# EUR-Lex - 52012DC0302 - EN

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# 52012DC0302

**Recommendation for a COUNCIL RECOMMENDATION on Bulgaria’s 2012 national reform programme and delivering a Council opinion on Bulgaria’s convergence programme for 2012-2015 /* COM/2012/0302 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Bulgaria’s 2012 national reform
programme
and delivering a Council opinion on Bulgaria’s convergence programme for
2012-2015

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 5(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,

After consulting the Economic and Financial
Committee,

Whereas:

(1)       On 26 March 2010, the
European Council agreed to the European Commission’s proposal to launch a new
strategy for jobs and growth, 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 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[5],
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 12 July 2011, the
Council adopted a recommendation on Bulgaria’s national reform programme for 2011
and delivered its opinion on Bulgaria’s updated convergence programme for 2011-2014.

(4)       On 23 November 2011, the
Commission adopted the second Annual Growth Survey, marking the start of the second
European Semester of ex-ante and integrated policy coordination, which is
anchored in the Europe 2020 strategy. On 14 February 2012, the Commission, on
the basis of Regulation (EU) No 1176/2011, 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.

(5)       On 2 March 2012, the
European Council endorsed the priorities for ensuring financial stability,
fiscal consolidation and action to foster growth (in line with the Council’s
conclusions of 9 December 2011 and further to the Commission’s Annual Growth
Survey). 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.

(6)       On
2 March 2012, the European Council also invited the Member States participating
in the Euro Plus Pact to present their commitments in time for inclusion in
their stability or convergence programmes and their national reform programmes.

(7)       On 13 April 2012, Bulgaria
submitted its convergence programme covering the period 2012-2015 and its 2012 national
reform programme. In order to take account of their interlinkages, the two
programmes have been assessed at the same time. The Commission has also
assessed, in an in-depth review under Article 5 of Regulation (EU) No
1176/2011, whether Bulgaria is affected by macroeconomic imbalances. The
Commission concluded in its in-depth review[7] that Bulgaria
is experiencing an internal macroeconomic imbalance, although not excessive.

(8)       According to the first
2012 notification of deficit and debt figures by Bulgaria for the years
2008-2011 for the application of the excessive deficit procedure (EDP), the
general government deficit in 2011 was below the 3% of GDP reference value of
the Treaty. Moreover, the Commission's 2012 spring forecast projects the
general government deficit to stay below the reference value of the Treaty and
to further decline over the forecast period. As a result, and in line with the
provisions of the Stability and Growth Pact, on 30 May the Commission adopted a
recommendation for a Council decision abrogating the decision on the existence
of an excessive deficit under Article 126(12) of the Treaty.

(9)       Based on the assessment of
the 2012 convergence programme pursuant to Council Regulation (EC) No 1466/97,
the Council is of the opinion that the macroeconomic scenario underpinning the
budgetary projections in the programme is optimistic for the 2012-13 period,
when annual growth is expected to reach 1.4% in 2012 and 2.5% in 2013. The
Commission's 2012 spring forecast foresees a GDP growth of 0.5% in 2012 and
1.9% in 2013. After the correction of the excessive deficit in 2011, the
objective of the budgetary strategy outlined in the programme is to achieve a budgetary
position which is close to balance, both in terms of the structual and headline
budget balances, by the end of the programme period. The medium-term budgetary objective
(MTO), defined in structural terms, has been marginally revised from a deficit
of 0.6% of GDP to a deficit of 0.5% of GDP. The new MTO adequately reflects the
requirements of the Stability and Growth Pact. Based on the (recalculated)
structural deficit[8],
Bulgaria plans to achieve its MTO over the programme period. . In 2012-14, the growth
rate of government expenditure, taking into account discretionary revenue
measures, would respect the expenditure benchmark of the Stability and Growth
Pact, yet breach it in 2015. Panned fiscal consolidation faces important risks
stemming from (i) lower revenue given the optimistic macroeconomic scenario as
well as less tax-rich underlying growth structure of the economy and (ii)
inefficiencies in the public sector, particularly in healthcare and education,
which may lead to considerable expenditure pressures. The debt ratio is below
60% of GDP and, according to the programme, it is expected to peak at close to
20% of GDP in 2012 and then to decrease over the programme period. There is considerable
scope for improvement in tax compliance and advancing in this area would allow
Bulgaria to support higher growth enhancing expenditures. A requirement to keep
the budget deficit below 2 % and limiting government expenditure to 40 %
of GDP was adopted as an amendment to the Organic Budget Law, thus strengthening
the binding nature of the fiscal framework and improving the predictability of
budgetary planning. However, challenges remain with respect to further improving
the contents of the medium-term budgetary framework and strengthening the
reporting on accrual basis.

(10)     The Bulgarian government
has made considerable progress on some of the pension-reform measures including
those on the pensionable age for both men and women and on the length of
service for army and police-sector employees. However, addressing the
shortcomings in the adequacy of pension provision remains a key challenge in
the medium term. The changes do not envisage steps to make the statutory
retirement age the same for men and women. Also, they fall short in reducing
early retirement options for employees. A key challenge remains the inclusion
of people not paying contributions, as well as tightening controls and criteria
for the allocation of invalidity pensions.

(11)     Bulgaria has the highest
rate of people at risk of severe material deprivation in the EU, with the
elderly and children being particularly affected. Comprehensive measures are
needed. Priority should be given to making social transfers more effective. Only
half of the economically active Roma are employed. The recently adopted
National Strategy for Roma Integration targets multiple barriers but still
needs to be underpinned by a detailed Action Plan if it is to be operational
over the period 2015-2020.

(12)     The crisis has had a
particularly strong impact on low-skilled workers (who account for almost 70 %
of the unemployed) and has significantly raised youth unemployment. Moreover, since
2009, the increase in long-term unemployment has been significantly faster than
in the rest of EU and principally reflecting an increase in skills and
geographical mismatches as job cuts were concentrated in the low-skilled
segment. A review of the system setting minimum thresholds for social security
contributions should be undertaken to balance the need to reduce undeclared
work and to ensure that low-skilled workers are not priced out. Measures
undertaken by the government to freeze public sector wage bill in 2010-12 have
been a relevant and adequate response, also contributing to bring labour costs
closer to productivity levels. A national initiative has been launched to
comprehensively address the integration of young people in the labour market. Public
employment services are still of relatively low quality and staff training
should be intensified, in particular "Roma mediators". Further measures
are needed to improve services dealing with activation, job search, matching,
retraining and individualised services for the low-skilled.

(13)     Bulgaria has the highest
share of low achievers in reading and in mathematics and science in the EU
(according to PISA 2009), indicating the existence of considerable structural
obstacles to ensuring quality education. The low educational achievements are
linked to weak access to education of disadvantaged groups, in particular the
Roma population, insufficient autonomy of schools, lack of incentives for
better performance, a poor national assessment system and insufficient
accountability. In higher education, progress remains very limited even though
some promising efforts have been made recently. The planned amendments to the Higher
Education Act need to be implemented as a top priority for growth and
accompanied by adequate governance, investment and political determination.

(14)     Bulgaria has a low level of
research and innovation. Research and innovation (R&I) investment needs to be
raised to reach the 2020 target and an appropriate strategy for innovation must
be established. The R&I administration in Bulgaria is fragmented. Bulgaria
needs to strengthen its universities and develop a strategy to engage higher
education institutions in innovation activities. Frameworks fostering collaboration
between universities and the private sector do not exist, and funding should be
allocated in a competitive, merit-based and transparent way. Bottlenecks remain
for start-up companies and innovative SMEs seeking bank finance. Public
financial instruments and guarantees for young and innovative enterprises are
not effective enough to help SMEs match EU Structural Funds and secure the
required co-financing via bank loans.

(15)     Currently, the
administrative capacity of Bulgaria is insufficient to properly manage and
maintain road, rail and water infrastructures projects. The administrative
reform has focused mainly on reducing public sector staff with limited attempts
to remove other sources of inefficiency. The use of EU funds remains low
despite consistent progress in the last two years. The main reasons are the
existence of complicated administrative procedures and the difficulty
encountered by enterprises in securing co-financing. Significant challenges
also remain in terms of further improving the business and regulatory
environment and achieving progress in increasing the administrative capacity of
the public sector. The implementation of e-government has been delayed many times.
The tax system in Bulgaria is characterised by significant tax evasion and low
administrative efficiency. Administrative costs for tax collection are high, as
are the time costs for businesses of paying taxes.

(16)     The new legislation on
public procurement is an important step towards a better system for the monitoring,
prevention and sanctioning of irregularities. These efforts should be
supplemented on two fronts: (i) the sanctions foreseen need to be effectively
applied and (ii) ex officio powers should be entrusted to the Public
Procurement Agency and the State Financial Inspection Agency.

(17)     Despite initiated reforms,
Bulgaria still maintains some restrictions to entry into network sectors such
as rail transport, telecommunications and energy. The functioning of energy
markets at both wholesale and retail levels remains problematic. Areas of
particular concern in need of improvement include the lack of electricity and
gas exchanges and of a functioning balancing market as well as regulated prices
for consumers. Moreover, Bulgaria should ensure regulatory independence for the
transmission system. Bulgaria is highly dependent on a single energy route and
its domestic energy market functions inadequately, exposing it to risks of
significant supply shocks. Existing measures aimed at tackling energy
dependency need to be improved. So far, the construction of new gas
infrastructure has been too slow. Although some desirable reforms were formally
adopted and the share of renewable energy increased in 2011, their
implementation remains unsatisfactory due to procurement, the capture of public
polices by private interests and poor management of state-owned energy
companies.

(18)     Bulgaria has made a number
of commitments under the Euro Plus Pact. These commitments, and the
implementation of the commitments presented in 2011, relate to improved public
finance sustainability, fostering employment, boosting public-sector competitiveness
and reinforcing financial stability. The Commission has assessed the implementation
of the Euro Plus Pact commitments. The results of this assessment have been taken
into account in the recommendations.

(19)     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 national reform programme,
and presented an in-depth review. 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 (7) below.

(20)     In the light of this
assessment, the Council has examined Bulgaria’s convergence programme, and its
opinion[9]
is reflected in particular in recommendation (1) below.

(21)     In the light of the
Commission’s in-depth review and this assessment, the Council has examined
Bulgaria’s 2012 national reform programme and Bulgaria’s convergence programme.
Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are
reflected in particular in recommendations (3) and (5) below;

HEREBY RECOMMENDS that Bulgaria should
take action within the period 2012-2013 to:

1.           Continue with sound fiscal
policies to achieve the medium-term budgetary objective by 2012. To this end,
implement the budgetary strategy as envisaged, ensuring compliance with the
expenditure benchmark, and stand ready to take additional measures in case
risks to the budgetary scenario materialise. Strengthen efforts to enhance the
quality of public spending, particularly in the education and health sectors
and implement a comprehensive tax-compliance strategy to improve tax revenue and
address the shadow economy. Further improve the contents of the medium-term
budgetary framework and the quality of the reporting system.

2.           Take steps to reduce risks
to the sustainability and to improve adequacy of the pension system by
restricting access to early retirement and by making the statutory
retirement age the same for men and women with full career contributions.
Introduce tighter criteria and controls for the allocation of invalidity
pensions.

3.           Accelerate
the implementation
of the national Youth Employment Initiative. Ensure
that the minimum thresholds for social security contributions do not discourage
declared work. Step up efforts to improve the Public Employment Service’s performance.
To alleviate poverty, improve the effectiveness of social transfers and the
access to quality social services for children and the elderly and implement
the National Roma Inclusion Strategy.

4.           Speed up the reform of relevant
legal acts on schools and higher education and of accompanying measures by
focusing on modernising curricula, improving teacher training, and ensuring
access to education for disadvantaged groups. Improve the access to finance for
start-ups and SMEs, in particular those involved in innovative activities.

5.           Step up efforts to enhance
administrative capacity and reforms by reducing red tape and the cost of tax
compliance and collection, and further improving the absorption of EU funds, in
particular in road and rail transport and water management. Improve the quality
and independence of the judicial system and speed up the introduction of
e-government. Strengthen public administrative capacity in key transport
sectors and regulatory authorities.

6.           Ensure sound
implementation of public procurement legislation. Strengthen the prevention of
irregularities and effectively apply the sanctions under the Public Procurement
Law and those of the Law on Conflict of Interest.

7.           Take measures to remove market
barriers, guaranteed profit arrangements and price controls. Ensure the independence
of transmission and distribution system operators; complete the market design
in particular for the energy exchanges and balancing markets. Improve electricity
and gas connections, boost energy efficiency and enhance the capacity to cope
with disruptions.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 02.08.1997, p. 1

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

[3]               COM(2012)302 final

[4]               P7_TA(2012)0048 and P7_TA(2012)0047

[5]               Council Decision 2012/238/EU of 26 April 2012

[6]               COM(2012) 68 final

[7]               SWD(2012)151 final

[8]               Cyclically adjusted balance net of one-off and
temporary measures, recalculated by the Commission services on the basis of the information provided in the programme, using
the commonly agreed methodology.

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