Bulgaria Defence and Security Report Q2 2010

Bulgaria has benefited from being a socially stable country with few internal or external security threats. The election of the Citizens for European Development of Bulgaria (GERB)-led government has been positive.
On the downside, Bulgaria has been hit very hard by the global financial crisis. The previously strong economic growth had been founded on domestic consumption rather than productive investment and was essentially debt financed. The poor financial condition of many producers and the loss of productive capital will make it difficult for Bulgarian firms to respond to any upturn in demand.
The level of household debt looms as a significant impediment to recovery for a country with among the lowest wages in the EU and house prices that have fallen by 30% since the peak in Q308. The defence perspective is that what had been quite advanced plans to modernise and re-equip now face very real financial obstacles. For instance, while the government says it remains committed to purchasing four new Corvettes no funding has been allocated.
While our outlook may seem somewhat bleak, we stress that the new GERB government affords a significant opportunity to overhaul inefficient institutions and engage in real reform.
Though it is still early days for the new government, efforts so far to crack down on graft and organised crime, as well as improving relations with the EU, are certainly a positive step in the right direction. The ongoing issue is corruption. The country has received more than one warning from the EU that it has to do more. to combat corruption. In particular, the EU is demanding action to reform the justice system, which has had little ability to tackle corruption cases. The country remains a major transhipment point for drugs out of Central Asia and people trafficking out of Russia and the influence of organised crime gangs is very high.
Bulgaria became a member of NATO some while ago and is now viewed as one of the more reliable allies in the west. Its arms industry, focused on Small Arms/Light Weapons (SA/LW) has moved to support NATO standard specifications. This gives its industry some ability to sell to other countries and it is for instance selling equipment and ammunition to the new Iraqi army. On the other hand, much of the Bulgarian defence expenditure being made to meet NATO inter-operability requirements is being directed to imported equipment. On balance, at this time the local industry has lost more than it has gained.