Having no international border disputes or conflicts with other countries, Bulgaria suffers from few direct security threats, either internal or external, and its terrorist risk ratings remain positive. Furthermore, this is unlikely to change in the near future as Bulgaria has no known internal terrorist groups and the risk from contemporary international terrorist groups is low. As with a number of other countries in the region, the major security threat to Bulgaria emanates from organised crime, which is pervasive: Bulgaria is a major transshipment point for drugs coming from Central Asia and the Caucasus, and as a result suffers from associated crime, human-trafficking and money-laundering.

Bulgaria has in recent years been undertaking an ambitious plan to modernise its military, which is hinged on improving the decision-making process and the institutional capacity of the Ministry of Defence.

Modernisation projects for the period 2003-2007 focus on enhancing main operation capability and strengthening the operational relationship between military and civil leadership. The aim is to enhance resource management and the decision-making process to enable Bulgaria to formulate one-year modernisation plans, as opposed to ad hoc planning. Bulgaria also hopes to confirm an automated funding-information process to support the disbursement of defence funds. The Ministry of Defence is also seeking to standardise and codify its military products to comply with NATO standards.

This has been complemented by efforts to professionalise Bulgaria’s armed forces, which has included reducing both the terms of conscription, and the reliance on conscripts: from Q108, the Bulgarian armed forces will only accept volunteers . Additionally, Bulgaria’s admittance into the North Atlantic Treaty Organization (NATO) has required a greater degree of training and force capability. As such, the government has had to consider reducing the size of the armed forces to pay for the necessary improvements. Secondly, Bulgaria has also committed to overseas peacekeeping operations in Afghanistan and in the Balkans, all of which require forces that are trained for peacekeeping and humanitarian duties.

During the Cold War, Bulgaria’s defence industry and the technology and structure of the militaryindustrial complex were driven by the country’s position in the Warsaw Pact. During this period, the arms trade (worth several hundred million dollars annually) formed an important part of Bulgaria’s economy, employing between 110,000-115,000 people. An estimated 90% of these products were exported.

Today, reports suggest that many of the defence equipment companies are hardly breaking even.

Bulgaria’s lack of research and development (R&D)-related spending means that the country will continue to focus on its traditional production of small arms and light weapons (SALW), an increasingly competitive market. It will struggle to profit from the armed forces modernisation project, which has a focus on high technology systems.

The fight against corruption in Bulgaria has seen a recent resurgence, with the government intensifying efforts to tackle deep-rooted corruption, in an attempt to improve deteriorating relations with the EU ahead of the European Commission (EC)'s progress report on corruption in Bulgaria. It appears likely, however, that Bulgaria will not be able to rid itself of graft until the judiciary is substantially reformed and high-profile convictions are achieved. The judiciary is at the heart of the problem, with many magistrates linked to crime groups, preventing the successful prosecution of gang members With public discontent over graft-ridden institutions growing and with relations with the EU starting to show signs of stress, the government's capacity to handle the corruption problem will have a significant impact on Bulgaria's political and economic direction going forward.

Despite some adverse developments in the global economy, the Bulgarian economy continued to power along at a healthy clip in the first quarter with the latest GDP data release from the National Statistical Institute reporting real GDP growth of 7.0% year-on-year (y-o-y) during Q108. However, it appears likely that growth will slow towards the end of the year as both domestic demand cools and the external environment deteriorates.