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Rushing through the waiting room: A peek at Bulgaria’s plan to adopt the Euro

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As it pursued EU membership in the early 2000s, Sofia began debating about its eventual accession to the Eurozone. And, to be truthful, the number of experts and politicians who are at least somewhat hesitant is not small. Moreover, no country has adopted the common currency since 2015, when Lithuania scrapped its currency after its Baltic neighbours. Against the background of Brexit and the pandemic-induced, double-dip recession, it is hard to imagine the stall ending right now. Yet, Bulgaria has a standing commitment to adopt the common European currency affirmed in the 2007 Accession Treaty. Hence, many say that the country remains in the Eurozone’s waiting room without a clear path to get out.

The National Plan for the Introduction of the Euro

But with its National Plan for the Introduction of the Euro (NPIE), Bulgaria is trying to flip the table. According to the document, Bulgarians will go through only one month of adjustments before being unable to use the Lev. This means that the Euro and the Lev will both be legal tenders in the country for a mere month. The only help for consumer will be the use of double-currency price tags for five more months.

According to this tight schedule, Bulgaria would need to consolidate its public finances in the next biennium. In fact, before a country can adopt the common currency it ought to stick to a few strict macroeocomic criteria. In particular, the candidate needs to prove that its currency is stable and its public finances sound. Fortunately for Bulgaria, exchange rates are not a concern thanks to the peculiar currency board it adopted in 1997. However, even a brief look at the remaining four requirements makes it clear how hard joining the Eurozone will be.

Inflation: Soon to become a challenge again

Foremost, one of the hardest criteria for a country like Bulgaria to meet is that relating to inflation. Intuitively, given that inflation measure the change in prices across an economy, there is a simple reason behind this benchmark. In fact, allowing a country where prices increase too fast to join may destabilise its peers and weaken the Euro. Historically, Bulgaria has had lower inflation rates than its western Balkan neighbours which are mostly out of the EU. Nevertheless, prices have been fluctuating quite strongly since the late 1980 until the hyperinflationary crisis of winter 1996–1997.

In technical terms, the country’s 12-months average inflation rate (year-on-year) should be contained under the so-called reference value. Namely, the reference value equals the average of three smallest inflation rates amongst EU countries plus 1.5 percentage points. Significantly, using data for March 2021, Bulgaria offshoots the target by a mere 0.066%. Nonetheless, the pandemic-induced crisis has skewed these calculations slightly giving the impression of a downwards convergence amongst EU countries. In fact, the collapse in both supply and, especially, demand has caused a reduction in inflation across the board. Moreover, the inequality of the post-crisis rebound – a so-called k-shaped recovery – is creating a new gap. In fact, now Bulgaria meets the criteria comfortably, as its 12-month average inflation is 0.13% lower than the reference threshold.

However, other EU governments will soon phase out fiscal supports and their economies should absorb the ongoing inflation spike. Thus, the structural differences between the economy of Bulgaria and its weaknesses will most likely prevail in the near future. As a matter of fact, before the pandemic, Bulgaria’s inflation exceeded the threshold by 0.67%. Therefore, one should expect Sofia’s difficulty in recovering from the crisis to recrudesce in persistent inflation overshooting.

Budget deficit: A heredity of the pandemic

Another, perhaps better-known, ‘convergence criteria’ deals with budget deficits and surpluses, or more specifically to their ratio to GDP. In simpler words, a government incurs into a budget deficit when its expenses are higher than its income streams. Hence, the State has to cover the missing amount by means other than fiscal revenues. Most often, Bulgarian government have been withdrawing money from the “fiscal reserve” — essentially past savings. In addition, Bulgaria also asks for money on the international markets by emitting various types of public bonds. Obviously, when revenues are bigger than expenses the budget registers a surplus. In the last two decades, thanks to its rapid-growing economy Bulgaria has managed to respect this target (Chart 2).

In order to adopt the euro, a country’s government deficit/surplus relative GDP should not exceed 3% in the previous year. Moreover, the European Commission’s published forecasts for GDP deficit/surplus should also be under 3%. Generally speaking, the EU has interpreted these rules strictly, thus considering figures “slightly above the limit” as unacceptable.

Historical data show that Bulgaria’s budget deficit-to-GDP ratio has been constantly in the acceptable range between 2009 and 2019. Apparently, this suggests that Bulgaria should have no particular problem in managing to meet this requirement. But the pandemic-induced recession has changed this simple fact dramatically. In fact, the latest data for 2020 show a deficit around -3.4% — which is still better than the Eurozone’s -7.4%. And all forecasts suggest that the stat of Bulgarian public finances’ health is only going to worsen.

Public debt: The upcoming test

The third convergence criterium is strictly related to the second as it regards public debt and its ratio to GDP. In order to understand this link, one can imagine debt as a result of the accumulation of deficits over time. In fact, saving or ‘reserves’ may help cover for deficit for some time when it is necessary. But running massive deficits for many years will lead to the depletion of all savings. Thus, prolonged deficits will eventually create an enormous pile of debt in the same way surpluses lead to savings. Since Bulgaria mostly had a balanced budget, it also boasted a small debt over the last decades (Chart 3).

Adoption of the Euro is contingent on a country’s debt-to-GDP ratio being below the 60% limit as a general rule. Still, there can be exceptions in particular cases it the ratio has “sufficiently diminished and [is …] approaching the reference value at a satisfactory pace”. Clearly, the data show that for Bulgaria it will be hard to miss on the debt-to-GDP target anytime soon. In fact, this indicator has been constantly in the acceptable range between 2009 and 2020. Nevertheless, as indicated in the previous paragraphs, the pandemic-induced recession has worsened the country’s publica finances significantly. If anything, Bulgaria is already on the verge of asking the markets for several billion euros in loans in 2021. Thus, if the deficit does not get under control soon and GDP growth does not restart, the debt will rise.

Relatedly, if the debt grows Bulgaria may also face rising interest rates. But, to join the Eurozone, a country’s 10-year security should pay no more than the EU’s reference value. Predictably to determine this rate the EU follows the same procedure it applies for the inflation benchmark. Thus, Bulgaria may miss on the fifth convergence criterium as a result of an increasing debt. Though this scenario is still unlikely looking at the data (Chart 4).

Beyond the numbers: The domestic and international political consequences

In a word the macroeconomic obstacles to Bulgaria’s adoption of the Euro are not only numerous, but predominantly pressing. But fixing the economy – which is easier said that done – is not enough. Embracing such a fundamental change requires leaving the institutional trench war in which Bulgaria is still stuck behind.

On this regard, it is foundational that the Coordination Council for Preparation of the Republic of Bulgaria for Eurozone Membership which prepared the NPIE sat under the joint chairmanship of the Governor of the Bulgarian National Bank (BNB), Dimitar Radev, and the caretaker Minister of Finance, Asen Vassilev. Considering that the current cabinet and the BNB have previously been on the odds this is a rather good sign. In fact, by means of Radev’s presence, the BNB signalled its practical, immediate availability to move forward with the NPIE.

However, this agreement amongst technocratic elites and part of the political establishment is not enough for the Euro’s successful adoption. After all, few countries that joined the Eurozone on the spur of a similar consensus have fared well. On the contrary, the country needs to build a sincere, nation-wide agreement on the acceptability of the connected, painful sacrifices. Otherwise, as other weaker economies that joined the Eurozone without educating their populaces beforehand, Bulgaria risks suffering massive setbacks. Nevertheless, it is in the EU’s best interest to help Bulgarian authorities in forging this nation-wide consensus. After long years of failures, delays and internal fragmentation, Bulgaria’s adoption of the Euro may finally revert the tide. Not least, such an achievement has the potentiality to restore other Balkan countries’ confidence in the EU. Therefore, one may dream of Bulgaria joining the Eurozone as resuscitating commitment to and reviving the drive towards enlargement. However, if Bulgaria

Fabio A. Telarico was born in Naples, Southern Italy. Since 2018 he has been publishing on websites and magazines about the culture, society and politics of South Eastern Europe and the former USSR in Italian, English, Bulgarian and French. As of 2021, he has edited two volumes and is the author of contributions in collective works. He combines his activity as author and researcher with that of regular participant to international conferences on Europe’s periphery, Russia and everything in between. For more information, visit the Author’s website (in English and Bulgarian).

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Economy

Accelerating COVID-19 Vaccine Uptake to Boost Malawi’s Economic Recovery

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Lunzu market in southern Malawi. WFP/Greg Barrow

Since the onset of the COVID-19 pandemic, many countries including Malawi have struggled to mitigate its impact amid limited fiscal support and fragile health systems. The pandemic has plunged the continent into its first recession in over 25 years, and vulnerable groups such as the poor, informal sector workers, women, and youth, suffer disproportionately from reduced opportunities and unequal access to social safety nets.

Fast-tracking COVID-19 vaccine acquisition—alongside widespread testing, improved treatment, and strong health systems—are critical to protecting lives and stimulating economic recovery. In support of the African Union’s (AU) target to vaccinate 60 percent of the continent’s population by 2022, the World Bank and the AU announced a partnership to assist the Africa Vaccine Acquisition Task Team (AVATT) initiative with resources, allowing countries to purchase and deploy vaccines for up to 400 million Africans. This extraordinary effort complements COVAX and comes at a time of rising cases in the region.

I am convinced that unless every country in the world has fair, broad, and fast access to effective and safe COVID-19 vaccines, we will not stem the spread of the pandemic and set the global economy on track for a steady and inclusive recovery. The World Bank has taken unprecedented steps to ramp up financing for Malawi, and every country in Africa, to empower them with the resources to implement successful vaccination campaigns and compensate for income losses, food price increases, and service delivery disruptions.

In line with Malawi’s COVID-19 National Response and Preparedness Plan which aims to vaccinate 60 percent of the population, the World Bank approved $30 million in additional financing for the acquisition and deployment of safe and effective COVID-19 vaccines. This financing comes as a boost to Malawi’s COVID-19 Emergency Response and Health Systems Preparedness project, bringing World Bank contributions in this sector up to $37 million.

Malawi’s decision to purchase 1.8 million doses of Johnson and Johnson vaccines through the AU/African Vaccine Acquisition Trust (AVAT) with World Bank financing is a welcome development and will enable Malawi to secure additional vaccines to meet its vaccination target.

However, Malawi’s vaccination campaign has encountered challenges driven by concerns regarding safety, efficacy, religious and cultural beliefs. These concerns, combined with abundant misinformation, are fueling widespread vaccine hesitancy despite the pandemic’s impact on the health and welfare of billions of people.  The low uptake of COVID-19 vaccines is of great concern, and it remains an uphill battle to reach the target of 60 percent by the end of 2023 from the current 2.2 percent.

Government leadership remains fundamental as the country continues to address vaccine hesitancy by consistently communicating the benefits of the vaccine, releasing COVID data, and engaging communities to help them understand how this impacts them.

As we deploy targeted resources to address COVID-19, we are also working to ensure that these investments support a robust, sustainable and resilient recovery. Our support emphasizes transparency, social protection, poverty alleviation, and policy-based financing to make sure that COVID assistance gets to the people who have been hit the hardest.

For example, the Financial Inclusion and Entrepreneurship Scaling Project (FInES) in Malawi is supporting micro, small, and medium enterprises by providing them with $47 million in affordable credit through commercial banks and microfinance institutions. Eight months into implementation, approximately $8.4 million (MK6.9 billion) has been made available through three commercial banks on better terms and interest rates. Additionally, nearly 200,000 urban households have received cash transfers and urban poor now have more affordable access to water to promote COVID-19 prevention.

Furthermore, domestic mobilization of resources for the COVID-19 response are vital to ensuring the security of supply of health sector commodities needed to administer vaccinations and sustain ongoing measures. Likewise, regional approaches fostering cross-border collaboration are just as imperative as in-country efforts to prevent the spread of the virus. United Nations (UN) partners in Malawi have been instrumental in convening regional stakeholders and supporting vaccine deployment.

Taking broad, fast action to help countries like Malawi during this unprecedented crisis will save lives and prevent more people falling into poverty. We thank Malawi for their decisive action and will continue to support the country and its people to build a resilient and inclusive recovery.

This op-ed first appeared in The Nation, via World Bank

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An Airplane Dilemma: Convenience Versus Environment

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Mr. President:  There are many consequences of COVID-19 that have changed the existing landscape due to the cumulative effects of personal behavior.  For example, the decline in the use of automobiles has been to the benefit of the environment.  A landmark study published by Nature in May 2020 confirmed a 17 percent drop in daily CO2 emissions but with the expectation that the number will bounce back as human activity returns to normal.

Yet there is hope.  We are all creatures of habit and having tried teleconferences, we are less likely to take the trouble to hop on a plane for a personal meeting, wasting time and effort.  Such is also the belief of aircraft operators.  Add to this the convenience of shopping from home and having the stuff delivered to your door and one can guess what is happening.

In short, the need for passenger planes has diminished while cargo operators face increased demand.  Fewer passenger planes also means a reduction in belly cargo capacity worsening the situation.  All of which has led to a new business with new jobs — converting passenger aircraft for cargo use.  It is not as simple as it might seem, and not just a matter of removing seats, for all unnecessary items must be removed for cargo use. They take up cargo weight and if not removed waste fuel.

After the seats and interior fittings have been removed, the cabin floor has to be strengthened.  The side windows are plugged and smoothed out.  A cargo door is cut out and the existing emergency doors are deactivated and sealed.  Also a new crew entry door has to be cut-out and installed. 

A new in-cabin cargo barrier with a sliding access door is put in, allowing best use of cargo and cockpit space and a merged carrier and crew space.  A new crew lavatory together with replacement water and waste systems replace the old, which supplied the original passenger area and are no longer needed.

The cockpit gets upgrades which include a simplified air distribution system and revised hydraulics.  At the end of it all, we have a cargo jet.  If the airlines are converting their planes, then they must believe not all the travelers will be returning after the covid crisis recedes.

Airline losses have been extraordinary.  Figures sourced from the World Bank and the International Civil Aviation Organization reveal air carriers lost $370 billion in revenues.  This includes $120 billion in the Asia-Pacific region, $100 billion in Europe and $88 billion in North America.

For many of the airlines, it is now a new business model transforming its fleet for cargo demand and launching new cargo routes.  The latter also requires obtaining regulatory approvals.

A promising development for the future is sustainable aviation fuel (SAP).  Developed by the Air France KLM Martinair consortium it reduces CO2 emissions, and cleaner air transport contributes to lessening global warming.

It is a good start since airplanes are major transportation culprits increasing air pollution and radiative forcing.  The latter being the heat reflected back to earth when it is greater than the heat radiated from the earth.  All of which should incline the environmentally conscious to avoid airplane travel — buses and trains pollute less and might be a preferred alternative for domestic travel.

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There Is No Business, Like Small Business: New Strategy

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Marc Chagall, Circus Horse, 1964

Once upon a time, all big businesses of the world were only small businesses. However, occasionally, when big businesses classified as too big to fail, it is the special status when they start failing their own nations, damaging common good, hurting humankind at large. This is when big business allowed to morph into a Godzilla to trample all over the governments and institutions and line them up as hostages. Study the rise and fall of the world’s largest business empires of last century. 

Now Showtime: There is no business, like small business, because the small business sector is not only a giant business, but also the biggest layer of the economy, largest contributor in kind to its nation, adding jobs, paying taxes and creating real value creation, while taking all the abuse and bureaucratic nonsense.  Hence, post pandemic recovery will take no prisoners and harshly unleash economic challenges as mirror on the economic development competency and question national priorities. Here, no worries, as usual the big business will always take care of itself. Small business will be the only game left in town, something for the political leadership to cling on to and something for local trade groups to try to claim as success. The definitions on what is big and what is small are both on the table for honest evaluation and equally juxtaposed need a declaration on what business serves the economy of the nation and what business destroys the economies of nation.

New math of the post pandemic world clearly shakes down old mindsets. Unless national economic development leaders, trade groups and trade associations acquire proven entrepreneurial experiences, expertise and tactical battlefield capability at the very top and display a warrior mindset to upskill for global competitive excellence, they are just a dance party with water pistols.  Entrepreneurialism is the real value creation driving force behind the economy and not a value manipulation exercise with some certificates. Any misunderstanding on such issues only creates shiny cities, surrounded by tent-cities. Study the global economic chaos and worklessness is creeping across the world.

The illusion of super big technology driving super global growth is another myth of crypto-tyrannies. The worshiping super magnanimous technologies, including Facebook engaged in stealing the future from the next generations, now manipulating data to divide and conquer elections and serving special agenda groups causing tribalism and global socio-economic damage. Study how the future routinely stolen in broad daylight by Social Media. 

Mutation of economic thought:  Why is creation of fake economies much easier; this is where zeros bought, sold and traded as real assets, everything multiplied, subtracted, divided but nothing adds up, there are no bottom-line totals, ever. When columns do not fit anywhere, like an abstract art on canvas, for the eye of the beholder they glow in the dark. Hence, cubism-finances  and impressionist-economies, while on the other hand, real value creation economy is one of the hardest journeys,it isrealentrepreneurialism wrapped in integrity and solid hard day’s work creating common good. The reason is that small medium businesses have lost trust in their government and major institutions, while they paint the economy as abstract art and print invisible unlimited money but SME only thrown in jail if they only photocopy a dollar bill.  Covidians demand a new narrative on economic affairs and overall totals of budgets.

Unless trade groups of nations assembled and thanked profusely for their work done over the last century. Invited to join as new players, as this is now a new page for a new age and a new direction for a new digital future. Let meritocracy chart out the future of trade-groups; let vertical sectors build their own independent global age narratives to ride on entrepreneurial mindsets. When methodical agenda on simultaneous synchronization bring all key components under master plan tabled critical thinking and hardcore business experiences should lead. When vertical groups and all upskilling and reskilling features interact on digital platforms combined, eventually they will all see the light and most importantly learn the future of the global-age of digital commerce. Upskilling of all layers is critical so all grow together. Reskilling to create real value production is essential so it becomes a sustainable model. 

With no room to spend another decade on some academic feasibility studies, organize a warrior team to undertake such mobilization developments. Such national mandates are often not new funding dependent rather execution starved and deployment hungry. Why shut down the electricity of the building and climb the skyscraper via the staircase.  With the majority of nations locked up in an old mindset on digitization, today, they simply cannot zip up to the top floor, exhausted and breathless as they are climbing stairs and badly stuck on lower floors.  Pandemic recovery is harsh. Fire the first person who says they need heavy new funding, fire the second person who says they are too busy to change. Change is a gift for free but for the right mindset.

The New Trends: National mobilization of entrepreneurialism will advance; small and medium businesses will grow, as they have no choice but to upskill innovative excellence and reskill for quality manufacturing of goods and services. Learn from Asia, study Africa, stop reading newspapers but the world maps, acquire new math from ‘population-rich-nations’, and expand collaborative alliances with the knowledge-rich-nations to reach global markets.

New Trends on Small Medium Business Economy:

The new math:  why all over the world it is now attracting new entrepreneurs at rapid speed? Why are Covidians all over the world refusing high-rise, low pay, cubical-slavery and transforming to creative freedom, global-age access and hammocks. Today a USD $1000 investment in technology buys digital solutions, which were million dollars, a decade ago. Today, any micro-small-medium-enterprise capable of remote working models can save 90% of office and bureaucratic costs and suddenly operate like a mini-multi-national with little or no additional costs.

The new uplifts: How struggling economies are now exploring the “National Mobilization of Entrepreneurialism on Digital Platforms of Exportability Protocols” as alternate revolutionary thinking. Study how Africa model under Dr. Ameenah Gurib-Fakim is expanding and why the groups of western developed economies are so fearful of such a mega shift in thinking. Study Expothon on Google.

The new speed: If Agrarian age to industrial age took a millennia, while industrial age to computer age took a century, now from cyber-age to paperless, cash-less, office-less and work-less age it is almost knocking the door, just open and see. Is this the revenge of The Julian Calendar, time like a tsunami drowning us in our own depths of performance, challenging our lifelong learning and exposing our critical thinking forcing us to fathom the pace of change, swim or drown?

Time to study deeply, why forest fires always put out by creating more selected fires;  therefore let government and bureaucracy stay where they are, while creating a far superior brand new meritocracy centric digital firefighting unit to act at the top and bring required results. The cost is a fraction of what routinely wasted 1000 times in lost and missed opportunities.

Time to appreciate, why is the fear of exposure of limited talent the number one fear of adapting digitizationas digital-divide is just a mental-divide.Why without digitization there is no economy and why it has taken decades?

Time to apply entrepreneurial mindset, why incentivizing all frontline management of all midsize business economic development and foreign investment attraction and export promotion bodies is a requirement of time? Observe the power of entrepreneurial mindset in the driver seat, deploy national mobilization of midsize economies, accept upskilling as a national mandate, and digitization as national pride.

Is there any authoritative leadership on entrepreneurialism present in the boardroom?  No need to have chills, as mainly from Asia, there are some 500 million new entrepreneurs already on the march, therefore, no need to ask where are they headed but rather ask where your national entrepreneurialism is going? Study why entrepreneurialism is neither academic-born nor academic centric, why all most successful legendary founders that created earth shattering organizations were only the dropouts?

Is there a new realization or back to water pistol games? Not to be confused with academic courses on fixing Paper-Mache economies and already broken paperwork trails, chambers primarily focused on conflict resolutions, compliance regulations, and trade groups on taxation policy matters.  Mobilization of small medium business economy is a tactical battlefield of advancements of an enterprise, as meritocracy is the nightmarish challenges for over 100 plus nations where majority high potential sectors are at standstill on such affairs. Surprisingly, such advancements are mostly not new funding hungry but mobilization starved. Observe the trail of silence. The empty shelves are not supply chain issues but symptoms of broken down economies. Economies are not cryptopia; they are about real value creation by the local small medium business forces to create local grassroots prosperity. The failure is not having the right mindsets.

Five things to watch for the year 2022: US election will surprise the world as it has the last two times. World economies tested, financially along with leadership competency levels. Big business will remain big and undisturbed.  The Covidian will march for truth. Small medium business mobilization will further grow as a reliable answer to the economy and jobs.This is how humankind will crawl towards critical thinking.

The rest is easy

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