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Round Table: The Hidden Economy in Bulgaria: Policy Responses to the Economic Crisis
On 10 December 2009 the Center for the Study of Democracy and Friedrich Ebert Foundation organized the annual round table on the challenges that the hidden economy posed to the development and competitiveness of Bulgaria. This year the thematic focus was on implemented government policies to tackle the global financial crisis and their effect on the dynamics of hidden economy.

The event was opened by Dr. Ognian Shentov, Chairman of the Center for the Study of Democracy. In his opening remarks he stressed that the current economic crisis presented an opportunity for policy-makers and the civil society to benefit from the accumulated experience and prioritize the most applicable and well-founded suggestions for reducing the hidden economy in Bulgaria. Main priorities in this area remain the rule of law and law enforcement, the implementation of administrative reforms and a system to assess objectively the proposed policies.

Dr. Marc Meinardus, Director of Friedrich-Ebert-Stiftung, Bulgaria Office, stressed that one of the best methods to combat the hidden economy was research. According to him, the crisis had a major impact on the hidden economy mostly due to the insecurity felt by the people. Dr. Meinardus praised the Center for the Study of Democracy and Vitosha Research Agency for their good results and analyses and he hoped that this event would contribute to a good political discussion to follow in the public space.

Mr. Ruslan Stefanov, Director of the Economic Program at the Center for the Study of Democracy, presented the latest Hidden Economy Index. He started his presentation with the finding that according to the data in 2009 the elements of the Hidden Economy Index for the business sector and for the unreported economic activity of the population, had displayed two opposing trends. While the business index showed an overall decline of gray practices over the previous year, the value of Hidden Economy Index on population increased. These contradictory dynamics could be explained by the effects of the crisis and the strict measures taken by the government to counter the hidden economy in the second half of 2009 - measures targeted mainly at the hidden business turnover. On the other hand, in the short run the effects of the crisis reflected in a different way on the population and the business, which led to increased hidden turnover and employment in the population and reduced hidden economy in the business, i.e. the transition from the formal to informal economy was associated with much less cost for the population than for the business.

According to Mr. Traicho Traykov, Minister of Economy, Energy and Tourism, the effectiveness of the proposed integrated measures to tackle the informal economy was of key importance. He presented some of the measures undertaken by the Bulgarian Government and the Ministry of Economy, Energy and Tourism, which aimed to limit the hidden economy and remove the preconditions for its expansion. The listed measures included: improvement of the business climate, promotion of legitimate business activities and improvement of the efficiency of state budget and assets management. Mr. Traykov emphasized that these measures had already proven effective and the indicators of the Bulgarian business climate had already shown a significant improvement starting October 2009.

Mr. Rosen Plevneliev, Minister of Regional Development and Public Works, focused on the measures with the greatest potential. According to him, business deals, especially in the construction sector, should be handled entirely on market prices, and the approaches in public procurement decisions and payments that had so far led to the bad practice of corruption should be radically changed. To dismantle such models in Bulgaria was pointed out as an immediate priority, and according to Mr. Plevneliev this objective could be achieved only by maximum transparency of tender procedures. Another key measure brought up in the speech was the establishment of electronic government that was considered as the right instrument to achieve best results. He expressed his hope that the current discussion and results would help the elaboration of future specific policy measures.

Mr. Bozhidar Danev, Chairman of the Bulgarian Industrial Association, commented on the need of finding solution to the informal economy problem, which was particularly pronounced during crisis. According to Mr. Danev prolonged or late reimbursement of payments by the state led the business to two possible options - dismissing staff or sinking into the informal sector. Hence, law enforcement reforms should be a priority along with reducing the feeling of impunity.

Mr. Tzvetan Simeonov, Chairman of the Bulgarian Chamber of Commerce and Industry, stressed on the need for improvement of administrative services, standardization of administrative procedures and documents and improvement of the control, with the active participation of the NGO sector in Bulgaria. He also pointed out the importance of timely reimbursement of funds from the state to the business, which would improve the overall economic performance and efficiency.

Mr. Tihomir Bezlov, Senior Fellow at the Center for the Study of Democracy, highlighted the problem with excise duties collection. He noted that unpaid excise taxes had increased from about 8-12% in 2007 to 25% in 2009. In 2010, he expected further problems with the informal import, which had the potential to become even more aggravated after the increase of excise duty on cigarettes.

Ms. Tsvetelina Borislavova, Chair of the Supervisory Board of CIBank, advocated that banks were a natural ally in the efforts to fight the hidden economy. Currently, banks worked on the introduction of the electronic signature and other means to decrease illegal payments. Ms. Borislavova recommended greater publicity of the penalties and rules in this area, which would help for the building of a new mentality in the society.

Mr. Georgi Kadiev, Councilor at Sofia’s Municipality Council, proposed the establishment of financial police with sufficient authority to achieve the desired positive results in countering the hidden economy.

Mr. Stefan Katsarov, Head of Public-private Partnership Unit in the Ministry of Finance, stated that the control on contracts with the European Commission had been increased.

Mr. Toshko Todorov, Deputy Director of the National Revenue Agency, highlighted the results achieved by the Agency, such as the linking of the information systems of the Customs and the National Revenue Agency and the establishment of Risk Analysis Directorate.

Ms. Grahina Horonhikevich, Counsellor at the Embassy of Poland in Bulgaria, shared the Polish experience in combating the crisis. A key factor in this respect proved to be the adaptability of medium and small enterprises.

Agenda (Adobe PDF, 36 KB)
Presentation of the Hidden Economy Index, Mr. Ruslan Stefanov, Director of the Economic Program at the Center for the Study of Democracy (Adobe PDF, 1.14 MB)
Presentation: The Grey Economy in Bulgaria: Trends and Challenges, Mr. Bozhidar Danev, Chairman of the Bulgarian Industrial Association (Adobe PDF, 431 KB, In Bulgarian)
CSD Brief No 20: Policies to Counter the Effects of the Economic Crisis: Hidden Economy Dynamics 2009
Press release (Adobe PDF, 658 KB, in Bulgarian)

Media Coverage (in Bulgarian)
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