Every day Bulgaria proudly announces yet another foreign investment project for a new shopping mall, a golf course or a residential complex. But investing in construction alone cannot bring long-term prosperity to the poorest European Union member.

Bulgaria's problems, Reuters quoted experts as saying, included underinvestment in infrastructure and manufacturing, a large grey economy, eroding education, growing consumerindebtedness, crippling inflation and a ballooning current account deficit at a time of global credit jitters.

Bulgaria would face troubled times ahead if it would not move quickly to address the looming economic risks, Reuters said.

"We are seeing building of shopping malls and investment in real estate but not in product-generating sectors that can boost potential for the future. That is certainly a problem," Ivailo Vesselinov, senior economist at Dresdner Kleinwort, said.

Reuters quoted the European Bank for Reconstruction and Development (EBRD) as saying that the investment pattern was worrying and Bulgaria would be likely to feel a negative impact in the medium term.

"There should be more efforts in dealing with issues like human capital, education, the brain drain," EBRD's economist Fabrizio Coricelli said.

Out of a total of 4.36 billion euro in direct foreign investment in 2006, only 804 million euro went into manufacturing. The rest was invested into real estate and construction, financial service and trade, Reuters said.

The World Bank warned earlier in 2007 that Bulgaria would never reach EU income levels if its labour productivity would continue to rise by only 2 percent a year.

Analysts expected the property price growth, currently at an average of 20 per cent per year, to slow down and investment to moderate.

Bulgaria's reliance on foreign direct investment to cover a growing current account deficit of over 20 per cent of GDP in 2007, made it vulnerable to declines in foreign capital flows.

"The credit crisis will not end tomorrow...over the years there will be a negative impact on Bulgaria," Daniel Gros of the Brussels-based Centre for European Policy Studies said.

The central bank, worried by the credit boom, urged banks in December 2007 to raise lending rates and tighten rules in line with the international situation, the Guardian said. While a crisis like the 1996/97 one was considered unlikely, Bulgaria could feel the pinch if western banks, which controlled most of the local banking sector, would tighten funding for their arms, the daily quoted analysts as saying.

Bulgaria's government had repeatedly pledged to run a budget surplus of more than 3 per cent of GDP in 2008 to counter external risks. But analysts said it remained to be seen whether the ruling coalition, with its popularity in decline, would not give in to growing public pressure for higher wages.

The government's main tool to steer the economy was fiscal policy, the Guardian said, as the country operated under a currency board regime, which limited monetary policy and fixed the lev currency to the euro.