FACTBOX-Key political risks to watch in Bulgaria

By Tsvetelia Tsolova

SOFIA, Feb 1 (Reuters) - Bulgaria is struggling to spur its small and open economy after a deep recession, but tight fiscal policy is keeping living standards among the European Union's lowest.

Austerity and the government's failure to crack down on widespread corruption and organised crime have narrowed the lead of Prime Minister Boiko Borisov's centre-right GERB party over opposition Socialists before an election scheduled for July.

Following are the main political risks for Bulgaria:


High unemployment and frozen state pay have knocked Borisov's ratings and though his GERB party remains the most popular political faction with about 24 percent of support, the Socialists have closed the gap and have some 20 percent backing.

Cancellation of the Belene nuclear project - a plan that a majority of voters in a referendum supported - hit Borisov's support and a July election may result in a split parliament and horse-trading with a host of smaller.

What to watch:

- Will the lacklustre economy and bad publicity over Belene erode Borisov's ratings and nudge him into populist measures such as increases in public pay? Political tensions are not likely to lead to an early election, but could increase the country's cost of borrowing.


Growth is forecast at about 1.9 percent this year, compared with 6-7 percent before the economic downturn in 2009. Living standards remain far below the rest of the EU.

The government has managed to cut its deficit at one of the lowest levels in the bloc, at 0.5 percent of GDP, and can now raise state pensions after a three-year freeze.

What to watch:

- In an election year, can the government refrain from lavish spending that might swell the fiscal deficit and increase risks for the currency peg to the euro?


Corruption and organised crime still blight Bulgaria 20 years after the end of communist rule, deterring investors, hindering growth and delaying its entry into the EU's Schengen zone of borderless travel.

The Balkan country has failed to uncover details on over 100 contract killings in the last decade and has yet to fail a single senior official for corruption. The EU has its justice system, along with Romania's, under special monitoring.

What to watch:

- Will the government succeed in convicting a top official? This might not move markets in the short term but would signal that Bulgaria was becoming an easier place to do business. (editing by Ron Askew)