Bulgaria marks unprecedented growth in the global ranking of economic freedom. The country ranks 23rd out of 165 countries and territories included in the Economic Freedom Around the World 2022 study, published by the Market Economy Institute in association with Canada’s Fraser Institute.
This year’s edition is based on 2020 data (the latest internationally comparable data for all countries). For another year, Hong Kong and Singapore topped the ranking, followed by Switzerland, New Zealand, Denmark, Australia, USA, Estonia, Mauritius, and Ireland. At the bottom are Venezuela, Sudan, and Zimbabwe.
Where is Bulgaria and why is it so far ahead?
The study ranked Bulgaria in 23rd place – among the freest countries, but the assessment of economic freedom in the country is actually decreasing. The result of Bulgaria is 7.69 points (out of the maximum 10 points), which is a decrease of 0.10 points compared to last year.
The reason for Bulgaria’s rise in the ranking by as many as 8 positions is actually the deterioration of freedom in a number of countries. The average result of the countries of the world marked a record collapse – in 2020 it was 0.16 points lower than in 2019. This erases a decade of growth and increased economic freedom around the world, and the decline is more than three times greater than that reported in the immediate aftermath of the 2008-2009 financial crisis. Thus, the Covid-19 pandemic is becoming the biggest catastrophe for economic freedom on a global scale.
However, this is precisely what allows Bulgaria to overtake many countries. While in 2020 most of the other member countries significantly increase transfers and subsidies, take on new debts and print money, in Bulgaria these negatives are delayed and on a relatively limited scale – compensations are relatively few, measures are relatively loose.
A comparison of the most crisis-affected components of the index shows the large decrease in results in European countries. Austria loses half a point due to increased redistribution and subsidies in the country. Spain loses a quarter of a point for stable money on falling stocks and money printing. Portugal loses almost a full point because of the increase in its public debt.
Where Bulgaria really performs well
Apart from the improvement in the ranking due to the deterioration of other countries, Bulgaria has some anchors that have consistently provided stability over the years and actually show high marks and a good place in the ranking of the index. These are low income taxation (flat tax), stable money (currency board), low tariffs (EU membership), free credit (a large number of banks) – long-term policies for growth and prosperity that the Institute for Market Economy has defended since its inception.
What are the problems
In the weakest category for Bulgaria – “Legal system and property rights” – there is no improvement. The result is 5.96 points, or 0.02 points more than last year’s edition, despite the low base. The country’s performance is particularly poor in the impartiality of the courts, trust in the police and protection of property rights (all with less than 5 points). Thus, while in the other member countries the scores are around 8 points, Bulgaria’s result is close to that of countries such as Uruguay, Bhutan, Mongolia, India.
A weak legal system and protection of property rights hinders investment, entrepreneurship and long-term economic development, and this cannot be compensated for and overcome by better achievements in other measures of freedom.
Other such factors, which are not visible from the result of Bulgaria in the index (and not only in this one), are the formal implementation of legislation and the large regional differences. In a number of components, the index takes into account the provisions in the normative acts, rather than actually whether and how they are implemented (especially in the category reporting regulations). This is particularly pernicious when corruption is widespread, illegal regimes are in place, there is dominance of one employer, institutions do not work, and courts do not act as a corrective to other authorities to ensure justice.