A bleak view of Bulgaria's immediate economic future emerged as a range of firms announced job cuts even as the European Commission gave the country a failing grade in fighting corruption in two Government agencies, saying that the penalty was the permanent withdrawal of 220 million euro in Phare pre-accession funding.

Against a background of some industries facing a downturn because of their dependency on foreign earnings and so being hard-hit by the global economic crisis, the Bulgarian Industrial Association (BIA) made a stern call for belt-tightening.

On November 23, BIA president Bozhidar Danev said that pay increases in Bulgaria in recent years had outpaced increases in productivity. Bulgarian employees did not match up to their counterparts elsewhere in the European Union, whose individual contribution to gross domestic product was eightfold higher.

Average gross pay in Bulgaria had increased by 67 per cent since 2002, while productivity went up 34 per cent in the same period, Bulgarian daily Dnevnik quoted National Statistical Institute figures as showing.

Danev warned against "unjustified" salary increases which, he said, would push up consumption, inflation and aggravate Bulgaria's already worrying current account gap.

BIA figures said that pay growth in Bulgaria in the past three years was four times that elsewhere in the EU.

Danev said that unemployment would go into double digits in 2009. Labour and Social Policy Minister Emilia Maslarova, by contrast, has said that the Government intends holding the jobless rate to seven per cent. Even reaching 10 per cent unemployment would mean about 100 000 job losses.

Danev urged employers to cut back, not only on salary increases but also to not pay Christmas bonuses. "We are entering a crisis," Danev said.

A number of companies have announced job cuts, including steel maker Stomana, which dismissed 300 employees and sent almost all the rest on compulsory leave, Belgian-headquartered fertiliser manufacturer Neochim SA and Bulgaria's leading motor vehicle battery manufacturer Monbat.

Some companies have sent employees on compulsory leave.

Bulgarian National Radio (BNR) described the worst-hit companies as being those in agriculture, which were in desperate need of loans to cover the costs of mandatory measures to meet EU quality and hygiene standards.

However, banks are scrutinising loan applications with greater care and caution and the lending environment has narrowed.

Industries that are badly hit include construction, where Danev has forecast that about half of Bulgaria's 5000 construction companies could go into liquidation in 2009, as well as heavy industry, new car sales and tourism - all sectors of the economy dependent on foreign spending.

Large-scale cases of potential massive job losses include troubled steel behemoth Kremikovtzi, state railways BDZ, and the ports at the Black Sea cities of Varna and Bourgas.

Further grim warnings emerged at a discussion on November 24 on Bulgaria's textile industry.

As reported by Bulgarian news agency Focus, the threats to the industry in Bulgaria include (ironically, considering Danev's statements) low wages, fluctuation of available human resources, bad working conditions, lack of regulated state policy, and of course, the global economic crisis. The discussion, held under the patronage of Deputy Prime Minister and Foreign Minister Ivailo Kalfin, heard that in spite of staff cuts because of the global crisis, the textile industry in Bulgaria would survive, but textile production was decreasing dramatically and investors were withdrawing from Bulgaria. Only half of the country's 4700 textile enterprises would survive, the discussion was told.