# EUR-Lex - 52014DC0403 - EN

*|*

# 52014DC0403

**Recommendation for a COUNCIL RECOMMENDATION on Bulgaria’s 2014 national reform programme and delivering a Council opinion on Bulgaria’s 2014 convergence programme /* COM/2014/0403 final */**

			*

			*

Recommendation for a

COUNCIL RECOMMENDATION

on Bulgaria’s 2014 national reform
programme
and delivering a Council opinion on Bulgaria’s 2014 convergence programme

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,

Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular
Article 9(2) thereof,

Having regard to Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November 2011 on
the prevention and correction of macroeconomic imbalances[2],
and in particular Article 6(1) thereof,

Having regard to the recommendation of the
European Commission[3],

Having regard to the resolutions of the
European Parliament[4],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

Having regard to the opinion of the
Economic and Financial Committee,

Having regard to the opinion of the Social
Protection Committee,

Having regard to the opinion of the
Economic Policy Committee,

Whereas:

(1) 
On 26 March 2010, the European Council agreed to
the Commission’s proposal to launch a new strategy for growth and jobs, Europe
2020, based on enhanced coordination of economic policies, which will focus on
the key areas where action is needed to boost Europe’s potential for
sustainable growth and competitiveness.

(2) 
On 13 July 2010, the Council, on the basis of
the Commission's proposals, adopted a recommendation on the broad guidelines
for the economic policies of the Member States and the Union (2010 to 2014)
and, on 21 October 2010, adopted a decision on guidelines for the employment
policies of the Member States, which together form the ‘integrated guidelines’.
Member States were invited to take the integrated guidelines into account in
their national economic and employment policies.

(3) 
On 29 June 2012, the Heads of State or
Government decided on a Compact for Growth and Jobs, providing a coherent
framework for action at national, EU and euro area levels using all possible
levers, instruments and policies. They decided on action to be taken at the
level of the Member States, in particular expressing full commitment to
achieving the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.

(4) 
On 9 July 2013, the Council adopted a
recommendation on Bulgaria’s national reform programme for 2013 and delivered
its opinion on Bulgaria’s updated convergence programme for 2012-2016.

(5) 
On 13 November 2013, the Commission adopted the
Annual Growth Survey[5],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[6],
in which it identified Bulgaria as one of the Member States for which an
in-depth review would be carried out.

(6) 
On 20 December 2013, the European Council
endorsed the priorities for ensuring financial stability, fiscal consolidation
and action to foster growth. It underscored the need to pursue differentiated,
growth-friendly fiscal consolidation, to restore normal lending conditions to
the economy, to promote growth and competitiveness, to tackle unemployment and
the social consequences of the crisis, and to modernise public administration.

(7) 
On 5 March 2014, the Commission published the
results of its in-depth review for Bulgaria[7],
under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis
leads it to conclude that Bulgaria continues to experience macroeconomic
imbalances, which require monitoring and policy action. In particular, the
protracted adjustment of the labour market warrants policy actions, while the
correction of the external position and corporate deleveraging are progressing
well.

(8) 
On 17 April 2014, Bulgaria submitted its 2014
national reform programme and its 2014 convergence programme. In order to take
account of their interlinkages, the two programmes have been assessed at the
same time.

(9) 
The objective of the budgetary strategy outlined
in the 2014 Convergence Programme is to reach the medium-term objective of a
structural deficit of -1% of GDP by 2016. The medium-term objective is more
stringent than what the Stability and Growth Pact requires. Bulgaria has
benefited from the possibility of a temporary deviation from the medium-term
objective by 0.6% of GDP in 2013 and by 0.1% of GDP in 2014 allowed for jointly
financed projects. The programme plans a deterioration in the (recalculated)
structural balance by 0.3% of GDP in 2014, to -1.3% of GDP, and for an
improvement by 0.3% of GDP in 2015, to -1.0% of GDP, ensuring the return to the
medium-term objective. The growth rate of government expenditure would not
exceed the relevant reference medium-term expenditure benchmark in 2014-15. Therefore
the budgetary plans are in line with the requirement of the Stability and
Growth Pact. The debt ratio is well below 60% of GDP and, according to the
Convergence Programme, it is expected to increase only slightly to 20.6% of GDP
by the end of the Programme period. The macroeconomic scenario underpinning the
budgetary projections in the Convergence Programme is optimistic for the 2014-15
period, with annual growth expected to reach 2.1% in 2014 and 2.6% in 2015
instead of respectively 1.7% in 2014 and of 2.0% in 2015 projected in the
Commission 2014 spring forecast. According to the Commission forecast
Bulgaria's deviation from its medium-term objective in 2014 is larger than what
is allowed on the basis of the temporary deviation allowed for jointly financed
projects, and the required return to the medium-term objective would not be
achieved in 2015. Based on the assessment of the 2014 Convergence Programme and
the Commission forecast, pursuant to Regulation (EC) No 1466/97, the Council is
of the opinion that there is a risk of deviation from the medium-term objective
in 2014-15.

(10) 
Tax compliance and the quality of the tax
administration remain central challenges in Bulgaria. Available estimates point
to a considerable size of the shadow economy, confirmed by data for undeclared
work in Bulgaria. The administrative costs of revenue collection and the
compliance costs of paying taxes are relatively high. Despite several measures
taken to respond to these challenges, Bulgaria still lacks a fully-fledged tax
compliance strategy, which would cover the work of all tax collection
authorities and include a prior analysis of the most significant risks to tax
collection as well as an evaluation of the measures already in place, including
simplification measures as well as improved controls.

(11) 
In 2013, Bulgaria took a step back from past
commitments in the area of pension reform. Additional early retirement schemes
were introduced and the planned annual increase in the statutory retirement age
was postponed. No progress was made with regard to harmonising the retirement
age for men and women and no steps were taken to tighten eligibility criteria
and controls to limit abuse in the allocation of invalidity pensions. Bulgaria
has one of the most rapidly ageing populations in the EU, which has negative
implications for the labour market, for growth potential in the economy and for
the financing of its pension system. Bulgaria therefore needs to continue the
reform of its pension system. Bulgaria also faces important challenges in the
rationalisation and management of the hospital sector, including a lack of
transparency in hospital financing and insufficiently developed services for
out-patient care. Furthermore, the high level of formal and informal payments
borne directly by the patient effectively excludes certain segments of the
population from access to health-care. Health status indicators are weak in
comparison with other Member States, indicating that structurally higher public
expenditure on health may be required in the future.

(12) 
The labour market has been underperforming in
recent years, thus limiting the adjustment capacity of the economy and
undermining its growth potential. Unemployment levelled off in 2013, but the
number of young and long-term unemployed has continued to rise. Bulgaria faces
one of the highest proportions of young people who are neither in employment,
education nor training, implying a severe underutilisation and underdevelopment
of human capital. There has been only very limited progress in strengthening
the capacity of the Employment Agency. There is also a need to extend the
coverage and efficiency of active labour market policies. Bulgaria lacks
effective measures to target the non-registered young people, including Roma,
in line with the objectives of a youth guarantee. Significant proportions of
the unemployed are not covered by the standard safety nets (unemployment
benefits and social assistance) but rely instead on family solidarity or
informal work. Bulgarians experience one of the highest risks of poverty and
social exclusion in the EU. Minimum thresholds for the payment of social
insurance contributions could prevent the low-skilled from participating fully
in the formal economy. Some analyses have been carried out to assess the
possible impact and these need to be assessed and followed up with appropriate
policy action. There are no clear guidelines for transparent minimum wage
setting in Bulgaria. Statutory minimum wages have been increased substantially
in 2013 which may have a negative impact on employment and should, therefore,
be monitored.

(13) 
Bulgaria has still not adopted the School
Education Act providing a framework for implementation of the necessary
comprehensive reforms of the school system, including the modernisation of
curricula and the improved training for teachers. There is a need to enhance
the quality of vocational education and training in Bulgaria and to integrate
it better into the general educational structures so as to allow for flexible
pathways, reduce early school leaving and improve access to lifelong learning.
Higher education, in turn, faces persisting challenges in responding better to
labour market needs. The low standard of quality certification contributes to
poor performance. A new strategy on higher education is being discussed,
calling for the restructuring of university management through the direct
involvement of interested stakeholders such as businesses and students, the
consolidation of universities, and a performance-based approach to better align
educational outputs with the demands of the labour market. A continuing
challenge concerns the access to education for disadvantaged children, in
particular Roma children. The two-year obligatory pre-school is a key measure
going in the right direction and should be strictly implemented, together with
measures to prevent early school leaving. There is a need to scale up existing
initiatives to improve the training of teachers and reduce de facto
segregation in schools. The rules linking the child allowance with
participation in education are not yet effectively implemented.

(14) 
Broader efforts to modernise the public
administration have had a limited impact due to a fragmented approach and
insufficient commitment to in-depth reforms. Bulgaria needs a coordinated
strategy for public administrative reform to enhance the professionalism and
independence of the public administration and of its regulatory agencies,
including a merit-based system of appointments and career development for civil
servants and effective structures to address the risk of corruption. Continued
efforts are needed to improve the general business environment. Challenges
include the procedures for obtaining permits and registering businesses
Resolving insolvencies takes over three years on average and the recovery rate
is low. New rules on late payments were adopted in 2013 and need to be
implemented. The development of e-government has stalled, and coordination to
ensure interoperability of systems and creating a single point of contact is
insufficient, thus limiting the efforts to increase transparency and reduce
administrative burdens. In the area of public procurement a simple and codified
legal framework is lacking, resulting in a complicated legal and regulatory
landscape which creates uncertainty for operators. The independence of the
judiciary also remains a major concern affecting the business environment in
Bulgaria. Bulgaria has taken some steps to address corruption, but overall
progress has been limited and remains fragile, calling for more consistent
checks and dissuasive sanctions for conflicts of interest. There is also a need
to ensure better co-ordination among anti-corruption institutions and shield
them from political influence.

(15) 
Competition in the electricity and gas sectors
remains limited. Areas of particular concern for improving the functioning of
the energy markets include the lack of electricity and gas exchanges and the
absence of a transparent wholesale market. The free market in electricity is
dominated by a sole supplier and its limited size means that competition cannot
fulfil its function of ensuring cost efficiency. The independence and
effectiveness of the national regulator remains limited. Dependency on imports
from a limited number of suppliers and lack of infrastructure development
create a risk of supply shocks. A comprehensive package of measures to improve
energy efficiency has been proposed for EU financing in the new programming
period 2014-2020.

(16) 
In the context of the European Semester, the
Commission has carried out a comprehensive analysis of Bulgaria’s economic
policy. It has assessed the convergence programme and the national reform
programme. It has taken into account not only their relevance for sustainable
fiscal and socio-economic policy in Bulgaria but also their compliance with EU
rules and guidance, given the need to reinforce the overall economic governance
of the European Union by providing EU-level input into future national
decisions. Its recommendations under the European Semester are
reflected in recommendations (1) to (6) below.

(17) 
In the light of this assessment, the Council has
examined Bulgaria's convergence programme, and its opinion[8] is reflected in
particular in recommendation (1) below.

(18) 
In the light of the Commission's in-depth review
and this assessment, the Council has examined the national reform programme and
the convergence programme. Its recommendations under Article 6 of Regulation
(EU) No 1176/2011 are reflected in recommendations (3), (4) and (5) below.

HEREBY RECOMMENDS that Bulgaria take
action within the period 2014-2015 to:

1. 
Reinforce the budgetary measures for 2014 in the
light of the emerging gap relative to the Stability and Growth Pact
requirements. In 2015, strengthen the budgetary strategy to ensure reaching the
medium-term objective and remain at it thereafter. Ensure the capacity of the
new fiscal council to fulfil its mandate. Implement a comprehensive tax strategy
to strengthen tax collection, tackle the shadow economy and reduce compliance
costs.

2. 
Adopt a long-term strategy for the pension
system, proceeding with the planned annual increase in the statutory retirement
age and setting out a mechanism to link the statutory retirement age to life
expectancy in the long term, while phasing out early retirement options and
equalising the statutory retirement age for men and women. Tighten eligibility
criteria and procedures for the allocation of invalidity pensions, for example
by taking better account of the remaining work capacity of applicants. Ensure
efficient provision of healthcare including by improving transparency in
hospital financing, optimising the hospital network and developing out-patient
care.

3. 
Improve the efficiency of the Employment Agency
by developing a performance monitoring system and better targeting the most vulnerable,
such as low-skilled and elderly workers, the long-term unemployed and Roma. Extend
the coverage and effectiveness of active labour market policies to match the
profiles of job-seekers, and reach out to non-registered young people who are
neither in employment, education or training, in line with the objectives of a
youth guarantee.
Improve the effective coverage of unemployment benefits
and social assistance and their links with activation measures. Take forward
the comprehensive review of minimum thresholds for social security
contributions so as to make sure that the system does not price the low-skilled
out of the labour market. Establish, in consultation with social partners,
transparent guidelines for the adjustment of the statutory minimum wages taking
into account the impact on employment and competitiveness. In order to
alleviate poverty, further improve the accessibility and effectiveness of
social services and transfers for children and older people.

4. 
Adopt the School Education Act and pursue the
reforms of vocational and higher education in order to increase the level and
relevance of skills acquired at all levels, while fostering partnerships
between educational institutions and business with a view to better aligning
outcomes to labour market needs. Strengthen the quality of vocational education
and training institutions and improve access to life-long learning. Step up
efforts to improve access to quality inclusive pre-school and school education
of disadvantaged children, in particular Roma, and implement strictly the rules
linking the payment of child allowance to participation in education.

5. 
Continue to improve the business environment, in
particular for SMEs, by cutting red tape, promoting e-government, streamlining
insolvency procedures and implementing the legislation on late payments.
Improve the public procurement system by enhancing administrative capacity,
strengthening the ex-ante checks performed by the Public Procurement Agency and
taking concrete steps for the implementation of e-procurement. Enhance the
quality and independence of the judiciary and step up the fight against
corruption.

6. 
Scale up the reform of the energy sector in
order to increase competition, market efficiency and transparency, and energy
efficiency, in particular by removing market barriers, reducing the weight of
the regulated segment, stepping up efforts for the creation of a transparent
wholesale market for electricity and gas, phasing out quotas, and strengthening
the independence and administrative capacity of the energy regulator.
Accelerate interconnector projects with neighbouring Member States and
candidate countries and enhance the capacity to cope with disruptions.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               OJ L 306, 23.11.2011, p. 25.

[3]               COM(2014) 403 final.

[4]               P7_TA(2014)0128 and
P7_TA(2014)0129.

[5]               COM(2013) 800 final.

[6]               COM(2013) 790 final.

[7]               SWD(2014) 76 final.

[8]               Under Article 9(2) of Council Regulation (EC) No
1466/97.