriorated most rapidly in Razgrad and Kardzhali.

Figure 2: Accessibility Index of Specialist Doctors by Specialties in 2019-2021, lower is better

Source: NSI, calculations by IME

Among the individual specialties, the smallest regional differences in access are observed among infectious disease specialists. However, this is primarily due to their small number – a total of 248 in the entire country, with only 39 in the capital and two in several regions. On the contrary, the most uneven distribution is found among the most common specialists. Out of 1,843 cardiologists, nearly five hundred are located in Sofia, while only 12 operate in the entire Targovishte region. Similar distribution patterns can be observed among obstetrician-gynecologists. An explanation for the differences in specialties may also be the varying workload of individual specialists, although this remains speculative due to the lack of available data. The distribution of hospital facilities, their prestige, and payment capabilities, as well as other factors, are also significant. In many specialties, a decline in the overall access index is observed in 2021, with the most notable trends seen among laboratory doctors, obstetrician-gynecologists, and neurologists. Conversely, access to ophthalmologists and internal medicine experts is improving rapidly.

Figure 3: Population per General Practitioner in the Regions, 2019-2022

Source: National Statistical Institute (NSI), calculations by IME

However, one can see a reversal of the trend among general practitioners, with improvements in access evident in several regions for the first time in a decade. The trend towards improving access is visible in some parts of the country, including those experiencing the greatest difficulties - Targovishte (+102 people per GP) and Silistra (+95 people per GP). Part of the explanation for the improvement of the indicator in some regions is also related to demographic processes and population decline. On the other hand, the most noticeable negative change occurs in Burgas, with 71 people per GP, as well as in Haskovo and Pernik. At this stage, it is too early to speak of a long-term trend toward improving access, as we are observing improvements within a one-year timeframe.

Significant differences between regions are also present, with Pleven once again being the leader with 1214 people per GP, while Kardzhali performs the weakest, with over 3 thousand people per GP. It is also noteworthy that the leading economic centers - Varna, Plovdiv, and the capital - are concentrated in the middle of the distribution, most likely due to population growth.

However, it should be noted that the data on access to doctors do not provide the complete picture of the quality of regional healthcare systems. Many other factors - from the available equipment in hospitals to the workload and qualification of individual doctors - determine how well they will manage patient treatment. Nevertheless, the deterioration in access to doctors, both specialists and general practitioners, is inevitably a sign of negative developments in the healthcare system.

In a relatively calm phase of the Covid-19 pandemic, we are taking a look at the past two years of active financial support to deal with the impact of the pandemic and the restrictive measures on businesses. This text examines the distribution of this targeted financing in different regions of the country, by industry, and according to the size of the recipient companies.

The main source of data is the website of "ISUN 2020" - the management and monitoring system for European funds, which was also used for the distribution of activities related to COVID. The system includes the amounts paid under various programs, mainly to support micro, small, and medium-sized enterprises that have been affected by the crisis and restrictions, as well as the "Warm Lunch in Pandemic Conditions" initiative, where funding is directed straight to municipalities that provide the service. The key indicators we extract from the available information are two - total funds absorbed since the beginning of the crisis per municipality and funds absorbed per capita in the municipality.

IME published a similar comment last summer, but since then, expenditures have been much larger - while by the end of June last year, their total amount was BGN 267 million for the whole country, after a year, it had already risen to almost BGN 652 million, distributed among 30,485 projects. The aid received in the capital has increased by BGN 100 million and now amounts to a total of over BGN 186 million, or 28% of all distributed funds. Unsurprising, given the high concentration of economic activity in Sofia.

After Sofia, mainly large regional centers are ranked, and similar to last year, the top five include Varna (BGN 47 million), Plovdiv (BGN 46 million), Burgas (BGN 27 million), and Ruse (BGN 19 million). Among the non-regional cities, the largest amounts have been received by Nessebar (BGN 9 million, 11th place) and Petrich (BGN 5.6 million, 19th place) - tourism centers, heavily affected by the pandemic. 70% of the disbursed amounts are directed to the top twenty municipalities, where half of Bulgaria's population lives. This concentration of funds is normal since they represent the main economic centers of the country. Companies and local administrations in only three municipalities - Makresh, Boboshevo, and Treklyano - have not benefited from any of the programs.

Interactive version of the map

If we look at a comparison based on the average amount paid per person, smaller municipalities take the lead. The top five municipalities are similar to those from last year, including Nessebar with BGN 293 per person, Rila (BGN 202 per person), Bansko (BGN 182 per person), Primorsko (BGN 174 per person), and Kavarna (BGN 157 per person). Once again, these municipalities are leading due to their economies being heavily reliant on tourism. The high position maintained by the Rila municipality, even after the new wave of funding in the last year, is due to the small population combined with several companies that have absorbed BGN 50,000 or more.

Interactive version of the map

The geographical distribution of the aid does not provide a complete picture of how these funds are being utilized. Reviewing individual projects allows for an analysis of the candidates, the amounts received, and the programs involved. The Ministry of Tourism has actually received the highest amount of funds, absorbing BGN 2 million for support to tour operators and travel agents. The next 82 beneficiaries are municipalities, and the purpose of the funds is the "Hot Lunch in the Conditions of the COVID-19 Pandemic" program, a social program for home care targeted at the most impoverished. The values range from BGN 150,000 to nearly BGN 2 million. A total of BGN 38.7 million has been allocated for the entire initiative, distributed among 181 projects.

Excluding this specific program, there are three more significant measures that cover almost all submitted funding applications. One of them is the "Support for Medium-sized Enterprises to Overcome the Economic Consequences of the COVID-19 Pandemic" program, where the amount of assistance varies from BGN 30,000 to BGN 150,000 (more commonly known as the "30-150" measure). A total of 1,542 companies have applied for assistance under this measure, with the majority (1,066) receiving the maximum possible amount. The total aid distributed under this measure amounts to BGN 210 million.

There were 4,303 applications under the "Support for Small Enterprises with a Turnover over BGN 500,000 to Overcome the Economic Consequences of the COVID-19 Pandemic" program, with 4,156 companies receiving assistance of BGN 50,000, while the remaining companies did not receive any funds. The total amount of aid distributed under this program is BGN 207 million.

However, the most comprehensive program is the "Overcoming the Lack of Funds and Liquidity Shortages Resulting from the COVID-19 Epidemic" program, also known as "3-10," as it provides assistance ranging from BGN 3,000 to BGN 10,000 for micro and small enterprises. A total of 22,912 companies have applied under this program, with a total of BGN 185 million distributed, or an average of BGN 8,115 per applicant. Over thirteen thousand companies received the maximum amount of assistance, while only 44 companies did not receive any funds. In other words, almost all companies that requested support during the pandemic received it.

It is noteworthy that the maximum allowable amount is most frequently disbursed under all three measures. This, together with the fact that the applying companies represent approximately 35% of the average and 7% of micro and small non-financial enterprises, may give the impression that the funds for addressing the consequences of the pandemic are directed toward a relatively small group of companies that have maximized their benefits. However, this does not necessarily imply weak coverage of the measures, considering that there is no analysis of how many companies actually needed such assistance. Recall that the restrictive measures disproportionately affected economic activities. As expected, there is a concentration of funds at the regional level, primarily benefiting companies in the capital and major cities. Furthermore, in terms of company size, medium-sized enterprises and small enterprises with a turnover exceeding BGN 500,000 received a total of over BGN 400 million through 5,845 applications, which is more than twice the amount allocated under the "3-10" measure, which received applications from nearly 23,000 companies.

The external assessments, which are already conducted in four stages of the school education system - after the fourth, seventh, tenth, and twelfth grades - cannot provide a complete and accurate diagnosis of the quality and problems within it. Nevertheless, they offer a simple and clear evaluation of at least one aspect of students' achievements. The results after the seventh grade this year have shown a widespread decline compared to the previous year, with significant regional differences, but a slight improvement, at least in mathematics, after the tenth grade. On the other hand, during the 2021/22 academic year, there has been a universal and significant decline in the matriculation exams, which are of great importance for the further realization of twelfth-grade students in higher education.

The data on the results of the matriculation exams in Bulgarian language and literature in 2022 at the regional level, obtained by IME through the Access to Public Information Act, indicate significantly lower grades in all parts of the country. No region has registered an increase compared to 2021. The decline is by no means uniform across different regions, with the average grades decreasing most visibly in Razgrad - by a whole 43 hundredths, which places the region last in the country with a "Good" grade (3.53). There is also a significant decline in Shumen and Dobrich, by 40 hundredths each, as well as in Haskovo (-38 hundredths) and Pleven (-36 hundredths), with these regions also ranking towards the bottom of the ranking. Conversely, the highest grades are in the traditional leaders Sofia (the capital), Smolyan, and Varna. However, it is striking that in the case of Smolyan, often cited as an example of success in structuring and managing secondary education in Bulgaria, there is also a significant decline on an annual basis - by 32 hundredths of a grade, placing the region only slightly ahead of Plovdiv and Varna.

Similarly, there is a widespread decline in the results of students who failed the maturity exams. Here, too, there are significant differences between different regions, with the highest percentage of failures recorded in the first session of the Bulgarian language and literature exam in Haskovo (28% of participating students), Shumen, and Razgrad (27% each), as well as in Kardzhali and Pleven (26% each). The regions with the weakest performance in many cases double or triple the number of students who failed the maturity exam, and in six of them, the increase is over 15 percentage points within one year. Even in regions with the lowest share of weak grades, the increase is many times higher - in Sofia (the capital), it rises from 1.8% in 2021 to 6.8% in 2022, and in Smolyan, from 2.4% to 9.6%.

When comparing the results from different editions of the maturity exam, we should keep in mind that they are not fully equivalent - there are always certain differences in the level of difficulty, which inevitably affect the final results of the students. This is particularly true for the current edition, which introduces significant changes in the exam's structure and evaluation. The prolonged period of distance learning during the Covid pandemic also plays a role, significantly worsening access to education for the disadvantaged and children in unfavorable family environments.

Despite the comparability issues, based on the data from the new matriculation exams, it can be concluded that the inequalities in the educational system between the regions in Bulgaria, which also lead to a significant gap in student achievements, persist and even deepen. The dynamics are also important – while in some regions there is a 15-point increase in the proportion of weak grades, in others it is only 5 points. This shows that in places with poorly functioning school education, many more children have barely passed the exam so far, and a slight increase in criteria pushes them below the passing threshold. This, in turn, emphasizes the need for reform aimed at improving the educational process and the quality of education, not only in elite schools but also among the lowest-performing ones today.

The significant rise in weak grades also has practical consequences. On the one hand, many more students will have to attend the second session of the matriculation exam, which requires additional resources for its organization. However, the more important effect is on the students themselves – for the least prepared among them, the real risk of not completing their secondary education increases, which poses a significant barrier to their employability. This creates problems for higher education institutions as well, as they already face difficulties in filling the announced student positions due to negative demographic trends, and lower average grades on the matriculation exam will mean even easier access to the specialties for which they are decisive.

Of course, it is too early to assess the long-term trends in matriculation exams based solely on one year of sharp decline, especially when we consider that in the previous few years, both the average grades in the regions and the proportion of weak grades remained relatively stable. However, these significantly weaker results once again highlight the need for a long-overdue reform that addresses issues in the quality of school education and the significant disparities between individual schools and localities.

One of the strongest local economies before the crisis, Varna, maintains its leading position during the pandemic period thanks to its diversified economy. However, there are serious inequalities in the levels of economic development between the regional center of Varna, the industrial hub of Devnya, and the other municipalities within its composition. The labor market in the region suffered a heavy blow in 2020, although there are signs of recovery in 2021, especially in terms of unemployment. Like many other parts of the country, migration processes have reversed during the pandemic year, leading to an outflow of population from the major city to the surrounding municipalities.

Contractions in the economies of Varna

Despite their more diverse local economies and significantly less dependence on revenue from summer tourism compared to neighboring Burgas, the municipalities of Varna face significant economic problems in the pandemic year of 2020. Out of the twelve municipalities in the region, only three experienced growth in per capita value added compared to 2019 - Avren, Aksakovo, and Dolni Chiflik, with Aksakovo being among the larger municipal economies. On the other hand, the most significant contractions occurred in Beloslav (-45% within a year), Byala (-40%), and Suvorovo (-39%), primarily due to the disruption of international trade and the consequently reduced activity in the Varna ports, as well as a decline in international tourism. There is a significant decline in value added in the industrial municipality of Devnya (-11%), while the contraction in the regional center is less severe, at -1.9%. The negative trend is also evident in the change in GDP per capita in the region as a whole, with the indicator decreasing by 5% in one year.

Despite the disruptions, there have been no major rearrangements in the economic weight of the individual municipalities within Varna in 2020. The regional center remains the largest local economy with a total value added of 3.4 billion leva in the pandemic year, followed by Devnya with 429 million leva, Aksakovo (175 million leva), and Beloslav (62 million leva). The significant differences in the economic development of different parts of the region become more apparent when examining the value added per capita. While in Devnya it is 50 thousand leva per person, comparable to the strongest energy and processing centers in Bulgaria, in Varna it is 10 thousand leva per person, and in Aksakovo - 8 thousand leva. The lowest level of economic development is found in the municipality of Dalgopol, with only 924 leva of value-added, followed by Dolni Chiflik (1.7 thousand leva) and Avren (1.8 thousand leva).

Focus on investments

While in most regions the regional center attracts the largest share of foreign investments, in the case of Varna, the largest volume of foreign capital is in the municipality of Devnya. In 2020, foreign direct investments (FDI) in the industrial center amounted to 774 million euros, compared to 611 million euros in the municipality of Varna. These two municipalities concentrate almost all foreign investments in the region, with only Byala exceeding 10 million euros FDI among the others. Thanks to its special position within the region, Devnya has the highest foreign investments per capita in the country (among those for which data are not confidential) - 91 thousand euros per person, while in the municipality of Varna, this volume is 1,779 euros per person. However, in 2020, there was an outflow of foreign capital from the region, with a noticeable decline in the regional center by 24% compared to the previous year, and a decrease of 5% in Devnya.

The pandemic year also brought a significant contraction in the current investment activity of non-financial enterprises in the municipalities of Varna. Capital expenditure per capita in Devnya decreased by 18% compared to the previous year, and in Varna, it decreased by 13%. Similarly to foreign investments, capital expenditure is concentrated in these two municipalities - 699 million leva in Varna and 114 million leva in Devnya. Thanks to this, Devnya ranks first among all municipalities in the country with 13.4 thousand leva of capital expenditure per capita, with the necessary caveat that data for the municipalities in the Srednogorie region and some mining centers are confidential, and they are likely also among the leaders.

Unlike the southern coastal municipalities, those in the Varna region attract a relatively small volume of European funds, with Beloslav being the regional leader with 2.6 thousand leva per person for all programming periods. The Varna municipality has attracted 1.4 thousand leva per person, and most municipalities in the region range from 1,000 to 1,200 leva per person. The most likely reason for this is the greater focus of local authorities on private investments compared to European programs.

The decline in employment

The rapid deterioration of the economic situation inevitably hurts the labor market in the municipalities of Varna. Since there is no data on full employment at the municipal level, we rely on the number of employees under labor and service relationships from the entire population aged 15 and over. As expected, the largest decline in the number of employed individuals in the working-age population is observed in the municipalities where tourism plays a leading role since many hotels and restaurants abandoned traditional summer employment in 2020. Consequently, the share of employed individuals in the working-age population in Byala decreased by a significant 5 percentage points compared to the previous year, while in Avren it decreased by 4 percentage points. The decline in the regional center, Varna, is 3.3 percentage points, which is among the more significant declines in the major cities in the country.

The fall in employment is accompanied by a significant increase in unemployment in most municipalities, with rates reaching 21% in Dulagpol, 15% in Dolni Chiflik, and 13% in Avren by the end of 2020. It is important to note that these municipalities already had high unemployment rates before the crisis. However, the impact of the crisis is short-term, as data from the Employment Agency indicate a decline in unemployment in all municipalities in 2021, reaching 3% of the working-age population in the regional center and 6.2% in Devnya. In terms of the size of the local labor market, Varna has the highest number of workers with 96,000 people in 2020, while all other municipalities have fewer than 5,000 employees. The most active local labor market is in Devnya, where 58% of the population aged 15 and over are employed.

Educational inequality

The future of the workforce in Varna largely depends on the outcomes of the educational process in the region. Similar to other strong economic centers, there are significant differences in achievements between the major city and the surrounding municipalities. For example, if we look at the results of external assessments after the seventh grade, the municipality of Varna is among the top performers in the country, with an average score of 52 in mathematics and 67 in the Bulgarian language. However, the other municipalities in the region fall far below this level, especially in terms of mathematics, which is an important requirement for the ambitions of developing a digital economy. Similar disparities can be observed in the results of the high school graduation exams. While Varna achieves an average grade of "Good" (4.52) in Bulgarian Language and Literature, most other municipalities receive grades below the "Average" (3.5). Additionally, some municipalities face significant challenges with school dropout rates. For example, in the pre-high school phase of education, 9% of students in Avren and 6% in Devnya drop out of school, making their future integration into the labor market particularly difficult.

The demographic magnet of Northern Bulgaria

The regions in Northern Bulgaria are experiencing pronounced negative demographic processes, with the fastest-aging regions losing between 1/5 and 1/4 of their population over the past decade. However, Varna is an exception to the trend north of the Balkan Mountains, as the region had been a magnet for population even before 2020, often attracting younger residents. In the pandemic year, however, the trends within the region are changing, with the regional center losing population due to migration processes, while all other municipalities experience significant growth driven by both outflow from the city of Varna and the return of Bulgarians from abroad during the COVID-19 pandemic. In relative terms, the most significant growth is observed in the municipality of Suvorovo, where the population increased by 10% or more than 753 individuals in 2020, followed by Aksakovo and Avren, which experienced growth rates of over 9% or 2,869 and 2,000 individuals, respectively. Meanwhile, the population decline in Varna due to emigration is 0.7%.

However, the excess mortality in 2020 also leads to a rapid deterioration of natural processes, with all municipalities except Vetrino experiencing a worsening natural population growth. This is most evident in Vulchi Dol and Beloslav. There are significant differences between the municipalities in the region, with natural population growth ranging from -21.7 per thousand in Vetrino to -19.9 per thousand in Vulchi Dol, and -3.3 per thousand in the regional center, which comes closest to a balance between mortality and birth rates.

Author: Adrian Nikolov

The municipalities in the Burgas region suffered the heaviest blow in the country as a result of the COVID-19 pandemic and the restrictive measures to contain it. The disappearance of a large number of tourists managed to "erase" years of economic growth in the Black Sea municipalities, and the local labor markets experienced a significant decrease in employment, especially in Nessebar and Sozopol. The poor performance of the local education system does not paint a rosy future for the structure and qualification of the workforce, but positive migration provides grounds for moderate optimism.

The Impact of the Crisis

The municipal economies of the Burgas region were among the hardest hit by the crisis and the restrictive measures in 2020. While industrial centers recovered relatively quickly after the lifting of restrictions and the resumption of international trade, the tourist cities - and the region concentrates more than half of the summer seaside tourism in Bulgaria - suffered from a strong contraction in the flow of foreign tourists. The COVID-19 crisis led to the sharpest decline in tourist flow in the region, with the number of visitors decreasing from 500,000-600,000 per month during the summer months to under 300,000. The decline among foreigners is particularly significant, with only 1/5 of the usual number of foreign tourists visiting the region during the crisis year.

The largest municipal economy is that of the regional center, Burgas, with BGN 1.46 billion in value added at factor cost in 2020. The economic activity is relatively high in Nessebar (BGN 184 million), Karnobat (BGN 157 million), and Pomorie (BGN 92 million) as well. However, the leading economies in the region suffered significant damage during the crisis year, with the value added in the regional center contracting by 31% compared to 2019. The decline in Nessebar is most pronounced, where the outflow of tourists led to a 56% reduction in value-added compared to the achieved BGN 417 million in 2019. Sensible declines are also observed in Sozopol (-20%), Primorsko (-20%), Tsarevo (-18%), and Pomorie (-17%), which are dependent on the hotel and restaurant industry. While before the crisis, Nessebar was leading in terms of value added per capita with nearly BGN 15,000 per person, in 2020, Burgas took the first place in the region with BGN 7,100 per person, followed by Karnobat with BGN 6,800 per person.

The effect of the crisis on the Regional Economy of Burgas is also evident in the gross domestic product (GDP) per capita for the region as a whole – in 2020, it decreased by 17% compared to 2019. This strong negative trend managed to "erase" a significant part of the long-term development of the region, as compared to 2000, it is the only region with growth below 200%; for comparison, GDP per capita in the capital increased by almost 600%, and in Plovdiv by over 400%.

Concentrated Investments

Similar to the overall economic activity, investments are predominantly concentrated in the regional center. This is particularly evident in the distribution of foreign direct investments, with 89% of their total value accumulated by the end of 2020 - 2.1 out of 2.38 billion euros - being in the municipality of Burgas. Most of the remaining foreign investments in the region are in Sozopol (77 million euros), Nessebar (108 million euros), and Karnobat (37 million euros). The largest foreign investor in Burgas is the Lukoil refinery, and in recent years, significant investments have been directed toward both the regional center and Karnobat in the automotive sector. In relative terms, the municipality of Burgas is again a leader among foreign investors, with 10.2 thousand euros per capita, placing it in the top ten in the country as a whole, not far behind the capital municipality, where the value of per capita investments reaches 10.6 thousand euros by the end of 2020. Foreign investments are also relatively high in Sozopol (5.7 thousand euros per capita) and Nessebar (3.7 thousand euros per capita).

Similarly, but with even greater concentration, the distribution of expenditures for the acquisition of long-term tangible assets is also observed. During the pandemic year of 2020, 566 million leva were spent on machinery, land, and buildings in the regional center of Burgas, 96 million leva in Nessebar, while in the other municipalities, the volume of investments in long-term tangible assets is below 50 million leva. The slowdown in investment spending by companies in 2020 reflects mainly the expectations of weaker activity during the tourist season and the slowdown in construction in the region.

The Labor Market Collapse

The economic problems of 2020 inevitably affected the labor market in the Burgas municipalities. Since there is no extensive data on employment at the municipal level, we use the share of employees under labor and employment contracts from the entire population aged 15 and over. The largest decline in 2020 compared to the previous year was observed in the municipality of Nessebar, where the share of employees in the population over 15 years of age decreased by a significant 28 percentage points. There is also a significant deterioration in this indicator in Sozopol (-6.5 points) and Primorsko (-9.8 points), where employers did not hire a significant part of their seasonal workforce. The only positive trend in 2020 is observed in Ruen and Aytos, whose local economies are least dependent on the tourism sector, and the decline in the share of employees in the regional center is 1.7 percentage points.

Despite the sharp deterioration, Nessebar remains the most active local labor market in 2020, with a share of employees of 42%, compared to 39% in the municipality of Burgas and only 16% in Aytos, which performs the weakest in this indicator. Municipalities in the Burgas region also have relatively low unemployment rates, as of the end of 2021. According to the data from the Employment Agency, unemployment in the regional center was 2.6%, and in Nessebar - 5.1%. Exceptions are Sredets (11% unemployment) and Malko Tarnovo (8%), whose labor market problems are the result of trends and factors that developed long before the events of 2020.

Shortage in Education

Against the backdrop of the not particularly good achievements of the local labor market and the slowdown in the local economy, education in Burgas also does not provide much reason for optimism. Of great concern is the high percentage of early school dropouts in smaller municipalities, exceeding 5% of all students in Pomorie, Malko Tarnovo, Kameno, Sredets, and Sungurlare. These are young people who will face particular difficulties in integrating into the workforce, as it becomes increasingly difficult to employ individuals with primary and lower education.

Significant differences are also observed in the achievements of students in the region in various external evaluations and matriculation exams. While the municipality of Burgas reports some of the highest results in external evaluations after seventh grade, both in mathematics (average score of 47/100) and Bulgarian language (63/100), the surrounding municipalities perform significantly weaker, especially in mathematics. Similar patterns are seen in the results of matriculation exams, with students in the municipality of Burgas achieving an average grade of "Good" (4.41) in Bulgarian language and literature, which is significantly above the national average, while the others fall within the range of 3-3.50. The significant problem of a high dropout rate combined with the poor achievements of graduating students creates a risk of a serious shortage of skilled workforce soon.

Positive Migration

The year of the pandemic brought about significant (and varied) changes in demographic trends, and the municipalities in the Burgas region are no exception. Unlike almost all other parts of the country, most municipalities in Burgas have been attracting population over the past five years, but the positive migration processes intensified in 2020. The regional center, however, is an exception, where the natural population growth rate becomes negative at -0.9‰. This, however, is characteristic of most major cities, including Sofia, Plovdiv, and Varna. On the other hand, within the year, the population of Kameno increased by 13‰, and Sozopol saw an increase of 7.7‰.

Despite the positive net migration, all Burgas municipalities experience pronounced negative natural processes, with none of them having a birth rate exceeding the mortality rate. Seven of them have a negative natural population growth rate exceeding -10‰, and in the regional center, it reaches -5.1‰. For this reason, it is not surprising that all Burgas municipalities are witnessing significant aging processes. Nevertheless, the influx of population from other parts of the country and even from abroad may create opportunities for the development of the local economy.

Author: Adrian Nikolov