The present day Bulgarian economy has essentially been shaped by the industrial network put in place during the communist years when Bulgaria was an integral part of the Council for Mutual Economic Assistance (CMEA) group of nations. This period saw Bulgaria move away from being a country with a primarily agricultural base to being one of the prime producers of chemicals, steel, electrical components and computers.

The collapse of communism in 1989 essentially removed Bulgaria's market for exports. Bulgaria's industry was ill prepared for international competition and the Bulgarian economy was burdened by a gross external debt that exceeded its annual gross domestic product (GDP). The years immediately following the fall of the CMEA saw a decline in Bulgaria's industrial fortunes. A combination of delays in tackling the necessary structural reforms and bureaucracy within the state machinery produced a cumulative fall in GDP between 1990 and 1997 of over 25%. A succession of governments had failed to address the problems of Bulgaria's declining industry, lack of capital investment and the growing influence of organised crime.

In February 1997, the then socialist government resigned as a result of mass protests. This led to the installation of a caretaker government with the subsequent election of a government headed by Prime Minister Ivan Kostov.

The coming to power of the Kostov government has resulted in a transformation in Bulgaria's economic fortunes. The currency, the Bulgarian lev, was tied to the Deutschemark, now the Euro, through a currency board arrangement; inflation is under control (6.2% in 1999); the base interest rate is below 4%; GDP is growing (est. 2.5% in 1999) and external debt is under control. Privatisation of industry is largely complete, although a number of large enterprises e.g. Bulgartabac remain to be sold off. The agricultural sector is almost totally in private hands.

Following the general elections in June 2001, a new government was formed, led by the former Bulgarian King Simeon II. It has promised to keep the same foreign policy priorities and to attract foreign investment through tax-reduction, anti-corruption and transparency measures.

Early in 2000 Bulgaria started accession negotiations with the European Union (EU) and its main stated foreign policy aim is to become a full member of the Union and also NATO. Bulgaria is also a full member of the Central European Free Trade Association (CEFTA), having negotiated bilateral agreements with each member state. These developments are very much reflected in the balance of Bulgaria's trade and in the trade flows from Bulgaria. Prior to 1989 over 90% of Bulgaria's production for export was sent to countries within the CMEA. By the end of 1999 over 50% of Bulgaria's exports went to EU countries. Lower trade barriers with other CEFTA members will add further impetus to Bulgaria's exports reaching existing or future EU members.

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