Official statistics on GDP, employment, and tax revenues in Bulgaria show one picture, while the daily experience of businesses and citizens shows another. Between them stands the large "gray spot" of the informal economy – activities that actually create value and income but remain outside the tax and statistical system. A key tool of this parallel world is cash payments, which blur the money trails and make the real volume of the economy difficult to measure.
The scale of the gray sector: between 15 and over 30% of GDP
Various international and national studies estimate the share of the shadow economy in Bulgaria at levels that significantly exceed the EU average. According to a number of analyses, the hidden sector usually ranges between about 15–17% and over 30% of GDP, with estimates in some periods reaching even 35%.
Studies by specialized payment organizations show that at the beginning of the century, the shadow economy exceeded one-fifth of GDP, and in the following years it gradually decreased without, however, disappearing as a structural problem.
Other studies by international institutions and non-governmental organizations place Bulgaria among the countries in Europe with the highest relative share of hidden economic activity, with estimates in certain years reaching about one-third of the officially measured GDP.
Cash as fuel for the informal economy
At the center of gray practices stands cash. Cash payments allow transactions without a trace in the banking system and facilitate the concealment of turnover, income, and real prices. In a number of industries – from small retail and services to construction and agriculture – "paying in cash" is often an unspoken standard.
A large part of the so-called passive shadow economy – activities where goods and services are real but are not declared – is linked precisely to cash payments. It is not just about small sums: in transactions without receipts and invoices, the tax system loses VAT, corporate taxes, and social security contributions.
Cash is also a key element in "gray" practices in the labor market – "under-the-table" top-ups above official salaries, hourly work without a contract, and seasonal employment that remains invisible to the state.
Typical schemes: "under-the-table salary", unregistered transactions, and "double accounting"
The shadow economy in Bulgaria has sustainable patterns of behavior. One of the most common practices is working without an employment contract or with a fictitious contract for minimum wage, while the rest of the salary is paid in cash, "in an envelope". In some sectors, the share of those working under such conditions reaches significant levels.
Another classic example is the failure to issue receipts and invoices – especially in small businesses, restaurants, shops, tourism services, and repair activities. Thus, enterprises reduce their official turnover, avoid VAT and corporate tax taxation, and employees are often left without real social security coverage.
Also widely spread is the practice of "double accounting" – one official set of records for institutions and a second, informal one, for the owners. In certain productions – such as food, beverages, and excise goods – a significant share of real transactions may remain outside official registers.
Cost to the budget: billions of euros in lost revenue
When a significant part of economic activity remains "in the shadows", the state loses not only statistical visibility but also real revenue. Estimates indicate that Bulgaria loses billions of euros annually due to the shadow economy – resources that could have funded policies in healthcare, education, and infrastructure.
Just from uncollected VAT and corporate tax related to actually performed but undeclared transactions, the losses are estimated at billions of levs annually. This means fewer funds for public services and greater pressure on honest taxpayers, who compensate for the gaps through higher rates and stricter audits.
Added to this are the lost revenues from social and health insurance contributions. Working "off the books" or with partially declared income reduces future pensions and access to social protection, especially for the most vulnerable groups in the labor market.
A blow to competition: honest business versus "gray" players
The shadow economy is not just a budget problem – it distorts the rules of the game for the entire market. Firms that do not issue documents pay lower taxes and social security contributions and can thus offer unrealistically low prices, "undercutting" competitors who work by the rules.
As a result, loyal companies lose customers and market share, and those who insist on receipts, contracts, and transparency find themselves at a disadvantage. In the long run, this discourages investment, innovation, and the growth of enterprises that want to operate transparently.
In sectors such as construction, tourism, transport, and agriculture, the high share of "gray" practices devalues labor, undermines the quality of services, and increases the risk of workplace accidents, as there is a lack of control, safety standards, and real accountability.
Hidden employment: statistics see fewer workers than there actually are
One of the most serious effects of the shadow economy is on employment statistics. Field and academic studies show that a significant share of the economically active population in Bulgaria is engaged in informal activities – from seasonal work without a contract to permanent "off-the-books" employment.
Official data on unemployment and employment thus turn out to be partially distorted: people who actually work but without a contract are counted as unemployed or economically inactive. This complicates the planning of labor market policies and makes international comparisons less reliable.
The informal sector often serves as a "buffer" in periods of crisis – people shift to temporary and undeclared activities instead of remaining without any income at all. On one hand, this softens social shocks, but on the other – it normalizes a model of work without guarantees and rights.
Between tolerance and the fight: what comes next?
In the Bulgarian language, "shadow economy" is often used as a softer phrasing for phenomena that actually represent tax evasion and violations of labor legislation. This linguistic "softness" also reflects a certain societal tolerance – the attitude that "an economy in the shadows is better than no economy at all".
Experts warn that such an attitude has a high price: it undermines trust in institutions, demotivates honest taxpayers, and turns breaking the rules into a normal business practice.
Among the possible solutions are limiting cash payments above certain amounts, incentives for electronic payments, strengthened fiscal control, easier and more predictable tax regimes for small businesses, as well as active campaigns for financial and legal literacy. The smaller the "gray" sector becomes, the closer official statistics will be to the real economic picture of Bulgaria.