I. GENERAL PROFILE
Area: 110,994 sq km
Population: 7.97 mln
Population density: 71.8 per sq km
Capital: Sofia

GDP (2000): $ 11,334 mln
GDP (2000) per capita: $ 1,422
2000 GDP growth: 4.5%
Budget deficit as % of GDP: 2.1%
CP Index Change (2000): 10.4%
Foreign debt: $ 10.364 bln

Government: Democratic Republic since 1990. Head of State: President Petar Stojanov since 1996. Head of Government: Prime Minister Simeon Borisov Sakskoburggotski since 2001.

Religion: The majority of the population are Christian, the main denomination being Bulgarian Orthodox Church. There is also a significant Muslim minority (9%) and small Roman Catholic and Jewish communities.

Bulgaria is bounded to the north by the River Danube and Romania, to the east by the Black Sea, to the south by Turkey and Greece and to the west by Serbia and FYROM. The Balkan Mountains cross the country reaching to the edge of the Black Sea and its golden beaches.

Bulgaria has suffered the usual problems experienced by centrally-planned economies adjusting to market conditions. Since 1997 economic reform has been speeded up, most of industry and agriculture privatised, trade liberalised and reforms of the fiscal and banking system instituted. In 1997 a Currency Board was established and the Bulgarian Lev was pegged to the DEM, and now to the Euro. The major Bulgarian trade partner is the European Union (about 60%), followed by Russia, Germany, Italy and Greece. From Russia Bulgaria imports mainly crude oil and natural gas. Since the late 1990s, the trading relations of Bulgaria with the countries of the European Union have been noticeably intensified, in accordance with the country's political orientation.

II. DEFENCE BUDGETS - OVERVIEW (1999-2001)

Defence/GDP proportion. The estimates of the 2001 macroeconomics indicators for Romania show 4,2%-4,5% GDP real growth despite a 25-30% inflation rate, and a recovering economy after several years of recession. The year 2000 was a turning point with a 1,6% GDP growth rate, rebuilding of the official reserves and reduction in the current account deficit.
As depicted in Chart 1, over 1999-2001 Romanian defence costs have fluctuated around 2% of the country's gross domestic product. In 2001 they equal approximately 2,01% of GDP. Past fluctuations reflected the priority between defence and non-defence spending within the state budget but stability at approximately 2% of the annual GDP seems to have been achieved.

Total defence expenditures. Expressed in local currency Romanian statistics show a steady rise in the total defence expenditures for the 1999-2001 period, but this is largely due to inflation in the Romanian economy. Spending expressed in USD rose between 1999 and 2000 but levelled-off in 2001, as shown in Chart 2. (See also Table 1.)


Chart 2. Total Defence Expenditures (1999-2001)



Looking at the composition of spending, operating costs constitute between two-thirds and three-quarters of the total military expenditures through the period (See Table 2 and Chart 5), and are the largest component of the defence budget. In 2001 the personnel costs still exceed all the other operating expenses but there has been a substantial relative decrease of the personnel costs portion in comparison with that of the operation and maintenance costs. (See Chart 3.)


Chart 3. Restructuring of the operating costs (1999-2000)

The rise of the operation and maintenance spending has been generally driven by two of its components: 1) Materials for current use, and 2) Maintenance and repair. In 1999 these amounted to USD 90.5 million and USD 3.03 million respectively. In 2000 they reached USD 134.5 million and USD 76.0 million. The 25-fold increase of the maintenance & repair costs in 2000 compensates for the lack of additional resources for procurement at a time when renewal of large numbers of obsolete military machines and armaments is required.

Investment spending on procurement and construction shows a slight rising trend over 1999-2001 years. As Chart 4 shows, most of the money has gone on procurement, around 80% of it on aircraft, artillery and armed vehicles. Being an obvious priority, the aircraft share has accounted for about 40% of the total.


Chart 4. Structure of the procurement and construction costs (1999-2001)

Research and development outlays have declined steadily over the three-year period (See Table 2, final line). In 2001 USD 3.8 million is to be spent on R&D which is only 61% of the allocation in 1999. The R&D expenditure constitutes less than 1% of total military expenditures.



Defence forces costs. As shown in Table 3, the Forces Groups' expenditures are basically divided into 6 categories of which the Land forces, Naval forces and Air forces are the largest. Outlays on Central Support and Administration Command were much higher in 2000 than in 1999.

Land forces expenditures. The tabulation shows that land forces expenditures dropped from $ 283,4 million in 1999, to $ 255,4 million in 2000, a fall of 10 %. While their portion was 42% of the total defence expenses in 1999, it amounted to only 32,5% in 2000 (See Chart 6).

Naval forces expenditures. The naval forces line item was $ 73,5 million in 1999, and $ 68,9 million in 2000. Most of the money was for personnel costs and "operations and maintenance".

Airforce expenditure. The airforces allocation was $ 288,3 million for 2000 in comparison with $ 260 million in 1999. Funding for aircraft and engines loomed large and in 2000 there was extra money for "artillery" and "electronics and communications".

Other combat forces got a big boost in funds in 2000 also.

Support and Command expenditures. The central support and administration and command expenses rose markedly as well: from $ 16 mln and $ 25 mln respectively in 1999 to $ 59 mln and $ 55 mln in 2000.



III. ESTIMATED TRENDS OF DEFENCE EXPENDITURE 2001-2005

Defence/GDP proportion. The encouraging economic indicators of Romania enable more optimistic projections to be made about the developing of the defence budgets through the next couple of years.
If you assume an annual GDP real growth of 4.5%-5.0% and a 25% rate of inflation in the Romanian economy till 2005, and then use the estimates of the Romanian Ministry of Defence about the development of the military spending, you could make a rough projection of the short-run trend of the defence expenditures as percentage of GDP (See chart 7).


Chart 7. Defence/GDP proportion (1999-2005)

Development of the defence budget. According to the estimates of the Romanian Ministry of Defence, the operating costs will gradually increase their portion of the total defence expenditures from 69% in 2001 to 77% in 2005, while the procurement and construction costs will diminish from 30% in 2001 to 22% in 2005. These projections imply delay in the modernization of the armed forces. Table 3 and Chart 8 show the details.