“Impact of Remittances on Bulgarian economy”

1. “Impact of Remittances on Bulgarian economy” От проф. д-р Искра Христова-БалканскаИнститут за икономически изследвания БАН 18-19.10.2012

2. A few historical facts regarding Bulgarian migration • The first period (1990-2000) is characterized by the start of the transition and the economic downturn resulting from a number of radical economic and social reforms. • During this period, the lack of jobs and poverty stimulated emigration. According to some sources, the number of Bulgarian migrants amounted to 691 000 people. • In this period the main directions of Bulgarian migrants were Germany, Czech Republic, Austria, Hungary, and USA.

3. A few historical facts regarding Bulgarian migration • The second period (2000-2007) is characterized by a certain improvement in the economic and social environment, an increase of economic growth, job opportunities, income levels in Bulgaria. These factors contributed to a certain decrease in emigration flows. • Data are showing that after 2003 there has been a tendency towards seasonal, rather than permanent, migration and this is related to the temporary mobility of the low-skilled labor force. • Low qualified people mostly has the intention to move abroad for a short-time, for seasonal labour. The preferred destinations being Greece, Spain, Italy etc • The level of highly qualified emigrants has dropped from 17% to 9%, but the number of low-qualified workers has increased. • The Bulgarian case is rather comparable to the other countries of Southeastern Europe (Romania, Albania, countries of the former Yugoslavia, Turkey and Greece before 1981.

4. A few historical facts regarding Bulgarian migration • The third period of Emigration wave starts with the country became EU member. Its new status changed the structure of Bulgarian emigration to other developed EU countries. • There is a trend of increased seasonal (circulating) migration, instead of thepermanent migration. • This is due to the enhanced temporary mobility of lowqualified labor force as a result of Bulgaria’s exclusion from the List of SchengenCountries. • The growth rateof the labor force with lower education degreefrom Bulgaria accounts for 5,8% of the total number of emigrants.

5. Main incentives for migration • The greatest factor in choosing a country to settle and live abroad are said to be the language, the availability of friends or relatives there, as well as the pay for unskilled labor. • The same data indicates that about two-thirds of those leaving Bulgaria as migrant laborers are ethnic Roma, rather than ethnic Bulgarians, who made the bulk of the migrants until recently. • The considerable brain drain from Bulgaria is mainly due to economic factors, such as the lack of prospects for the young people for career in Bulgaria. • The main incentive is that Bulgaria is continuing to be the poorer state amongst EU member states. • GDP per capita in Bulgaria is about 40% of the average value of the EU membercountries. • The remuneration in Bulgaria is low and is laggingbehind the remuneration in the other EU member states.

6. Remittances by Bulgarian emigrants • It is widely considered that Bulgarian migrants’ remittances, defined as cash or in kind transfers from migrants to relatives and others in their countries of origin play a role in maintaining basic living standards for many households in home countries. • Over the last 12 years migrant remittances have assumed increased significance for many people in Southeastern Europe, Moldova and Bulgaria • Pursuantto the estimates of the World Bank, over 10% of the remittances of the emigrantsare utilized for education and savings. • However most of these remittances arespent on food and garments by the households, obtaining considerable supportby these funds. • About 5% are used for investmentsor support to private businesses.

7. Remittances • Remittances appear in Bulgarian BOP after 2000. Since 2004 to 2012 Q1Q2, Bulgarians living abroad have transferred nearly EUR 3740,6 billions. • According to some unofficial estimates, emigrants’ remittances are between 30% - 40 % higher than officially recorded data. • In Moldova, Albania, Romania remittances make up about 40 % of GDP.

8. Remittances from Bulgarian migrants Data from BOP (BNB)

9. Actually the volume of remittances is much more higher because the banking statistics only account for the official money transfers. Bulgarians abroad usually wire their relatives largest sums. • Remittances in Bulgaria are usedmainly to purchase real estates, accounted as FDI. • They are a higher financial opportunity for a part of the Bulgarian population, • Enhance the opportunities for educationand investments. • In the years before the crisis FDI and remittances were considerable financial flows,being of benefit on macro level, contributing to the economic growth and tothe higher employment and incomes of the part of the population.

10. Remittances from Bulgarian migrants in Spain –(„Българската диаспора в Западна Европа: трансгранична мобилност, национална идентичност и развитие”, Фонд „Научни изследвания, Програма „Идеи”) • According to data from the above survey, Bulgarian migrants in Spain receive cash: an average of 400 to 800 euros, which indicates that& • - they are not engaged in the performance of complex manufacturing operations] • - work in agriculture and construction. • 71.8%of the Bulgarian migrants made ​transfers (​remittances) to support and enhance the welfare of their relatives who remained in Bulgaria.

11. Remittances from Bulgarian migrants in Spain –(„Българската диаспора в Западна Европа: трансгранична мобилност, национална идентичност и развитие”, Фонд „Научни изследвания, Програма „Идеи”) • Remittances are mainly used for consumption. • Many Bulgarian have gone to Spain to improve their financial situation, to pay back debts towards banks or other financial intermediairies, to increase savings • Others send part of their income to rebuild some properties. • Others invest in the education of family members, or they are using remittances for health care. • According to BNB data for the period before the economic crisis, the majority of remittances of migrants (regardless of what country they are established) invested in real estate. • Unlike the "old" immigration waves of Greeks, Italians, Spaniards, the Portuguese in Western European countries, the new Bulgarian emigration does not seek to invest income genereted abroad in some projects like starting a business in Bulgaria, open a small factory, creating a new activity in the home country.

12. Remittances • The remittances also have certain negative effects on the economy. Probablythe flow of fresh money from the emigrants has reduced the incentives forjob search. • It could be supposed, that the increased remittances by the emigrantshave probably reduced the pressure on the labor market and decrease the unemployment. • The increased incomes of a part of the Bulgarian population result inmore consumption costs, exerting pressure on the balance of trade for import ofconsumer goods. • It results in the total level of the domestic prices and a rise ininflation. • The pegged course of the Bulgarian Lev to the Euro prevents takinginto consideration the inherent trends of the probable increase in the exchangerate of the national currency and thus assessing the lower competitiveness of thedomestic goods and services.

13. Despite the economic crisis of 2007-2008 and the increase in unemployment in Western Europe, Bulgarian labor migration probably retained jobs and was able to remain in the labor market of the host country. • Furthermore, the Bulgarian immigrants are flexible, because if they are getting fired or the enterprise close, they seek immediatelly for another job, even if it requires less training and lower wage. • Bulgarian labor migration continues to send money back home and there was no significant reduction in the volume of remittances in the period to 2011, even when most of the member states of the EU and the U.S. are experiencing a decline in economic activity and employment, monthly net transfers temporary fall and again begin to rise. • This assertion is supported by money transfers from migrants compensation from employers and current transfers, as well as their salaries to evaluate the proportion of the income which is send back in the country.

14. Remittances and compensation of employees by employers (% of GDP) of Bulgaria 2006-2009Source: Estimates by the World Bank, the OECD

15. Remittances, FDI • Remittances reveal to be relatively more constant flow of funding than volumes FDI in Bulgaria. • In 2008-2009, remittances were a main source of financing for households and a tool support to stuck consumption. • From early 2011 to early 2012, FDI amounted per months faster than remittances. • However FDI show much greater volatility and by the end of 2011 are shrinking to the volume of remittances. • Over the year remittances show that in the post-crisis period, the Bulgarian migrants continue to send remittances, which are a additional funding not only for specific individuals, but also for the economy as a whole. • Since 2008 FDI volumes are half of those in 2007, and remittances increased.

16. Remittances (current transfers net) and FDI as% of GDP, 2002 - 2011 yearsSource: BNB

17. Remittances net, FDI net expressed in EUR February 2011. - January 2012

18. Conclusions • Remittances have become a major cash income for many households. • Remittances can cover only temporary financial shortfall, but can not compensate the income that could be realized if the Bulgarian economy was operating and generating jobs for skilled workers and the leakage of highly qualified personnel • Differences in wages between Bulgaria and other EU member states will continue to "push" professionally trained workers outside from Bulgaria.