COMMISSION STAFF WORKING DOCUMENT Assessment of the 2012 national reform programme and convergence programme for BULGARIA Accompanying the document 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
Date: 2012-05-30
Institutions: European Commission
Subjects: Bulgaria, Roma, administrative formalities, administrative reform, award of contract, budgetary equilibrium, corporate finance, educational reform, judicial reform, liberalisation of the market, public expenditure, small and medium-sized enterprises, social integration, social-security benefit, trans-European network, underground economy, youth unemployment

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
SWD(2012) 302 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2012 national reform programme and convergence programme for
BULGARIA  

Accompanying the document 

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) 302 final} 

EN 

   EN 

 
 
 
 
  
 
 
CONTENTS 

EXECUTIVE SUMMARY ................................................................................................. 3 

1. 

INTRODUCTION....................................................................................................... 4 

2.  ECONOMIC DEVELOPMENTS AND CHALLENGES .......................................... 5 

2.1.  Recent economic developments and outlook .................................................... 5 

2.2.  Challenges ......................................................................................................... 5 

3.  ASSESSMENT OF POLICY AGENDA .................................................................... 8 

3.1.  Fiscal policy and taxation.................................................................................. 8 

3.2.  Financial sector................................................................................................ 12 

3.3.  Labour market, education and social policies ................................................. 13 

3.4.  Structural reforms promoting growth and competitiveness ............................ 16 

3.5.  Modernisation of public administration .......................................................... 21 

4.  OVERVIEW TABLE................................................................................................ 23 

5.  ANNEX ..................................................................................................................... 27 

2

 
 
 
 EXECUTIVE SUMMARY 

Real GDP growth in Bulgaria is expected to remain rather low in the first half of 2012, 
but  to  accelerate  gradually  thereafter  to  reach  an  annual  growth  of  0.5%  in  2012  and 
1.9%  in  2013.  Unemployment  is  expected  to  increase  in  2012  to  12.0%  of  the  labour 
force.  

Bulgaria  managed  to  reduce  the  fiscal  deficit  as  required  under  the  Excessive  Deficit 
Procedure  and  it  is  implementing  a  major  reform  that  aims  at  raising  the  statutory 
retirement age for men and women.  

Despite  the  progress  the  government  has  made  in  implementing  its  reform  agenda,  the 
main  policy  challenges  for  the  country  have  remained  broadly  unchanged.  A  persistent 
increase  in  unemployment  calls  for  a  stronger  re-orientation  of  active  labour  market 
policy to improve employability. The low educational achievements signal the existence 
of considerable structural obstacles to ensuring quality education. The sustainability and 
adequacy of the pensions system is not fully ensured yet. The quality of public spending, 
the  efficiency  of  the  tax  system  and  the  business  climate  are  suboptimal.  Bulgaria  is 
largely  dependent  on  imported  energy  and  its  domestic  energy  market  is  not  fully 
operational. 

3

 
 
 
 
INTRODUCTION 

1. 
In  June  2011,  the  Commission  proposed  seven  country  specific  recommendations1 
(CSRs)  for  economic  and  structural  reform  policies  for  Bulgaria.  In  July  2011  the 
Council of the European Union adopted these recommendations, which concerned public 
finances,  the  pension  system,  education,  the  labour  market,  administrative  capacity 
including in the procurement area, energy and deregulation. 
In  November  2011,  the  Commission  published  its  Annual  Growth  Survey  for  20122 
(AGS  2012)  in  which  it  set  out  its  proposals  for  building  the  necessary  common 
understanding of the priorities for action at national and EU level in 2012. It focused on 
five  priorities  —  growth-friendly  fiscal  consolidation,  restoring  normal  lending  to  the 
economy, promoting growth and competitiveness, tackling unemployment and the social 
consequences of the crisis, and modernising public administration. Member States were 
encouraged to address these priorities in the context of the 2012 European Semester. 

Against  this  background,  Bulgaria  presented  updates  of  its  national  reform  programme 
and  convergence  programme  in  April  2012.  These  programmes  give  details  of  the 
progress made since July 2011 and plans going forward. This Staff Working Document 
assesses  the  state  of  implementation  of  the  2011  recommendations  as  well  as  the  AGS 
2012  in  Bulgaria,  identifies  current  policy  challenges  and,  in  this  light,  examines  the 
country’s latest policy plans. 

Overall assessment 

Overall, Bulgaria has partially implemented the 2011 Council recommendations. On the 
positive  side,  economic  growth  accelerated  in  2011  and  the  government  managed  to 
reduce  the  fiscal  deficit  as  required  under  the  Excessive  Deficit  Procedure  (EDP).  As 
regards the pension system, the government is implementing a major reform that aims at 
raising the statutory retirement age for men and women. Notwithstanding this important 
development,  reform  efforts  were  limited,  in  particular  regarding  the  labour  market, 
education  and  energy  sectors.  Consequently,  most  of  the  challenges  identified  in  July 
2011 and reiterated in the AGS 2012 remain. 

Bulgaria’s most pressing challenges are in the labour market, education, innovation, the 
business  environment,  energy  and  resource  efficiency.  Lower  potential  growth  poses  a 
number of challenges for the labour market and highlights the importance of increasing 
investment  and  efficiency  through  structural  reforms.  Growth  would  be  helped  by 
reducing  administrative  burdens  and  by  creating  a  more  favourable  business  climate 
(including  for  foreign  investors  and  service  providers).  Reducing  poverty  and  social 
exclusion, especially for the most vulnerable groups facing multiple barriers, remains a 
big challenge. The policy plans submitted by Bulgaria are relevant. Bulgaria confirms its 
existing  strategies  and  plans,  with  the  focus  on  fiscal  consolidation,  increasing 
investment and absorption of EU funds across sectors, improving business environment 
and  public  administration.  However,  reforms  in  some  areas,  in  particular  the  labour 
market,  education  and  the  energy  sector,  lack  the  ambition  needed  to  address  the 
challenges in a comprehensive way. 

1   SEC(2011) 806 final of 7 June 2011 
2   COM(2011) 815 final of 23 November 2011 

4

 
 
 
                                                 
2.  ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1.  Recent economic developments and outlook 

The revival of the Bulgarian economy was muted in 2010-11, with real GDP in the fourth 
quarter of 2011 still being about 3 % below its peak value recorded in 2008. Annual GDP 
growth  reached  1.7 %  in  2011,  slowing  down  as  the  year  went  on.  As  in  other  EU 
Member States that are catching up, the growth pattern in the initial recovery was largely 
driven  by  strong  exports  of  both  goods  and  services,  while  domestic  demand  remained 
stagnant,  reflecting  a  rapid  adjustment  and  an  unwinding  of  imbalances  in  the  private 
sector. 

The recovery is being undermined by structural weaknesses in the labour market and the 
continued  deleveraging  of  the  corporate  sector.  Additionally,  given  the  regional 
economic uncertainties, capital inflows and FDI have stabilised at lower levels and have 
not significantly boosted growth, unlike in the past decade. Real GDP growth is expected 
to remain rather low in the first half of 2012, but to accelerate gradually thereafter in line 
with economic activity picking up in the EU as a whole. Annual growth is expected to 
reach 0.5% in 2012 and 1.9% in 2013. 

Exports are set to contribute only moderately to growth in the first half of 2012, given the 
overall  weak  external  economic  environment.  Leading  export  indicators  (monthly 
industrial production and industry confidence readings) also point to lower export growth 
in  the  short  term.  In  line  with  the  expected  recovery  in  the  EU,  prospects  for  the 
exporting sectors would also improve from the second half of 2012. The deceleration in 
exports  is  not  expected  to  significantly  widen  the  trade  balance  until  2013,  as  both 
private consumption and investment are still weak and depress imports. 

Given  the  ongoing  deleveraging  of  corporate  balance  sheets,  adjustments  in  the  real-
estate  market  and  the  weak  economic  environment,  investment  is  expected  to  contract 
further in 2012 before stabilising in 2013. The recovery in employment is countered by 
skill  mismatches  and,  over  the  longer  term,  a  continuous  decline  in  the  working-age 
population. This has negative implications for the growth potential of the economy in the 
longer term. HICP inflation slowed considerably over the course of 2011 and amounted 
to 3.4 % in 2011 on average. Inflation is expected to fall slightly, to 2.6% on average in 
2012, supporting growth in consumers’ real purchasing power. 

2.2.  Challenges 

Although economic growth resumed in Bulgaria in 2011, structural bottlenecks in several 
areas  continue  to  hamper  the  prospects  for  long-term  sustainable  growth.  Despite  the 
progress  the  government  has  made  in  implementing  its  reform  agenda,  the  main  policy 
challenges for the country have remained broadly unchanged.  

While the correction of the excessive deficit in 2011 is likely to help restore confidence 
and  strengthen  the  credibility  of  government  policies,  the  current  fiscal  consolidation 
faces  major  risks.  First,  budget  revenues  are  likely  to  be  structurally  lower  than  in  the 
pre-crisis  boom  years.  Second,  inefficiencies  in  public  spending  and  risks  to  the  long-
term sustainability of public finances, inter alia in the fields of pensions and healthcare, 
pose  challenges  to  fiscal  stability  and  predictability.  Healthcare  reforms  in  particular 
have  largely  stalled,  leading  to  repeated  hospital  arrears.  Addressing  the  inadequacy  of 
pension provision remains a key challenge in the medium term. 

The crisis has had a particularly strong incidence on low-skilled workers (who account 
for  almost  70 %  of  the  unemployed)  and  has  raised  youth  unemployment.  Bulgaria  has 
the  highest  share  of  young  people  who  are  neither  in  education  nor  in  employment: 
5

 
 
 
21.8 % in 2010, as against the EU average of 12.8 %. Almost 5 % of the active population 
is long-term unemployed. Since 2009, the increase in long-term unemployment has been 
significantly faster than in the rest of EU. Public employment services on activation, job 
search, matching and retraining are still of relatively low quality and staff training should 
be intensified, in particular "Roma mediators". To enable and encourage people to work 
longer,  reforms  in  the  pension  system  need  to  be  underpinned  by  policies  ensuring  the 
effective  integration  of  older  workers  in  the  labour  market.  Against  this  backdrop, 
various  surveys  highlight  difficulties  in  matching  jobs  with  the  necessary  skills, 
particularly in relation to new technologies. While wage setting mechanisms are overall 
flexible  in  Bulgaria,  sectoral  minimum  thresholds  for  calculating  social  security 
contributions might price out low-skilled workers. Job transition is hindered by the lack 
of,  or  low  take-up  of,  flexible  work  organisation  arrangements  and  by  regulatory 
disincentives for job creation and self-employment. Together, these factors maintain the 
share  of  undeclared  work.  Bulgarians  are  also  at  greater  risk  of  poverty  or  social 
exclusion  than  citizens  of  other  EU  countries  (EU  SILC  2010).  The  risk  in  Bulgaria  is 
41.6 %  —  almost  twice  the  EU  average  (23.4 %).  Elderly,  children  and  Roma  are  the 
groups  most  affected.  Bulgaria  is  currently  among  the  Member  States  where  social 
transfers do the least to reduce poverty: in 2010, 27.1 % of the population was at risk of 
poverty  before  receiving  transfers,  and  20.7 %  of  the  population  was  at  risk  of  poverty 
after receiving transfers. 

The proportion of students leaving the education system early has stabilised and Bulgaria 
performs  above  the  EU  average  as  regards  secondary  educational  attainment  in  2010. 
However,  the  very  high  rate  of  low  achievers  suggests  that  there  are  considerable 
structural  obstacles  in  the  way  of  ensuring  quality  education.  The  low  educational 
achievements  are  linked  to  education  provision  that  is  still  poor,  lack  of  incentives  for 
better  performance  of  teachers,  curricula  in  need  of  modernisation,  a  poor  national 
assessment  system  and  insufficient  accountability.  Moreover,  university  education 
provides limited research and innovation opportunities even though it aspires to provide 
higher quality courses that are more relevant to the labour market, with the help of more 
economically sound financing mechanisms. 

The  low  efficiency  and  quality  of  public  services  is  a  key  bottleneck  to  growth,  while 
ineffective oversight by the regulatory and supervisory authorities could result in failure 
to tackle non-competitive behaviour. New legislation introduced in 2011 aims to ensure 
that the authorities are better able to monitor public procurement processes and address 
irregularities,  but  strong  doubts  remain  as  to  whether  the  authorities’  resources  are 
sufficient to make this legislation effective in practice. There has been limited progress in 
strengthening the administrative capacity of local authorities in general and of the road, 
rail,  water,  health  care  and  R&D  sectors  in  particular.  A  thorough  overhaul  of  these 
sectors  is  needed  if  they  are  to  function  in  an  efficient  way  and  thus  be  able  to  absorb 
sufficient EU funds and deliver high-quality projects. 

Bulgaria  is  also  missing  out  on  the  potential  for  economic  growth  stemming  from 
innovation  activities.  There  is  no  multi-annual  funding  framework  for  Research  and 
Innovation, the two national funding instruments (the Innovation and the Science Fund) 
work  poorly,  while  only  a  small  part  of  the  funding  is  competitive  and  allocated 
transparently on merit. Moreover, access to finance for innovative start-ups and SMEs is 
severely  limited,  as  is  the  level  of  collaboration  between  research  centres,  universities 
and innovative businesses. 

Competition  is  also  potentially  hampered  by  the  lack  of  legal  certainty,  notably  in  the 
services area and the limited functioning of the Point of Single Contact for service providers. 

6

 
 
 
The business environment and competitiveness suffer as well from the poor state of public 
transport  and  the  deficient  environmental  and  broadband  internet  infrastructure,  as  well  as 
from high energy intensity (the highest in the EU) and low energy efficiency. There is also 
room  for  improvement  and  growth  in  Bulgaria’s  waste  management  and  recycling  sectors. 
High  dependency  on  imported  energy,  poor  interconnections  with  neighbouring  countries 
and an inadequately functioning energy market expose Bulgaria to significant supply shock 
risks. 

Box 1: Summary of the in-depth review under the macroeconomic imbalances procedure  

The in-depth review has taken a broad view of the Bulgarian economy in order to identify actual or 
potential  imbalances  and  the  possible  macroeconomic  risks  which  they  may  entail.  Bulgaria 
experienced a period of economic boom from 2006-2008. Exceptionally strong capital inflows drove 
high credit growth and were mirrored in a substantial current account deficit. An overheated labour 
market led to rapid growth in wages and unit labour costs (ULC). Also private consumption, inflation, 
real estate prices and construction soared. The necessary adjustment is taking place, but the burden on 
the  labour  market  is  unnecessarily  high.  Furthermore,  more  needs  to  be  done  to  ensure  the 
sustainability of the adjustment once the economy recovers to its growth trend. The main observations 
are: 

• 
The labour market has been hit hard by the crisis and the reintegration of low-skilled workers 
has  proven  difficult.  A  persistent  increase  in  unemployment,  pronounced  skills  and  geographical 
mismatches  and  a  high  concentration  of  job  cuts  in  the  low-skilled  segment  suggest  major 
inefficiencies  of  the  adjustment  process.  In  the  absence  of  reforms,  a  large  part  of  the  current 
unemployment could become structural in nature.  

• 
Despite a pronounced deceleration, unit labour cost (ULC) growth remains one of the fastest 
in  the  EU.  However,  the  loss  in  external  competitiveness  might  be  less  severe  than  implied  by 
aggregate  ULCs.  Nevertheless,  in  the  absence  of  reforms,  wage  and  ULC  growth  may  become 
excessive again when the economy picks up and the labour market tightens. 

• 
The  current  account  adjustment  is  largely  structural  and  is  driven  by  sizable  export  market 
share gains, but major vulnerabilities remain. A return to the excessive current account deficits when 
economic  conditions  and  capital  flows  normalise  seems  unlikely.  However,  the  saving-investment 
gap  could  open  up  again  if  the  increase in the aggregate saving rate turns out to be partly cyclical. 
The current account is also strongly influenced by foreign investment in real estate, which has been 
volatile.  

• 
Deleveraging of the corporate sector is ongoing, but the still high level of indebtedness will 
lengthen  the  adjustment  process  and  keep  the  corporate  sector  vulnerable  to  changes  in  market 
sentiment.  Moreover,  the  deleveraging  process  combined  with  global  financial  market  stress  will 
continue to dampen investment, and productivity growth. Labour market and wage setting institutions 
should  therefore  provide  the  necessary  flexibility  to  keep  wage  growth  in  line  with  productivity 
growth.  

Apparent  inefficiencies  of  the  labour  market  call  for  policy  action.  The  main  challenges  relate  to 
skills  mismatches  in  some  sectors  and  regions.  To  achieve  lasting  improvement  in  this  area,  a 
comprehensive  package  of  active  labour  market,  education and regional policy measures is needed. 
Moreover sectoral and occupational minimum thresholds for social security contributions need to be 
reviewed. Some of these thresholds are set very close to the average wages prevalent in the sectors 
and  occupations  concerned,  imposing  a  higher  effective  social  tax  rate  for  those  employees  whose 
actual wage is below the taxable minimum. Consequently, this system, which was designed to combat 
undeclared work, might in effect price out workers in some low-skilled segments and regions of the 
labour  market.  Also,  emphasis  on  boosting  total  factor  productivity  remains  crucial  given  that  the 
deleveraging  of  the  corporate  sector  will  likely  dampen  investment.  Macroeconomic  policies  and 
banking regulation in Bulgaria should focus on reducing the risks of repeating boom-cycles and on 
strengthening the risk absorption capacity of economic agents.  

7

 
 
 
3.  ASSESSMENT OF POLICY AGENDA 

3.1.  Fiscal policy and taxation 

 Budgetary developments and debt dynamics 
Bulgaria  managed  to  correct  its  excessive  deficit  in  2011,  as  recommended  by  the 
Council  under  the  Excessive  Deficit  Procedure  (EDP)  The  main  goal  of  the  2012 
convergence  programme’s  medium-term  budgetary  strategy  is  to  achieve  a  close–to-
balanced budget position, both in terms of the structual and headline budget balances, by 
the  end  of  the  programme  period.  The  medium-term  objective  (MTO),  defined  in 
structural terms, has been marginally revised to a deficit of 0.5% of GDP compared with 
a deficit of 0.6% of GDP in the 2011 convergence programme. The new MTO is slightly 
higher than the previous one and adequately reflects the requirements of the Stability and 
Growth Pact. The programme envisages the MTO to be achieved within the programme 
period.  

Strict budgetary discipline led to overachievement of the budgetary target and a further 
strengthening of the fiscal position in 2011. The budget deficit narrowed from 3.1% of 
GDP  in  2010  to  2.1%  in  2011,  below  the  target  of  2.5%  of  GDP  set  in  the  previous 
programme.  The  better-than-expected  outcome  was  mainly  due  to  lower-than-projected 
capital spending, freezing compensation of employees and pensions for a second year in 
a row as well as cuts in other discretionary spending, particularly subsidies. For 2012 the 
convergence programme projects the deficit to improve to 1.6% of GDP. Compared with 
the  previous  year’s  programme,  the  target  has  been  revised  slightly  downwards  from 
1.5%  of  GDP,  on  account  of  a  downward  revision  in  real  GDP  growth  from  4.1%  to 
1.4%  in  the  current  programme.  The  planned  narrowing  of  the  deficit  in  2012  will 
continue  to  be  mainly  expenditure  driven,  as  a  result  of  maintaining  the  policy  of 
freezing  the  spending  limits  on  wages  and  the  indexation  of  general  pensions.  On  the 
revenue  side,  excise  tax  rates  on  some  energy  goods  will  be  increased  to  the  EU 
minimum levels and efforts to fight tax evasion and improve revenue collection will be 
stepped  up.  The  Commission  services’  spring  2012  forecast  also  projects  the  deficit  to 
continue to decline, although at a slower pace, and to reach 1.9% of GDP, 0.3 pp. higher 
than  the  programme’s  target.  The  small  difference  is  largely  explained  by  the  more 
pessimistic  underlying  growth  scenario  and  less  tax-rich  growth  structure  in  the 
Commission services’ forecast. 

The  convergence  programme  confirms  the  authorities’  strong  commitment  to  continue 
with the fiscal consolidation over the medium term. The headline deficit is expected to 
fall  to  1.3%  of  GDP  in  2013  and,  thereafter,  to  be  brought  to  balance  by  2015.  The 
envisaged  consolidation  is  somewhat  back-loaded  with  an  annual  average  reduction  in 
the headline deficit by 0.4% of GDP in 2012-13 and by 0.7% of GDP in 2014-15. The 
adjustment  in  the  primary  balance  is  slightly  higher  on  average  for  the  programme 
period, whereby the primary deficit turns into a surplus from 2014 onwards. Compared 
with  the  previous  programme,  the  headline  balance  targets  for  2012-13  are  marginally 
worse,  by  0.2  pp  of  GDP  on  average,  while  the  targets  for  2014-15  have  been  kept 
unchanged. The main reason for the weakening of the short-term targets is the downward 
revision of the underlying macroeconomic scenario.  

When looking at the entire programme period, the programme’s revenue and expenditure 
projections point to a consolidation adjustment which is entirely expenditure-based. The 
revenue-to-GDP ratio is expected to remain unchanged between 2011 and 2015, whereas 
the  expenditure  ratio  is  projected  to  drop  by  slightly  over  2%  of  GDP.  The  planned 
expenditure restraint mainly falls in the areas of compensation of employees and social 

8

 
 
 
transfers, while the planned increase in capital spending and subsidies is broadly offset 
by a decline in intermediate consumption and 'other' expenditure. However, the expected 
consolidation  is  supported  by  measures  only  for  2012.  For  2013,  the  programme 
indicates an additional consolidation effort on the expenditure side of the national budget 
of 1% of GDP (not specified) which, however, will be largely offset by a worsening in 
the balance of the EU-related funds as a result of a projected increase in their absorption. 
For  the  period  2013-15,  the  budgetary  adjustment  represents  projections  under  a  no-
policy  change  assumption  and  the  programme  does  not  provide  details  and/or 
quantification  of  specific  measures  to  achieve  the  fiscal  targets  (see  Box  2).  The 
programme  confirms  the  continuation  of  the  policy  on  freezing  the  nominal  wage  bill 
until 2014 and, thereafter, it envisages indexation of the annual payroll expenditures with 
the  projected  nominal  GDP  growth.  There  are  no  one-off  or  other  temporary  measures 
planned in the programme.  

Assessed  against  the  deficit  projections  in  the  Commission  services’  spring  2012 
forecast, it appears that the deficit outcomes for 2012-13 could be worse than targeted. In 
particular, revenue could be lower than planned given that economic growth could turn 
out  lower  or  less  tax-rich  than  foreseen  in  the  programme.  Absence  of  sufficient 
information  about  the  consolidation  measures  for  the  remaining  period  could  also 
jeopardise  the  achievement  of  the  respective  budgetary  targets.  Furthermore,  the 
unreformed  healthcare  sector,  which  has  led  to  recurrent  expenditure  overruns  in  the 
past, could continue to put pressure on expenditure. Finally, notwithstanding the strong 
commitment  to  continue  with  the  policy  of freezing  the  budgetary  wage  bill,  there  is  a 
risk of slippages in this area as well as with respect to the adjustment of pensions in view 
of  the  upcoming  parliamentary  elections  in  2013.  Nevertheless,  the  authorities  have  a 
proven track record of meeting and even over-performing their targets in the past which 
would partially offset the above risks. 
In terms of the structural balance3, the programme foresees the (recalculated) structural 
deficit  to  improve  from  1%  of  GDP  in  2011  to  0.6%  of  GDP  in  2012,  to  remain 
unchanged  in  2013,  and  to  drop  further  to  0.3%  of  GDP  in  2015.  This  implies  a 
cumulative structural fiscal effort of 0.6 pp. over the entire programme period. Thanks to 
frontloading  the  budgetary  adjustment  in  2010  and  2011,  which  implies  a  cumulative 
structural  effort  of  2.1  pp,  Bulgaria  is  expected  to  broadly  achieve  its  slightly 
strengthened  MTO  already  in  2012.  The  Commission  services'  spring  2012  forecast 
projects  the  structural  deficit  to  be  roughly  the  same  in  2012  and  0.2%  of  GDP  higher 
than the programme target in 2013, under a no-policy-change assumption. According to 
the  information  provided  in  the  programme  as  well  as  according  to  the  Commission 
services'  forecast,  the  growth  rate  of  government  expenditure,  net  of  discretionary 
revenue  measures,  over  2012-2013  would  not  exceed  the  relevant  reference  medium-
term  rate  of  potential  GDP  growth,  as  defined  in  Article  5  of  Regulation  (EC)  No 
1466/97  (1.15%  in  2012  and  2.57%  in  2013).4  Taking  the  programme  targets  at  face 
value but also taking into account the risks to the macroeconomic outlook and assuming 
a  same  reference  rate,  the  growth  rate  of  government  expenditure  net  of  discretionary 
revenue measures would not exceed the reference rate in 2014. In 2015 it would exceed 
the  reference  rate,  pointing  to  a  deviation  of  0.8%  of  GDP  between  the  planned 

3   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. 

4   OJ L 209, 2.8.1997, p. 1. 

9

 
 
 
                                                 
expenditure and the reference rate.  

Box 2. Main measures 

The  box  provides  an  overview  of  all  discretionary  measures  with  a  significant  budgetary  impact  as 
well  as  macro-structural  measures  mentioned  in  the  Convergence  Programme/National  Reform 
Programme. The main budgetary measures for 2012 include: on the revenue side (i) increasing the tax 
rates on some energy products and (ii) raising in some sectors the minimum mandatory social security 
income  thresholds;  and  on  the  expenditure  side  (iii)  freezing  the  nominal  spending  limits  on  budget 
sector wages, (iv) freezing the adjustment of general pensions and increasing the retirement age by 4 
months,  and  (v)  decreasing  the  annual  limit  on  commitment  payments  to  suppliers.  For  2013-15  the 
programme  does  not  provide  details  and/or  quantification  of  specific  measures  to  achieve  the  fiscal 
targets.  At  the  same  time  a  set  of  measures  is  planned  to  step  up  efforts  to  fight  tax  evasion  and 
improve revenue collection.  

Main budgetary measures 

  Revenue 

Expenditure

2012 

•  Increase of excise tax rates on some energy 
goods 
in  line  with  EU  harmonization 
requirements and introduction of excise tax 
on  natural  gas  from  1  June  2012  (0.1%  of 
GDP) 

•  Increase of the mandatory minimum social 
security  income  thresholds  by  6.9%  for 
activities/occupations  agreed  by  the  social 
partners  and  by  4.5%  administratively 
imposed 
the 
of 
the 
activities/occupations (0.1% of GDP) 

rest 

for 

•  Freezing  the  nominal  spending  limits  on 
budget sector wages at their 2010 level 

•  Increasing  the  minimum  pension  from 136 
leva 
the 
indexation  of  general  pensions  (-0.1%  of 
GDP) 

leva  while  freezing 

to  145 

•  Decreasing  the  annual  spending  limit  on 
commitment  payments  to  suppliers  (0.2% 
of GDP)  

•  Increasing  the  retirement  age  by  4  months 

(0.1% of GDP) 

  Note:  The  budgetary  impact  in  the  table  is  the  impact  reported  in  the  programme,  i.e.  by  the  national 
authorities. A positive sign implies that revenue / expenditure increases as a consequence of this measure. 
The  degree  of  detail  reflects  the  type  of  information  made  available  in  the  stability  or  convergence 
programme and, where available, of a multiannual budget. 

The CP/NRP describe a number of macro-structural reform measures and their medium-term funding 
in  the  areas  of  public  administration,  health,  employment,  education,  energy,  and  research  and 
development  with  the  overall  objective  of  raising  employment  and  boosting  potential  growth. 
However, the programmes do not provide a quantitative estimation of their annual budgetary impact. 
The larger part of the reform funding is accounted for by the EU funds. 

The government debt-to-GDP ratio has been on a declining path during the period 2006-
10, averaging 16.7% of GDP. In 2011, Bulgaria had the second-lowest debt ratio among 
all EU Member States with debt at 16.3% of GDP, well below the 60% Treaty reference 
value. The programme projects the government debt to peak at close to 20% of GDP in 
2012  and  then  to  gradually  fall  to  around  16.5%  of  GDP  by  the  end  of  2015.  The 
underlying  debt  dynamics  reflect  the  positive  impact  of  a  gradual  improvement  in  the 
primary  balance,  increasing  nominal  GDP  growth,  and  deficit-reducing  stock-flow 
adjustments (except for 2012 when the programme envisages a new debt issuance to pre-
fund the repayment of euro-denominated bonds of around 2% of GDP in January 2013). 
10

 
 
 
 
 
 
 
 
 
 
 
 
The projections of the debt-to-GDP ratio in the programme appear plausible taking into 
account  the  Commission  services’  spring  2012  forecast  and  the  latest  available 
information. Since the debt-to-GDP ratio is below the reference rate, the debt reduction 
benchmark is not applicable. 

Long-term sustainability 

With regard to the sustainability of public finances, the long-term change in age-related 
expenditure  is  close  to  the  EU  average.  The  initial  budgetary  position  compounds  the 
long-term costs. Under a no-policy change assumption, debt would increase to 20.7% of 
GDP  by  2020.  The  country  has  some  time  to  adjust  policies  that  affect  age-related 
spending. The full implementation of the programme would lead to a smaller debt ratio 
by 2020. Ensuring sufficient primary surpluses over the medium-term, as planned in the 
programme update, would further improve the sustainability of public finances. 

Fiscal framework 

The  Bulgarian  fiscal  framework  performed  relatively  well  in  the  favourable  economic 
environment  prior  to  the  crisis.  Fiscal  targets  were  consistently  met  and  sizeable  fiscal 
buffers  were  accumulated.  In  response  to  the  crisis,  the  authorities  introduced  several 
reforms  of  budgetary  procedures  and  implementation  including  a  legislative  package, 
amending the Organic Budget Law. Under the Financial Stability Pact, the government 
has  to  keep  its  general  government  budget  deficit  below  2 %  of  GDP  and  the  general 
government  expenditure  below  40 %  of  GDP.  These  reforms  represent  major  steps  in 
improving  the  institutional  fiscal  framework  and  are  geared  towards  maintaining  fiscal 
discipline  and  increasing  the  predictability  of  fiscal  policy,  as  addressed  by  the  2011 
recommendations.  In  addition,  the  Financial  Stability  Pact  strengthens  the  binding 
character  of  the  budgetary  framework.  The  fiscal  rules  are  defined  on  a  nominal  basis, 
which  provides  greater  transparency  and  facilitates  timely  monitoring.  The  budget 
balance  rule  provides  a  clear  numerical  target  that  is  more  stringent  than  the  SGP 
reference value and would ensure compliance with it. 

After  taking  major  steps  to  improve  its  institutional  fiscal  framework  through  fiscal 
governance  reforms,  Bulgaria  needs  to  re-focus  on  fine-tuning  the  new  framework.  It 
could  gear  its  efforts  towards  improving  the  contents  of  the  medium-term  budgetary 
framework and the quality of the reporting system. In this context, the authorities should 
provide further details on: (i) the calculations underpinning the fiscal consolidation path 
and  the  fiscal  measures  taken;  (ii)  off-budget  items  which  represent  a  potentially 
important  contingent  liability  for  the  budget,  such  as  losses  and  arrears  of  state-owned 
enterprises;  or  (iii)  projections  for  the  total  revenue  of  the  budgets  adding  up  to  the 
general consolidated budget. 

Tax system 

The tax system in Bulgaria is characterised by significant tax evasion and relatively low 
administrative efficiency. Tax compliance needs to be considerably improved, since the 
shadow economy is estimated to account for as much as one third of GDP — the highest 
in the EU and more than twice the EU average. Undeclared work in Bulgaria (estimated 
at 20 to 30 % of employment) is also far above the EU average. Administrative costs per 
collected  revenue  are  high  as  are  the  time  costs  of  paying  taxes  for  businesses.  To 
improve  efficiency  in  tax  collection  and  reduce  tax  evasion,  Bulgaria  has  to  encourage 
voluntary  compliance,  further  develop  tax  e-services  and  assign  sufficient  human  and 
information resources  to these tasks. This  would in  turn  enable Bulgaria  to  increase its 
growth enhancing expenditures. 

11

 
 
 
Labour taxation remains low and is not the key issue when it comes to reducing the high 
rate  of  unemployment  and  raising  employment.  The  tax  wedge  on  low-income  earners 
equals the one on average wages, due to the flat personal income tax rate with no tax-free 
allowance.  Although  Bulgaria  could  improve  the  incentives  to  work,  especially  for  the 
low skilled, taxation is not the major tool for enhancing labour market performance. 

The  composition  of  tax  revenue  is  favourable,  as  most  of  the  revenues  are  raised  from 
indirect taxes (accounting for 54.5 % of overall tax revenues in 2011), which have a less 
distorting  effect  than  direct  taxation.  However,  there  is  some  scope  for  increasing  the 
taxation or limiting the tax exemptions on immovable property in Bulgaria, as it does not 
constitute  an  important  source  of  tax  revenue.  There  might  also  be  some  scope  for 
increasing  environmental  taxation,  since  both  non-fuel  transport  tax  revenue  and  tax 
revenue per unit of energy used are low in Bulgaria. In addition, the country could use 
energy taxation as an instrument for improving energy efficiency. 

3.2.  Financial sector 

Although the financial sector remained relatively stable and profitable during the crisis, 
credit growth declined sharply to  reach single-digit figures from the end of 2009. As  a 
consequence, the credit-to-GDP ratio has stabilised at slightly above 70 % for the last two 
years. The bank credit deceleration is largely attributable to lack of demand (rather than 
liquidity issues) resulting from a massive drop in investment. The relatively high private 
external debt  is  not seen  as a problem, since most of it is equity-related and represents 
inter-company  lending.  Bank  funding  has  increasingly  become  domestic  instead  of 
relying on liquidity from parent banks. The ratio of non-performing loans5 jumped from 
2.5 %  at  the  end  of  2008  to  about  15 %  in  December  2011.  Despite  the  continued 
deterioration  in  the  quality  of  banks’  assets,  overall  the  banking  system  remains 
profitable.  The  capital  adequacy  of  banks  has  actually  increased  since  2009,  with  the 
regulatory ratio for the system as a whole reaching 17.7 % (Tier I capital 15.7 %) at the 
end of 2011 and the liquidity ratio above 30 %. 

Against  the  background  of  increased  risks  to  solvency  and  liquidity,  the  conservative 
behaviour of Bulgarian banks helped  maintain financial stability.  No bank  has suffered 
capital  insufficiency,  thereby  avoiding  recourse  to  public  money  or  state  guarantees. 
Policy action by the authorities focused on ensuring the continuing funding of  foreign-
owned  banks  by  their  parent  institutions  and  on  stepping  up  supervision,  while 
maintaining high regulatory standards. Negative spillovers from the situation in Greece 
on the economy and the banking system as a whole have so far been contained. None of 
the four Greek subsidiaries6 in Bulgaria holds Greek government bonds and there have 
not  been  substantial  deposit  withdrawals.  The  subsidiaries  have  started  to  adjust  their 
balance  sheets,  as  a  result  of  which  the  aggregate  loan-to-deposit  ratio  declined  from 
about 130 % in 2008 to 108 % at the end of 2011. 

Overall, in the context of the currency board arrangement, the authorities should continue 
with their prudent and pre-emptive regulatory policy, including regular stress-testing to 
identify  early  warning  indicators,  and  should  react swiftly in case of  intensified  capital 
outflows. 

5   Loans overdue by more than 90 days over total loans in the banking sector. 
6        This  also  holds  true  for  the  one  branch  of  a  Greek  bank.  Greek  banks  represent  around  29 %  of  the 

market share in Bulgaria. 

12

 
 
 
                                                 
3.3.  Labour market, education and social policies 

While the labour market was performing remarkably well before the crisis, many of the 
jobs created were in relatively low-skilled segments. Employment fell by almost 8 % in 
2008-10,  which  is  a  much  larger  decline  than  in  the  EU  on  average.  Employment 
dropped by a further 4 % in 2011 and growth is likely to be delayed beyond 2012. 

The  government  has  acknowledged  challenges  in  these  areas,  which  were  identified  in 
last year’s CSRs and also highlighted in the AGS 2012. The national reform programme 
set  the  employment  target  for  2020  at  above  75 %,  which  is  ambitious,  and  it  set 
additional EU 2020 sub-targets for youth (jobs or training for 27 % of young unemployed 
people by 2015) and older workers (35 % of unemployed older workers to receive jobs or 
training).  Given  the  overall  worsened  labour  market  outlook  for  2012,  the  challenges 
identified as part of the Commission analysis underpinning the 2011 CSR – related to the 
labour market, education reform, poverty and social inclusion – remain valid. Given the 
key  measures  planned  for  2011-12,  the  steps  taken  to  address  the  2011  CSRs  were 
overall relevant, but in many instances there have been long delays in implementing key 
planned  reforms  (education)  or  policy  measures  (public  employment  services,  youth 
policies) and in adopting legislation on school and higher education. 

The  implementation  of  labour  market  programmes  and  measures  in  2011  has  not 
prevented a further significant reduction in employment. A large part of the increase in 
unemployment  is  structural  in  nature,  principally  reflecting  an  increase  in  skills  and 
geographical mismatches, as most of the jobs lost were low-skilled. Measures taken by 
the government to freeze the public sector wage bill in 2010-12 have been a relevant and 
effective response, helping bring wage and labour costs closer to productivity. However, 
the  bargaining  process  needs  to  include  mechanisms  which  will  ensure  a  stronger  link 
between wages and labour productivity. The lower band of the wage range seems to be 
pushed  up  by  hikes  in  the  minimum  thresholds  for  social  security  contributions,  while 
rises in the nationwide minimum wage have had a limited impact on average wages. 

Given the limits to the overall budget, it is increasingly important for the government to 
prioritise its action, spend efficiently and use additional resources such as the European 
Social  Fund  (ESF).  In  the  recent  years  the  implementation  of  ESF  is  making  steady 
progress as regards the rate of contracting (74%), but the payments to beneficiaries are 
still  slow,  leading  to  a  level  of  EC  interim  payments  of  only  11.69%.  Further  planned 
measures, or measures carried over from previous years, are sufficiently linked to overall 
AGS priorities. They are also sufficiently geared to achieving EU 2020 targets and EPP 
commitments  outside  the  CSRs.  However,  the  government  needs  to  show  a  stronger 
commitment to implementing these measures in full and on time (particularly in view of 
the noticeable delays that have already built up). 

Although the duration of unemployment benefit has been significantly curtailed in recent 
years, the unemployment trap7 has widened since 2008 and remained above the average 
for the EU. This indicates the presence of disincentives to take up work, particularly in 
low-wage jobs. The coverage and quality of activation measures remain limited. Policy 
plans  to  reform  and  improve  the  performance  of  the  Employment  Agency  have  been 

7    The  breakdown  of  the  unemployment  trap  shows  that  labour  taxation  (income  tax  and  social 
contributions)  accounts  for  only  20%  of  the  indicator,  while  the  rest  is  accounted  for  by 
unemployment benefits. The unemployment trap is defined as the difference between gross earnings 
and  the  increase  in  net  income  when  moving  from  unemployment  to  employment,  expressed  as  a 
percentage  of  the  gross  earnings.  The  indicator  used  here  refers  to  a  single  person  without  children 
earning 67% of the average economy-wide wage. 
13

 
 
 
                                                 
discussed  publicly,  but  currently  there  is  no  strategy  for  retaining  staff  (for  example, 
adequate  pay)  or  for  providing  the  necessary  infrastructure  and  equipment  and 
introducing performance standards. In its 2012 National Action Plan on Employment, the 
government  announced  measures  to  train  its  staff  and  to  facilitate  job  matching  by 
improving the provision of electronic information on job vacancies. The government also 
said  it  would  do  further  work  on  setting  up  a  skills-needs  forecasting  task  force. 
However, some of these commitments have already been delayed for several years and 
were not sufficiently ambitious in view of the worsening labour market situation. 

At  the  current  juncture,  job  creation  does  not  appear  to  be  sufficiently  high  on  the 
government’s  agenda.  The  crisis  has  significantly  reduced  access  to  funding  for  small 
businesses (SMEs), and EU-funded financial engineering operations for SMEs are being 
hampered  by  red  tape  and  delays.  Specific  training  in  entrepreneurial  skills  is  not 
included  in  primary  or  secondary  education. Training in  business  and management and 
other  related  subjects  is  part  of  tertiary  education,  but  it  does  not  always  give  students 
and  entrepreneurs  the  skills  they  need  to  succeed  in  a  highly  competitive  market. 
Nevertheless,  the  ESF  is  currently  funding  an  ongoing  scheme  to  promote  self-
employment among unemployed persons by training them in business and management 
skills, and helping them obtain financing. Labour law amendments, transposing Directive 
2008/104/EC  on  Temporary  Work  Agencies  into  national  law,  have  been  tabled  in 
Parliament but not yet adopted. This limits the possibility to increase the amount of part-
time and temporary work in Bulgaria8.  

On  pension  reform,  the  government  has  considerably  advanced  some  of  the  measures 
previously agreed with social partners. From 2012, the statutory retirement age (currently 
63 for men and 60 for women) is being gradually increased with a view to reach 65 for 
men and 63 for women by 2017 and 2020 respectively. The planned reforms are a step in 
the  right  direction,  but  the  changes  are  insufficiently  ambitious,  as  they  fall  short  in 
reducing early retirement. The requirement for length of service for the police and army 
personnel was increased by 2 years but their retirement age remains unaffected. Nor are 
there any plans to equalise the statutory retirement age for men and women with a full 
career contribution. A key challenge remains the inclusion of persons not paying social 
contributions within the social security scheme, as well as tightening controls and criteria 
for allocating invalidity pensions, which in the past have led to a flood of abuses.  

A  draft  national  strategy  for  active  ageing  is  currently  being  drawn  up.  In  addition  to 
pension reforms that discourage early retirement, active ageing could be supported more 
vigorously by focusing on extending the working lives of employees rather than setting 
up  schemes  that  primarily  address  unemployed older workers. Except  for ongoing ESF 
training programmes, encouraging older workers to stay longer in employment is still not 
being managed through an integrated approach that combines elements of the reforms in 
the healthcare system, lifelong learning, labour safety and the pension system. 

Despite  progress,  Bulgaria  is  still  achieving  very  low  scores  on  all  current  pension 
adequacy indicators. The employment rate for older workers, the effective retirement age 
and the average duration of working life are also below the EU averages. It is therefore 
essential  to  create  better  conditions  for  ensuring  adequate  benefits  by  combatting 
contribution  evasion,  limiting  access  to  early  exit  pathways  including  invalidity, 
equalising  the  pensionable  age  for  men  and  women  and  stepping  up  efforts  in  work 
places and labour markets to increase the employment rate for older workers. 

8     In 2010, a mere 2.4 % of jobs were part-time and only 4.5 % were temporary. 

14

 
 
 
                                                 
In  view  of  rising  youth  unemployment,  the  government  is  currently  deploying  ESF-
supported  measures  to  promote  youth  internships  and  apprenticeships,  and  to  develop 
career advice centres at education institutions and employment offices. These measures 
are  relevant  and  ambitious  but  there  have  been  considerable  delays  in  implementing 
them.  Nor  do  they  sufficiently  differentiate  among  the  needs  of  people  with  different 
levels  of  education,  socio-economic  characteristics,  etc.  A  national  youth  initiative  has 
been launched, following on from the EU Youth on the Move initiative. The government 
aims to set up an inter-institutional task force to coordinate employment, education and 
other  measures  targeting  youth,  and  this  is  a  welcome  integrated  approach.  Secondary 
legislation is currently being drafted with a view to formally launching the initiative and 
making  it  politically  feasible.  Access  to  employment  for  young  persons  could  be 
facilitated  by  encouraging  employers  to  provide  internship  contracts  or  probationary 
periods  as  a  stepping  stone  to  taking  on  young  persons  on  a  permanent  contract.  The 
government is also taking steps to set up the internship contract as a legal form in its own 
right in the Labour Code. 

Bulgaria has the highest rate of people at risk of severe material deprivation in the EU 
(35 %  in  2010,  as  against  the  EU  average  of  8 %).  Bulgaria  has  set  a  common  national 
target  for  reducing  the  number  of  people  at  risk  of  poverty  by  260 000  by  2020.  It  has 
also  formulated  four  sub-targets,  namely  for  children,  the  elderly,  unemployed  and 
employed  persons.  Comprehensive  measures  are  needed  to  fight  poverty  and  social 
exclusion. Social transfers have, so far, had little effect and priority should be given to 
making  them  more  effective.  Bulgaria  is  also  developing  a  national  strategy  for 
combating  poverty  and  social  exclusion.  The  strategy  has  to  address,  in  particular,  the 
high rates of material deprivation of elderly and children, through targeted measures in 
the areas of access to services and income support. 
According to estimates, about 23 % of people entering the labour market are Roma.9 At 
the same time, data from the 2011 national population census show that only half of the 
economically  active  Roma  are  employed.  The  census  also  confirms  that  many  young 
Roma are still not receiving appropriate education: they are dropping out of school at an 
early stage, or not enrolling in school at all. The recently adopted National Strategy for 
Roma Integration aims to overcome the many barriers to the social inclusion of Roma, by 
outlining  key  interventions  in  the  areas  of  employment,  education,  health  and  housing. 
However, in order to be operational, the strategy needs to be underpinned by a detailed 
action plan for the period 2015-2020 which includes clear targets, indicative allocation of 
financial  resources  (both  national  and  EU  Structural  Funds),  baseline  data  and 
monitoring and evaluation tools. 
Bulgaria’s  performance  in  international  education  surveys  (PISA)  is  quite  poor.10 
Education reform has been losing credibility since its first stage in 2008 and legislative 
proposals  have  been  continuously  blocked  in  Parliament.  A  strong  new  impetus  is 
required. The government is currently discussing a new School Education Act which is 
due  to  be  adopted  by  the  end  of  2012.  The  measure  is  intended  to  underpin  a 
comprehensive education strategy and, if implemented, will help improve the quality of 
education  provision  for  young  people,  raising  performance  levels  and  further  adapting 
the  education  and  training  systems.  In  the  meantime,  Bulgaria  has  already  undertaken 

9     World Bank, Roma Inclusion: An economic opportunity for Bulgaria, the Czech Republic, Romania 

and Serbia, September 2010. 

10     According to PISA 2009 results, Bulgaria has the highest share of low achievers in reading (41 %) and 

in mathematics and science (47.1 %) in the EU. 

15

 
 
 
                                                 
some  important  steps.  These  include  broadening  access  to  schools  (equity),  mandatory 
kindergarten  for  five-year-olds,  extending  the  full-day  school  to  an  annual  basis,  and 
doing  more  to  prevent  early  school  leaving.  Several  ESF-supported  measures  to 
modernise Vocational Education and Training (VET) curricula and teaching methods are 
also ongoing. 

In higher education, progress also remains limited. The government plans to enact new 
measures by further amending the existing Law on Higher education, instead of adopting 
a  new  Law,  as  originally  planned.  Some  promising  efforts  have  been  made,  including 
increased  access  to  universities,  student  loans,  links  to  businesses,  more  transparency 
(ranking  system),  incentives  for  performance  and  more  powers  for  institutions  to 
recognise diplomas. While these show that Bulgaria is addressing some of its challenges, 
the  policy  response  and  implementation  record  of  past  announcements  suggest  that 
implementation  will  continue  to  face  constraints,  both  institutional  and  political. 
Moreover,  if  Bulgaria  is  to  match  its  quantitative  targets  with  the  necessary  quality  of 
higher  education  provision,  it  will  need  to  focus  not  only  on  the  scale  but  increasingly 
also on the scope of higher education. The reform of higher education therefore needs to 
be  implemented  as  a  top  priority  for  growth,  and  must  be  accompanied  by  effective 
governance, sufficient investment and the necessary political will. 

Given  the  level  of  ambition  and  the  effectiveness  of  all  the  measures  taken  so  far, 
Bulgaria has only partially addressed the country-specific recommendation relating to the 
labour market. Consequently, it is more difficult for Bulgaria to reach the Europe 2020 
employment  target.  So  far,  the  government  has  not  adopted  an  integrated  approach  to 
youth policies. Major long-term investment in young people is needed, both in education 
and labour market services, and young people must be given appropriate help in making 
the  transition  from  education  to  employment.  With  education  reform  stalled  and  key 
legislation  failing  so  far  in  Parliament,  it  is  more  effective  if  Bulgaria  front-loads 
measures targeting quality, performance levels and equity. 

3.4.  Structural reforms promoting growth and competitiveness 

The  recovery  in  Bulgaria  has  been  rather  slow  and  it  is  lagging  behind  the  rebound  in 
most EU emerging economies. However, after a severe slump in 2009 the export sector 
has  revived,  with  pharmaceuticals,  electrical  machinery  and  vehicles  sectors  taking  the 
lead.  To  enhance  its  growth  potential,  Bulgaria  still  needs  to  tackle  the  challenges 
identified in the European Semester 2011 and the AGS 2012. The country has to speed 
up its modernisation, focusing on improving the business environment and infrastructure, 
strengthening innovation and reducing energy dependency. 

Businesses  find  the  regulatory  environment  unstable  and unpredictable, as laws change 
frequently.  Harmonising  the  national  laws  with  EU  legislation  is  complex  and  leads  to 
contradictions.  Both  at  local  and  national  level,  the  regulatory  regimes  and  permission 
procedures  (e.g.  in  the  construction,  chemistry  and  pharmaceuticals  sectors)  need  to  be 
lightened.  Steps  must  be  taken  to  eliminate  illegal  practices,  to  simplify  and  decrease 
administration fees, to develop more e-government, to ensure a well-functioning Point of 
Single Contact and to put in place across the board the practice of tacit consent. 

Regulated professions such as architects, lawyers and others are subject to regulations on 
legal forms, shareholding and prices which hamper competition. Competition and growth 
in the services sector is also hampered by the absence of a clear distinction between rules 
on  setting  up  a  service  provider  in  Bulgaria  and  rules  on  the  cross-border  provision  of 
services by a provider based in another Member State. 

16

 
 
 
Despite steady progress in the last two years, Bulgaria is still not making much use of EU 
Structural Funds. The administrative procedures are complicated and, at the same time, 
businesses  are  not  finding  the  co-financing  they  need  for  their  projects.  For  SMEs  the 
procedures are quite cumbersome and could last for more than a year. According to data 
from the Bulgarian Ministry of Economic Affairs, 15.5 % of the firms selected for a grant 
within the Operational Programme on Competitiveness, and which had signed a contract 
with  the  managing  authority,  abandoned  their  contract  in  the  early  days  as  they  were 
unable  to  secure  co-financing,  usually  via  a  bank  loan.  Over  the  period  2007-2013, 
around  EUR 900 million  is  being  made  available  to  SMEs  by  the  EU  Structural  Funds, 
the EIB and the Competitiveness and Innovation Programme. Insufficient absorption of 
EU funds also leads to missed opportunities to invest in environmental projects. 

According  to  the  latest  EC-ECB  surveys,  SMEs  encounter  difficulties  in  financing 
innovative projects due to high interest rates and credit tightening, and start-ups do not 
find sufficient funding.11 In 2011, only one in ten SMEs had enough resources to finance 
its  innovation  activities.12  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. The relatively low level of financial 
development shows that there is plenty of scope for growth in this sector, including the 
growth of capital markets which could become crucial in helping Bulgaria catch up. 

Research and innovation 

A major weakness of the Bulgarian economy is the low level of research and innovation 
(R&I).  Both  are  underfunded,  underperforming  and  in  need  of  a  thorough  overhaul. 
Although  R&I  expenditure  in  Bulgaria  is  increasing,  investment  in  this  field  should  be 
raised  dramatically  if  Bulgaria  wants  to  reach  its  2020  target.  In  2011  the  government 
adopted  the  National  Strategy  for  Scientific  Research  to  2020,  which  incorporates 
important elements of innovation policy. Furthermore, the Ministry of Economic Affairs, 
Energy and Tourism has pledged to introduce a new Law on Innovation in 2012 to create 
an  effective  and  up-to-date  innovation  framework  in  Bulgaria.  However,  public  policy 
tends to be unpredictable and there is often a lack of consistency between multi-annual 
strategy documents. 

Innovation  is  increasingly  emerging  from  collaboration  between  enterprises,  research 
establishments  and  higher  education  institutions,  and  human  capital  has  become  a  key 
differentiating  factor  for  innovation.13  However,  Bulgaria  has  no  effective  strategy  for 
innovation.  R&I  administration  in  Bulgaria  is  fragmented,  and  the  two  national 
instruments  in  Bulgaria  —  the  Innovation  Fund  and  the  Science  Fund  —  do  not  work 
well  together.  Nor  are  there  any  frameworks  for  supporting  collaboration  between 
universities and private sector that are trying to innovate. Public policies should help set 
up  long-term  sustainable  partnerships  between  innovators,  address  human  capital 
strategically  and  use the wide network of universities and industrial parks for fostering 
regional  innovation.  Investment  in  education  and  training  as  a  percentage  of  GDP 
increased only slightly over the period 2000-10, but it is still below the EU average with 
few signs pointing to a significant improvement. 

11 In 2009 and 2010, Bulgaria’s share of investment in seed capital and start-ups was significantly lower 
than the EU average (source ECVA). 
12  A  2011  report  from  the  Bulgarian  Small  and  Medium  Enterprises  Promotion  Agency  showed  that  the 
extent to which businesses innovate directly correlates to their access to financing. 
13  See OECD Innovation strategy, 2010 and COM(2010) 546: Innovation Union. 

17

 
 
 
                                                 
When  allocating  funds  to  specific  fields  of  research,  Bulgaria  needs  to  prioritise  more 
effectively,  increase  the  share  of  funding  that  is  allocated  competitively  (now  around 
10 %)  and  make  this  allocation  transparent.  A  step  in  this  direction  was  made  with  the 
ongoing  establishment  of  a  ranking  of  universities  (launched  in  2010).  This  is  already 
providing  the  government  with  a  tool  for  allocating  funding  according  to  universities’ 
achievements.  Further  measures  are  needed  to  facilitate  the  structural  change  towards 
more advanced and knowledge-intensive industries and sectors. The government has also 
signalled  its  intention  to  capitalise  on  the  growth  in  private  R&D  spending  by 
encouraging further investment in the ICT and pharmaceuticals sectors,14 which it sees as 
the main sources of jobs and economic growth. These two main areas align well with the 
priorities  of  the  National  Research  Strategy  and  with  the  focus  of  the  Ministry  of 
Economic  Affairs.  The  establishment  of  the  first  science  and  technology  park  in  Sofia, 
co-financed by the ERDF for around EUR 50 million, deserves government support. 

Energy, transport, broadband infrastructure and environment 

Despite  the  reforms  it  has  initiated,  Bulgaria  still  restricts  companies  from  entering 
network  sectors  such  as  rail  transport,  telecommunications  (e.g.  internet)  and  energy. 
Although the Bulgarian energy sector has in principle been liberalised, in practice there 
are still problems with the way the market functions, at both wholesale and retail levels. 
Concentration in gas supply is particularly high: the market share of the largest company 
bringing  gas  into  the  country  was  97.1 %  in  2010.  Substantial  efforts  are  required  to 
ensure  Bulgaria’s  full  participation  in  the  EU  internal  market  for  energy,  including  the 
full and correct transposition of the Third Energy Package. Until now, Bulgaria has had a 
rather  poor  record  in  implementing  and  applying  EU  energy  legislation.  There  are  five 
ongoing  infringement  procedures  against  Bulgaria  (four  on  the  internal  energy  market 
and one on renewable energy sources). Moreover, Bulgaria should engage proactively in 
the development of target models for electricity and gas. 

Areas of particular concern for improving the functioning of the energy markets include: 
the  lack  of  electricity  and  gas  exchanges  and  of  a  functioning  balancing  market,  the 
separation  of  sales  for  local  demand  and  exports,  the  export  fees  and  licensing 
requirements,  as  well  as  regulated  prices  for  final  consumers.  Furthermore,  Bulgaria 
should ensure regulatory independence for the Transmission System Operators, based on 
the Third Energy Package, and should implement and enforce internal market legislation 
in  the  field  of  consumer  protection.  A  legal  framework  should  be  put  in  place  to 
guarantee the independence of the energy regulator and give it the necessary resources to 
carry out its tasks as defined in the Third Energy Package. The 2012 NRP announces an 
amendment  to  the  law  on  energy  and  includes  concrete  measures  in  these  areas,  but 
without further details, questions relating to efficiency and implementation remain open. 

High  dependency  on  a  single  energy  route  and  a  single  energy  supplier  as  well  as  an 
inadequately  functioning  domestic  energy  market  expose  Bulgaria  to  the  risks  of 
significant supply shocks. Bulgaria should therefore cooperate more actively in creating 
a transparent and integrated regional market for gas and electricity. To further improve 
security of supply and the flexibility of its gas system, Bulgaria needs to comply with the 
EU  security  of  supply  standard,  as  defined  by  the  disruption  of  the  single  largest  gas 
infrastructure (N-1). For that purpose, Bulgaria needs to complete without further delay 

14  Private  R&I  activity  essentially  takes  place  in  information  and  communication  technology, 

pharmaceuticals, electronic equipment and machine building. 

18

 
 
 
                                                 
the  ongoing  investment  projects  on  gas  interconnectors  (in  particular  with  Romania, 
Serbia  and  Greece)  and  make  physical  and  contractual  reverse-flow  possible  on  the 
interconnector with Turkey. It is also necessary to prepare cost effective analysis for the 
upgrade  of  gas  transmission  system  and  for  the  prospects  of  high  value  added  services 
such  as  flexible  gas  storage  capacities.  Bulgaria  needs  to  play  a  more  proactive  part  in 
opening  up  the  Southern  Gas  Corridor,  which  has  the  potential  to  diversify  supply 
sources and routes and to strengthen competition. The Nabucco project could become a 
priority, given its transparent and pro-competitive structure. Existing measures to tackle 
energy dependence are inadequate. So far the construction of new gas infrastructure has 
been slow. The 2012 NRP announces an ambitious target for the interconnector between 
Romania  and  Bulgaria  (beginning  of  2013),  but  no  date  is  provided  for  the  link  with 
Serbia.  Although  some  desirable  reforms  have  been  formally  adopted, 
their 
implementation  remains  unsatisfactory  because  of  procurement,  the  capture  of  public 
policies by private interests and the poor management of state-owned energy companies. 
Investment is being hindered by inappropriate regulation. 

To improve its energy efficiency, Bulgaria adopted the 2011 National Energy Efficiency 
Action  Plan  (NEEAP).  According  to  this  plan,  measures  in  the  fields  of  transport  and 
industry will  generate about two thirds of the energy savings. For public buildings  and 
industrial  sites,  the  NEEAP  provides  for  a  combination  of  energy  saving  obligations, 
mandatory  audits  and  energy  management.  One  of  the  key  measures  will  be  the 
imposition  of  individual  energy  saving  targets  on  owners  of  such  dwellings.  The  EU 
Structural Funds are expected to co-finance national energy efficiency projects. Although 
these  measures  are  important,  the  NEEAP  is  rather  unambitious:  many  of  the  planned 
measures  are  not  due  to  start  until  after  2012.  Low  administered  prices  for  electricity 
reduce  incentives  to  use  energy  efficiently.  To  ensure  that  the  planned  measures  are 
implemented  properly  and  on  time,  the  government  should  allocate  sufficient  human 
resources  to  the  responsible  bodies  mentioned  in  the  NEEAP.  As  regards  the  energy 
efficiency of buildings, the authorities have decided to improve the procedures and rules 
for allocating, controlling and metering the consumption of energy for heating in multi-
family residential buildings. This is in response to a relatively high number of complaints 
from citizens about the rules for allocating the costs of heating these buildings. Although 
this  is  a  positive  move,  it  remains  questionable  whether  it  guarantees  clear  and 
understandable billing for individual heat consumption. 

Efficient  and  well-maintained  transport  infrastructure  networks  help  ensure  improved 
access  to  the  EU  single  market.  They  enhance  growth  and  competitiveness  and  attract 
foreign investment. Currently, administrative capacity is insufficient to properly manage 
and maintain the road, rail and water infrastructure. National and trans-European network 
(TEN)  transport  infrastructure  is  still  characterised  by  bad  connections  and  insufficient 
rehabilitation  and  maintenance.  This  is  especially  serious  in  the  case  of  the  railways, 
which in the last two decades have seen their performance decline and have lost market 
share  for  both  freight  and  passenger  transport.  The  high  infrastructure  charges  and  the 
need to pay access charges exclude freight traffic from using rail. On inland waterways, 
bottlenecks on the Danube hamper the flow of traffic, especially when the water level is 
low.  This could  be addressed by improved maintenance and by upgrading a number of 
sections.  The national and cross-border motorway network also needs to be completed. 
Intermodality  for  passenger  and  freight  should  also  be  enhanced  by  investing  in 
dedicated  terminals.  Public  administrative  capacity  in  key  transport  sectors  and 
regulatory  authorities  needs  to  be  strengthened  to  make  public  services  more  effective. 
Although  some  first  steps  have  been  taken,  the  necessary  changes  are  not  yet  in  place. 
The government should make optimal use of EU Funds to co-finance the construction of 
19

 
 
 
transport and waterway projects, and to provide technical assistance to support reforms. 

While EU Member States differ in their ability to control State Aid enforcement from an 
institutional  (coordination  functions)  and  performance  (quality  of  notifications, 
administrative capacity, length of delays etc.) perspective and as regards compliance with 
State aid rules, Bulgaria is among the better performers with the EU and should remain 
committed to maintaining and improving its performance. 

Despite  acknowledging  the  high  energy  intensity  especially  of  the  transport  sector  in 
Bulgaria, the government has not put forward specific measures addressing this problem 
in  the  2012  NRP.  In  addition,  no  specific  efforts  are  reported  to  translate  climate  and 
energy policies into sustained economic development, job creation and social inclusion. 
It has to be noted nonetheless that Bulgaria is planning to adopt a Climate Change Law 
that  should  address  all  sectors  with  significant  emissions  and  create  a  link  between 
economic and climate-compatible development, highlighting the cross benefits. 

The  deployment  of  broadband  in  Bulgaria  is  one  of  the  lowest  in  the  EU  at  15.6 %.15 
Although  broadband  speeds  in  cities  (a  quarter  of  lines  have  30  Mbps  or  more)  are 
among the highest in the EU, the rural broadband coverage is the lowest in the EU and 
there  are  no  plans  for  publicly-funded  projects  to  address  this  situation.  Although  the 
government  has  adopted  an  ambitious  national  strategy  for  broadband  access  (2010-
2013), none of the EU funds allocated to broadband had been used by the end of 2010. 
Bulgaria also needs to incentivise private investment in broadband networks by reducing 
civil  engineering  costs,  easing  infrastructure  sharing  arrangements,  coordinating  public 
works and facilitating the acquisition of rights of way. The release of the 800 MHz band 
for  wireless  broadband  is  planned  only  after  2017  (instead  of  end  2012).  An  earlier 
release  of  the  800  MHz  band  for  wireless  broadband  would  help  reducing  the  digital 
divide,  introduce  more  choice  in  the  provision  of  broadband  and  enable  innovation  in 
other sectors. 

Bulgaria is ranked at the bottom in the EU for waste management. It generates more total 
waste  per  capita  than  any  other  EU  country,  and  it  landfills  almost  all  its  municipal 
waste.  There  are  persistent  severe  problems  with  landfilling  capacity  (e.g.  in  Sofia), 
while more resource efficient options for waste treatment are not developed. Bulgaria has 
not met the deadline to transpose the EU’s Waste Framework Directive into national law 
and has planned the adoption of a new Law on Waste Management in 2012. Its recycling 
targets are unlikely to be met without significant efforts to increase recycling capacities 
and considerably reduce landfilling over the next few years. The potential of economic 
instruments  such  as  disposal  taxes,  pay-as-you-throw  schemes,  and  producer  pays 
principles  can  be  further  explored.  Full  implementation  of  the  existing  EU  legislation 
could create more than 14 000 jobs and increase the annual turnover of the waste sector 
by more than EUR 1.5 billion.16 Moving towards eliminating landfill and limiting energy 
recovery to recyclable waste (milestones in the roadmap for a resource-efficient Europe 
could further increase these benefits. 

Taking  into  account  all  the  measures  taken  and  launched  so  far,  the  country-specific 
recommendations  on  the  business  environment  and  energy  have  been  partially 
implemented.  The  share  of  renewable  energy  has  increased,  but  the  related  regulatory 
framework  needs  further  improvement.  Limited  progress  has  been  made  on  innovation 

15 Take-up is on the increase, but not quickly enough to catch up with the rest of Europe (27.2 %). 
16 According to the EC study ‘Implementing EU waste legislation for green growth’. 

20

 
 
 
                                                 
and  infrastructure.  Although  various  action  plans  to  improve  the  business  environment 
are ongoing, companies and citizens do not yet see any improvement in public services. 

3.5.  Modernisation of public administration 

Administrative  reform  has  focused  mainly  on  reducing  public  sector  staff,  with  limited 
attempts to remove other sources of inefficiency. The government undertook a systemic 
review of the functions in the central administration and its de-concentrated bodies. The 
series of measures removing overlapping functions and streamlining business processes 
are expected to have a positive effect on government efficiency. Action at local level has 
so  far  focused  on  budget  cuts,  which  together  with  the  lack  of  effective  fiscal 
decentralisation, make it more difficult for local authorities to carry out their increasing 
responsibilities. Municipalities have had no serious planning role in the current structural 
and cohesion funds system and their capacity as beneficiaries remains insufficient. The 
EU  Funds  implementation  system  continues  to  struggle  with  unnecessary  bureaucracy 
and poor understanding of sound financial management, which keeps overall absorption 
still below 20%. 

According to the national reform programme, the government implemented 91 measures 
(70%) from its plan for reducing the administrative burden. Also, a methodology for the 
cost-based  calculation  of  fees  for  administrative  services  has  been  developed  and  will 
come into operation in 2013. According to the government, this methodology is expected 
to  save  businesses  and  citizens  between  EUR  26  and  102  million.  However,  for  this 
reform to succeed, the government needs to provide detailed supporting guidelines and 
extensive  staff  training,  and  closely  monitor  the  implementation.  In  addition,  the 
regulatory impact of this reform on business and, in particular, on SMEs is unclear and 
unpredictable.  The  mandatory  ex-ante  impact  assessment  of  regulatory  acts  will  not  be 
implemented until 2014. 

Well-functioning one-stop shops could significantly facilitate administrative procedures 
for businesses. The Bulgarian Point of Single Contact mainly acts as a signpost. It does 
not give access to electronic services, but provides information on how to complete the 
necessary administrative procedures. A few of these procedures can be completed online, 
via  the  websites  of  the  responsible  authorities,  but  steps  should  be  taken  to  make  the 
information clearer and online completion easier for foreign users. 

The implementation of e-government has been delayed many times, but it has been a key 
priority for the government since 2011. Several measures from the national e-government 
strategy  are  currently  implemented,  however  it  is  too  early  to  assess  their  impact.  At 
present,  the  number  of  electronic  services  is  limited  and  they  are  not  sufficiently  user-
friendly  according  to  citizens  and  business.  The  use  of  electronic  procurement  is  also 
limited, and it is unavailable at the bid submission phase. 

In 2011 all preparatory measures were put in place to launch the system of performance-
based  remuneration  for  civil  servants.  Key  to  its  success  will  be  how  well  the 
government implements the framework for assessing staff performance. Training on this 
topic was organised for management at different levels. It is still too early to assess the 
effects of this reform and whether the new remuneration system removes the serious gaps 
in pay among similar types of administration. 

In  2011,  Bulgaria  adopted  two  important  pieces  of  legislation  to  help  the  authorities 
monitor  public  procurement  practice  and  thus  prevent  and  sanction  irregularities.  One 
new law extends the scope of ex ante control by the Public Procurement Agency (PPA) 
to  more  procedures,  and  increases  the  agency’s  staffing  level.  A  second  law,  updating 

21

 
 
 
previous  legislation  on  State  Financial  Inspection,  gives  the  State  Financial  Inspection 
Agency  (SFIA)  greater  responsibility  for  post-award  verification  by  providing  for 
systematic ex post control based on risk assessment. The changes introduced by the new 
legislation are a first important step towards better procurement practice. To be fruitful, 
however, these efforts need to be complemented on two fronts: (i) the sanctions provided 
for need to be effectively applied if they are to have a tangible dissuasive effect, and (ii) 
both agencies should be entrusted with ex officio powers. 

As  regards  the  administration  of  justice,  under  the  Cooperation  and  Verification 
Mechanism17  the  Commission  reports  every  six  months  on  Bulgaria’s  progress  with 
judicial reform, the fight against corruption and the fight against organised crime. 

17 C (2006) 6570 final: 
http://ec.europa.eu/enlargement/pdf/bulgaria/bg_accompanying_measures_1206_fr.pdf 

22

 
 
 
 
                                                 
4.  OVERVIEW TABLE 

2011 commitments 

Summary assessment 

1: 

effective 

Proceed  with 

Country-specific recommendations (CSRs) 
CSR 
budget 
implementation so as to correct the excessive deficit 
in 2011, in line with the Council Recommendation of 
13  July  2010  under  the  EDP.  Specify  the  measures 
underpinning  the  budgetary  strategy  for  2012-2014. 
Take  advantage  of  the  economic  recovery  to  ensure 
adequate  progress 
the  medium-term 
towards 
objective,  primarily  by  keeping  tight  control  over 
expenditure  growth,  while  prioritising  growth-
enhancing expenditure. 

and 

2 % 

limiting 

the  pension 

Bulgaria has implemented the CSR. 
Bulgaria has managed to correct its excessive 
deficit  in  2011,  with  the  fiscal  outcome 
declining  to  2.1 %  of  GDP.  The  2011  budget 
execution  shows  tight  government  control 
over  expenditure  in  capital,  compensation  of 
employees  and  subsidies.  The  budget  law  for 
2012  sets  a  budget  deficit  target  of  1.5 %  of 
GDP for 2012. According to the Commission 
services’ spring forecast, Bulgaria is expected 
to further reduce the general budget deficit in 
2012 and 2013. 
Bulgaria has partially implemented the CSR. 
A  requirement  to  keep  the  budget  deficit 
government 
below 
expenditure  to  40 %  of  GDP  were adopted as 
an  amendment  to  the  Organic  Budget  Law, 
thus  strengthening  the  binding  nature  of  the 
fiscal  framework.  Going  forward,  efforts 
could be geared towards further improving the 
content  of 
the  medium-term  budgetary 
framework,  including  by  strengthening  the 
budgetary process and the quality of reporting. 
Bulgaria has partially implemented the CSR. 
The  government  has  considerably  accelerated 
some  of 
reform  measures, 
including  those  on  the  pensionable  age  for 
both  men  and  women  and  on  the  length  of 
service  for  army  and  police  employees.  A 
further review of special pension regimes and 
the  current  rules  for  determining  invalidity 
pensions will be needed, to raise the effective 
retirement age and reduce early retirement. 
Bulgaria has partially implemented the CSR. 
Wage  growth  slowed  down  after  the  crisis  in 
Bulgaria,  bringing  it  broadly  into  line  with 
productivity  growth.  Measures  undertaken  by 
the  government  to  freeze  public  sector  wage 
bill  in  2010,  2011  and  2012  have  been  a 
also 
adequate 
relevant 
contributing to bringing wage and labour costs 
closer  to  productivity.  However,  the  main 
factor  behind  the  increase  in  productivity  is 
the sharp decline in employment. 
Bulgaria has partially implemented the CSR. 
Implementation of labour market programmes 
and  measures 
is  positive  but 
in  2011 
insufficient.  On  public  employment  services, 
progress  is  unconvincing  since  there  have 
their 
been  no  major 
institutional 
reform 
should  focus  in  particular  on  quality  aspects, 
by  urgently  adopting  the  laws  on  school  and 
high-school  education  and  by  introducing 
to  modernise 
accompanying  measures 

capacity.  Education 

improvements 

response, 

and 

in 

to 

further  steps 

in  particular  by 

the 
CSR  2:  Take 
improve 
predictability  of  budgetary  planning  and 
the 
implementation  control,  including  on  an  accruals 
basis, 
fiscal 
governance.  To  this  end,  design  and  put  in  place 
binding fiscal rules and a well-defined medium-term 
budgetary framework that ensures transparency at all 
government levels. 

strengthening 

CSR  3:  Implement  the  agreed  steps  with  social 
partners  under  the  current  pension  reform,  advance 
some of its key measures that would help to increase 
the  effective  retirement  age  and  reduce  early  exit, 
such  as  through  the  gradual  increase  of  the  social 
insurance length of service, and strengthen policies to 
help older workers to stay longer in employment. 

CSR  4:  Promote,  in  consultation  with  the  social 
partners  and  in  accordance  with  national  practices, 
policies  to  ensure  that  wage  growth  better  reflects 
developments 
sustain 
competitiveness  while  paying  attention  to  on-  going 
convergence. 

productivity 

and 

in 

CSR  5:  Take  steps  to  address  the  challenge  of 
combating  poverty  and  promoting  social  inclusion, 
especially  for  vulnerable  groups  facing  multiple 
barriers.  Take  measures  for  modernising  public 
employment  services  to  enhance  their  capacity  to 
match skills profiles with labour market demand; and 
focusing  support  on  young  people  with  low  skills. 
Advance  the  educational  reform  by  adopting  a  Law 
on  Pre-School  and  School  Education  and  a  new 
Higher Education Act by mid-2012. 

23

 
 
 
CSR  6:  Step  up  efforts  to  enhance  administrative 
capacity in key government functions and regulatory 
authorities,  in  order  to  make  public  services  more 
effective  in  responding  to  the  needs  of  citizens  and 
implement  effectively 
businesses; 
measures to check public procurement on the basis of 
risk  assessments,  strengthen  the  capacity  of  the 
authorities  to  prevent  and  sanction  irregularities,  in 
order to improve quality and value-for-money in the 
use of public funds. 

introduce  and 

CSR  7:  Abolish barriers to entry, guaranteed profits 
arrangements  and  price  controls  and  ensure  full 
independence  of  the  Bulgarian  Energy  Regulator,  in 
order  to  open  up  the  electricity  and  gas  markets  to 
greater  competition.  Introduce  incentives  to  upgrade 
the energy efficiency of buildings. 

to 

public 

implementation 

teaching  curricula  and  to  improve  higher 
education governance. 
Bulgaria has partially implemented the CSR. 
Some  progress  has  been  made  on  a  new 
remuneration system for civil servants and on 
implementing  the  Action  Plan  for  optimising 
the  state  administration,  but  it  is  too  early  to 
make  an  assessment.  The  Structural  and 
Cohesion  Funds 
system 
continues 
struggle  with  unnecessary 
bureaucracy and poor understanding of sound 
financial  management.  Bulgaria  adopted  two 
important  pieces  of  legislation  to  help  the 
procurement 
authorities  monitor 
sanction 
prevent 
and 
practice 
irregularities.  However, 
adopted 
legislation  is  only  the  first  step  in  ensuring 
sound and efficient procurement practice. 
Bulgaria has partially implemented the CSR. 
the 
One  positive  development 
the 
to 
authorities  have  decided 
procedures 
allocating, 
for 
rules 
controlling and metering heat consumption in 
multi-family  residential  buildings.  However, 
substantial  efforts  are  required  from  Bulgaria 
to  ensure  its  full  participation  in  creating  a 
functioning internal market for energy. Topics 
of particular concern are the lack of electricity 
and  gas  exchanges  and  of  a  functioning 
balancing  market,  and  regulated  prices  for 
final consumers. 

that 
is 
improve 

and 
the 

and 

Euro Plus Pact (national commitments and progress) 

recent 

include 

Commitments  to  further  improve  public  finance 
sustainability 
reform 
measures,  tightening  the  eligibility  requirements  for 
receiving  early  retirement  pension,  postponing  the 
indexation  of  pensions  until  2013  and  adopting  a 
Financial Stability Pact with binding fiscal numerical 
rules. 

pension 

to 

foster  employment 

focus  on 
Commitments 
the  share  of  undeclared  employment, 
reducing 
integrating  disadvantaged  groups 
labour 
market,  activation  of  unemployed  and  economically 
inactive  individuals  of  working  age,  enhancing  the 
efficiency  of  the  employment  services,  developing  a 
Plan in pursuance of the National Lifelong Learning 
Strategy  2012–2013  and  preserving  the  low  tax 
burden. 

the 

in 

to  keep 

commitments 

The  public  finance  commitments  have  been 
partially implemented. 
the  consolidated 
A  requirement 
budget  deficit  below  2 %  and 
limit 
to 
government  expenditure  to  40 %  of  GDP  had 
already  been  adopted  by  amending 
the 
Organic  Budget  Law.  As  of  1  January  2012, 
the  length  of  service  for  workers  in  the  third 
labour  category  increased  by  4  months  every 
calendar  year  until  it  reaches  37  years  for 
women  and  40  years  for  men  in  2020.  The 
2012  budget  provides  for  no  indexation  of 
pensions. 
The 
implemented. 
The  government  adopted  a  National  Strategy 
for  Roma  Integration  which  plans  concrete 
measures to give Roma people better access to 
education  and  employment.  A  number  of 
programmes are under way, most importantly 
ESF-funded 
bringing 
unemployed  people  into  the  labour  market. 
They 
and 
several 
apprenticeship programmes for young persons 
entering the labour market. A model for mid-
term  skills  forecasting  is  being  developed, 
complemented  by  a  shorter-term  ‘barometer’ 
model. The new remuneration model has been 

traineeship 

schemes 

include 

partly 

been 

have 

for 

24

 
 
 
 
the  Services  Directive;  reducing 

Commitments to foster competitiveness in the public 
sector (introducing performance-based pay); business 
environment  (establishing  Single  Contact  Points  in 
line  with 
the 
administrative burden; enhancing e-governance); and 
education  and  science  sector  (providing  student 
scholarships;  setting  up  career  development  centres; 
compulsory  pre-school  education;  setting  up  a 
ranking  system  for  universities;  adopting  a  Law  on 
Innovation;  setting  up  entrepreneurship  centres  at 
high  schools;  developing  a  roadmap  for  research 
infrastructure). 
Measures  to  reinforce  financial  stability,  aimed  at 
the 
stabilising 
banking  sector,  fully  corresponding  to  the  EU 
requirements  and  legal  framework.  Regularly  carry 
out stress tests. 

the  financial  and, 

in  particular, 

finalised. 
The  commitments  on  competitiveness  have 
been partly implemented. 
The Roadmap for Research Infrastructure has 
been adopted; it outlines the priority areas and 
structures. The Point of Single Contact mainly 
acts as a signpost but allows some procedures 
to  be  completed  online.  Its  development 
should  be  supported.  The  implementation  of 
e-governance  has  experienced  significant 
delays so far. 

been 

have 

fully 

commitments 

The 
implemented. 
The  average  capital  adequacy  ratio  has  been 
stable  over  the  last  two  years  and  currently 
stands  at  a  comfortable  level.  Banks  benefit 
from  good  liquidity  conditions,  thanks  to  a 
noticeable  increase  in  domestic  deposits  and 
to broadly stable foreign liabilities. 

Europe 2020 (national targets and progress) 

Employment rate target (in %) as set in the 2011 
NRP: 76 % 

R&D target (in %) as set in the 2011 NRP: 
1.5 % GDP  

Greenhouse gas (GHG) emissions target: +20 % 
(compared to 2005 emissions, ETS emissions are not 
covered by this national target) 
Renewable energy target as set in the 2011 NREAP: 
16 % 

Energy efficiency: reduction in primary energy 
consumption by 202020 
3.2 MToe 

Early school leaving target (in %): 
11 % 

Employment rate (%) 2010: 65.4 %. No 
progress has been made towards achieving the 
target. 
Gross domestic expenditure on R&D (in % of 
GDP) 2010: 0.6 %  
No progress has been made towards achieving 
the target.  
Change in greenhouse gas emissions between 
2005 and 2010: -9 % (this data corresponds to 
the current ETS scope) 
2009: 11.6 %18 ; 2010: 12.6 %19 
Progress has been made towards achieving the 
2020 target. As of 2009, Bulgaria had already 
achieved its 2011/2012 interim target. 
n.a.  The  energy  efficiency  objectives  are  set 
according 
to  national  circumstances  and 
national formulations. The Commission is not 
yet  able  to  present  an  overview,  as  the 
methodology  for  expressing  the  2020  energy 
consumption  impact  in  the  same  format  was 
agreed only recently. 

Early leavers from education and training 
(percentage of the population aged 18-24 with 
at most lower secondary education and not in 
further education or training) 
2010: 13.9 %. In 2010 the percentage of early 
school leavers was slightly below the EU 
average. Bulgaria has made some progress 
towards reducing the rate of early school 
leavers in the period 2007-10. 

18 Eurostat data. 
19 Estimated by the Member State progress report. 
20 As estimated by the European Commission. 

25

 
 
 
 
                                                 
Tertiary education target (in %): 
36 % 

Target on the reduction of population at risk of 
poverty in number of persons: 
Decrease by 260 000 

Tertiary educational attainment 
2010: 27.7 %. Tertiary attainment in Bulgaria 
is still below the EU average. A certain degree 
of progress has been made towards achieving 
the target in the period 2007-10. 
1 632 000 (2008). Some progress has been 
made towards achieving the target; in 2010 
the number of people at risk of poverty was 
reduced to 1 565 000. 

26

 
 
 
 
5.  ANNEX 

Table I. Macroeconomic indicators 

1995-
1999 

2000-
2004 

2005-
2008 

2009 

2010 

2011 

2012 

2013 

1.7 
-3.1 
3.4 
-0.6 
11.2 
20.9 
24.8 

-2.1 
16.3 
n.a 
33.1 
35.2 
0.6 

n.a 

n.a 
n.a 
n.a 
n.a 

n.a 
n.a 
n.a 
n.a 
n.a 
n.a 

3.7 

2.8 

n.a 
n.a 
9.7 
23.3 

0.2 
54.4 
7.1 
40.0 
39.8 
3.0 

-4.3 
14.6 
5.8 
36.3 
40.7 
0.8 

-3.2 
87.4 
n.a 
37.2 
40.3 
9.7 

1.4 
20.0 
7.6 
38.9 
37.4 
1.2 

-3.1 
16.3 
2.7 
34.3 
37.4 
0.6 

-0.7 
-1.7 
10.6 
1.2 
13.3 
13.6 
15.4 

0.4 
-4.1 
3.0 
-4.8 
10.2 
22.8 
22.5 

5.4 
1.6 
6.4 
7.6 
16.0 
18.3 
15.3 

6.4 
3.7 
8.2 
8.9 
7.9 
28.9 
13.4 

-7.5 
-
153.4 
-23.5 
26.9 
30.3 

-5.5 
-3.4 
2.5 
-12.8 
6.8 
28.9 
20.4 

Core indicators 
GDP growth rate 
Output gap 1 
HICP (annual % change) 
Domestic demand (annual % change) 2 
Unemployment rate (% of labour force) 3 
Gross fixed capital formation (% of GDP) 
Gross national saving (% of GDP) 
General government (% of GDP) 
Net lending (+) or net borrowing (-) 
Gross debt 
Net financial assets  
Total revenue  
Total expenditure 
  of which: Interest 
Corporations (% of GDP) 
Net lending (+) or net borrowing (-) 
Net financial assets, non-financial 
corporations 
Net financial assets, financial corporations 
Gross capital formation 
Gross operating surplus 
Households and NPISH (% of GDP) 
Net lending (+) or net borrowing (-) 
Net financial assets 
Gross wages and salaries 
Net property income 
Current transfers received 
Gross saving 
Rest of the world (% of GDP) 
Net lending (+) or net borrowing (-) 
Net financial assets 
Net exports of goods and services 
Net primary income from the rest of the world 
Net capital transactions  
Tradable sector 
Non-tradable sector 
  of which: Building and construction sector 
Real effective exchange rate (index, 2000=100) 
Terms of trade in goods and services (index, 
2000=100) 
Market performance of exports (index, 
2000=100) 
Notes: 
1 The output gap constitutes the gap between actual and potential gross domestic product at 2000 market prices. 
2 The indicator for domestic demand includes stocks. 

-4.8 
14.7 
-8.9 
0.6 
0.2 
51.6 
35.6 
4.4 
108.4 

-19.3 
109.2 
-18.2 
-3.6 
0.1 
47.5 
36.5 
6.4 
126.0 

-7.6 
119.4 
-8.8 
-2.2 
1.4 
45.3 
40.6 
7.9 
153.7 

0.3 
115.0 
-1.9 
-2.0 
0.7 
46.4 
39.7 
6.2 
158.1 

-0.7 
n.a 
0.8 
-2.8 
0.0 
56.4 
34.8 
4.4 
86.8 

7.8 
-
192.5 
14.8 
17.1 
32.2 

1.6 
-
192.7 
11.3 
21.2 
30.5 

-12.9 
62.4 
31.2 
0.4 
13.1 
-11.2 

-5.4 
65.8 
31.6 
0.1 
15.3 
-2.2 

-4.4 
n.a 
27.2 
6.5 
11.8 
-2.4 

-5.3 
60.9 
32.8 
0.0 
15.2 
-1.8 

-7.3 
49.6 
16.1 
0.2 
9.5 
-6.8 

-69.0 
0.1 
9.7 
18.0 

128.0 

113.6 

123.0 

137.4 

143.3 

100.4 

104.9 

107.3 

109.9 

90.9 

2.9 
n.a 
0.7 
-2.6 
1.2 
47.9 
38.2 
5.6 
162.4 

110.4 

155.7 

0.5 
-3.3 
2.6 
0.0 
12.0 
20.7 
23.5 

-1.9 
17.6 
n.a 
33.3 
35.2 
0.8 

1.9 
-2.5 
2.7 
2.2 
11.9 
21.3 
23.1 

-1.7 
18.5 
n.a 
33.6 
35.3 
1.0 

n.a 

n.a 

n.a 
n.a 
n.a 
n.a 

n.a 
n.a 
n.a 
n.a 
n.a 
n.a 

1.9 
n.a 
1.1 
-5.0 
1.3 
n.a 
n.a 
n.a 

n.a 
n.a 
n.a 
n.a 

n.a 
n.a 
n.a 
n.a 
n.a 
n.a 

1.2 
n.a 
0.4 
-5.3 
1.4 
n.a 
n.a 
n.a 

163.6  166.5 

110.3  109.6 

159.5  161.5 

27

 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working 
immediately or within two weeks. The labour force is the total number of people employed and unemployed. The unemployment rate 
covers the age group 15-74. 
Source:  

Commission spring 2012 forecast 

28

 
 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change) 
Private consumption (% change) 
Gross fixed capital formation (% change) 
Exports of goods and services (% change) 
Imports of goods and services (% change) 
Contributions to real GDP growth: 
- Final domestic demand 
- Change in inventories 
- Net exports 
Output gap1 
Employment (% change) 
Unemployment rate (%) 
Labour productivity (% change) 
HICP inflation (%) 
GDP deflator (% change) 
Comp. of employees (per head, % change) 
Net lending/borrowing vis-à-vis the rest of 

the world (% of GDP) 

2011 

2012 

2013 

CO
M 
1.7 
-0.6 
-9.7 
12.8 
8.5 

-2.5 
1.8 
2.3 

-3.1 
-4.2 
11.2 
6.1 
3.4 
5.0 
7.3 
2.9 

CP 

1.7 
-0.6 
-9.7 
12.8 
8.5 

-2.5 
1.8 
2.3 

-3.2 
-4.2 
11.2 
6.1 
3.4 
5.0 
7.3 
3.2 

CO
M 
0.5 
0.6 
-2.2 
3.3 
2.7 

0.0 
0.0 
0.5 

-3.3 
-1.9 
12.0 
2.4 
2.6 
3.3 
5.2 
1.9 

CP 

1.4 
0.6 
7.1 
3.7 
3.6 

2.0 
-0.7 
0.1 

-3.0 
-0.2 
11.3 
1.6 
2.1 
2.9 
3.3 
2.6 

CO
M 
1.9 
1.9 
3.6 
5.2 
5.6 

2.1 
0.0 
-0.2 

-2.5 
-0.2 
11.9 
2.1 
2.7 
2.9 
5.1 
1.2 

CP 

2.5 
2.3 
5.9 
4.2 
5.0 

2.9 
0.0 
-0.5 

-2.1 
0.8 
10.9 
1.7 
2.4 
2.9 
5.2 
1.3 

2014 
CP 

2015 
CP 

3.5 
3.9 
7.3 
4.4 
5.8 

4.4 
0.1 
-1.0 

-0.7 
1.1 
10.4 
2.4 
2.5 
2.8 
6.4 
0.4 

4.0 
4.6 
8.2 
4.4 
6.0 

5.2 
0.1 
-1.2 

1.0 
1.2 
9.8 
2.8 
2.5 
2.7 
7.5 
-0.1 

Note: 
1In per cent of potential GDP, with potential GDP growth according to the programme as recalculated by the Commission. 

Source: 

Commission spring 2012 forecasts (COM); Convergence programme (CP). 

29

 
 
 
  
  
  
  
  
  
  
  
  
  
 
Table III. Composition of the budgetary adjustment 

2011 

2012 

2013 

2014 

2015  Change: 

(% of GDP) 

Revenue 
of which: 
- Taxes on production and imports 
- Current taxes on income, wealth, 

etc. 

- Social contributions 
- Other (residual) 
Expenditure 
of which: 
- Primary expenditure 

of which: 
Compensation of employees 
Intermediate consumption 
Social payments 
Subsidies 
Gross fixed capital formation 
Other (residual) 
- Interest expenditure 
General government balance 

(GGB) 

Primary balance 
One-off and other temporary 

measures 

GGB excl. one-offs 
Output gap2 
Cyclically adjusted balance2 
Structural balance3 
Change in structural balance 
Structural primary balance3 
Change in structural primary 

balance 

Expenditure benchmark 
Public expenditure growth4 (real) 
Reference rate5,6 
Lower reference rate5,7 
Deviation in % of GDP  

   from applicable reference rate 

Two-year average deviation in % 

of GDP  
   from applicable reference rate 

COM  COM 
33.3 
33.1 

CP 
36.3 

COM 
33.6 

CP 
35.7 

CP 
34.0 

CP 
33.1 

14.6 

14.6 

15.0 

14.7 

15.1 

15.1 

15.1 

4.8 
7.3 
6.4 
35.2 

4.9 
7.3 
6.6 
35.2 

5.0 
7.1 
9.2 
37.9 

4.9 
7.3 
6.7 
35.3 

5.1 
7.0 
8.5 
37.0 

5.1 
6.8 
7.0 
34.5 

5.1 
6.7 
6.2 
33.1 

34.6 

34.4 

37.0 

34.4 

35.9 

33.6 

32.2 

8.9 
5.8 
13.7 
0.9 
3.2 
2.1 
0.6 

-2.1 
-1.5 

0.0 
-2.1 
-3.1 
-1.0 
-1.0 

-0.3 

8.7 
5.8 
13.5 
1.0 
3.3 
2.1 
0.8 

-1.9 
-1.1 

0.0 
-1.9 
-3.3 
-0.7 
-0.7 
0.3 
0.1 

8.5 
5.9 
13.7 
1.1 
5.9 
2.0 
0.9 

-1.6 
-0.7 

0.0 
-1.6 
-3.0 
-0.6 
-0.6 
0.4 
0.3 

8.6 
5.8 
13.3 
1.0 
3.6 
2.1 
1.0 

-1.7 
-0.7 

0.0 
-1.7 
-2.5 
-0.8 
-0.8 
-0.1 
0.2 

8.1 
5.6 
13.3 
1.4 
5.6 
1.9 
1.1 

-1.3 
-0.2 

0.0 
-1.3 
-2.1 
-0.6 
-0.6 
0.0 
0.5 

7.7 
5.3 
12.8 
1.3 
4.6 
1.8 
0.9 

-0.5 
0.3 

0.0 
-0.5 
-0.7 
-0.2 
-0.2 
0.3 
0.7 

7.6 
4.7 
12.3 
1.4 
4.3 
1.8 
0.9 

0.0 
0.9 

0.0 
0.0 
1.0 
-0.3 
-0.3 
-0.1 
0.6 

0.5 

0.6 

0.0 

0.2 

0.1 

-0.1 

-1.74 
2.57 
1.15 
-1.02 

-10.98 
2.57 
1.15 
-4.45 

0.18 
2.57 
1.15 
-0.33 

-2.03 
2.57 
1.15 
-1.46 

-0.38 
2.57 
1.15 
-0.89 

5.21 
2.57 
1.15 
0.76 

n.a. 

n.a. 

-0.68 

-2.96 

-1.18 

-0.06 

2011-
2015 

CP 
0.0 

0.5 

0.3 
-0.6 
-0.2 
-2.1 

-2.4 

-1.3 
-1.1 
-1.4 
0.5 
1.1 
-0.3 
0.3 

2.1 
2.4 

0.0 
2.1 
4.0 
0.7 
0.6 

0.9 

- 
- 
- 
- 

- 

Notes: 
1On a no-policy-change basis. 
2Output gap (in % of potential GDP) and cyclically adjusted balance according to the programme as recalculated by the 

Commission on the basis of the information in the programme. 

3Structural (primary) balance = cyclically adjusted (primary) balance excluding one-off and other temporary measures. 
4Modified expenditure aggregate used for the expenditure benchmark, growth rates net of non-discretionary changes in 

unemployment benefit and of discretionary measures. 

5The reference rates applicable to 2014 onwards will be available from mid-2012. For illustrative purposes, the current 

reference rates have also been applied to the years 2014 onwards. 

6The (standard) reference rate applies starting in the year following the one in which the country reaches its MTO. 
7The lower reference rate applies as long as the country is adjusting towards its MTO, including the year in which it reaches 

the MTO. 

Source: Convergence programme (CP); Commission spring 2012 forecasts (COM); Commission calculations. 

30

 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
Table IV. Debt dynamics 

(% of GDP)

Gross debt ratio1
Change in the ratio
Contributions 2 :

1. Primary balance
2. “S now-ball” effect

Of which:
Interest expenditure
Growth effect
Inflation effect

3. S tock-flow adjustment

Of which:
Cash/accruals diff.
Acc. financial assets
Privatisation

Val. effect & residual

(% of GDP)

Gap to the debt benchmark5,6
S tructural adjustment7
To be compared to:
Required adjustment8

average 
2006-10
16.7
-2.2

-0.4
-0.8

1
-0.6
-1.1
-1

-

-
-

2011

16.3
0.1

1.5
-0.4

0.6
-0.3
-0.8
-1

COM
17.6
1.3

1.1
0.2

0.8
-0.1
-0.5
0

2012

2013

CP
19.8
3.4

0.7
0.2

0.9
-0.2
-0.5
2.5

0
3
0.2
0.1

4

SP

COM
18.5
0.9

0.7
0.2

1
-0.3
-0.5
0

2013
3

COM/SP

CP
18.4
-1.4

0.2
0.1

1.1
-0.5
-0.5
-1.7

0
-2.5
0.2
0.1

4

SP

2014
CP
18
-0.4

-0.3
-0.3

0.8
-0.6
-0.5
0.2

0
-1.9
0.2
0.1

2015
CP
16.4
-1.6

-0.9
-0.2

0.9
-0.7
-0.5
-0.5

0
-3.5
0
0.1

2014
4

SP

2015
4

SP

2011

2012
3

COM/SP

Notes:
1End of period.
2The snow-ball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth and inflation on the 
3Assessment of the consolidation path set in the SP assuming growth follows the COM  forecasts.
4Assessment of the consolidation path set in the SP assuming growth follows the SP projections.
5 Not relevant during EDP that were ongoing in November 2011 and in the three years following the correction of the excessive deficit.
6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, projected gross debt-to-GDP ratio does not comply with the 
debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing in November 2011.
8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State will comply with the 
debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary projections are achieved.
Source :
Stability programme (SP); Commission services’ spring 2012 forecasts (COM); Commission services’ calculations.

31

 
 
 
 
Table V. Long-term sustainability indicators 

BG

EU27

No-policy 
change 
scenario 

Convergence 
programme 
scenario

No-policy 
change 
scenario 

SCPs 
scenario

S2
of which:

Initial budgetary position (IBP)
Long-term change in the primary balance (LTC)
 of which:

pensions
health care and long-term care
other

S1 (required adjustment)*

2.6

0.4
2.2

1.4
0.6
0.2
-1.7

2.3

-0.1
2.5

1.7
0.6
0.2
-2.3

2.9

0.7
2.3

1.1
1.5
-0.3
2.2

0.7

-1.6
2.4

1.2
1.5
-0.3
-0.1

Debt,  % of GDP (2011)
Age-related expenditure, % of GDP (2011)
Source:  Commission, 2012 stability and convergence programmes. 
Note:  The ‘no policy change’ scenario depicts the sustainability gap under the assumption that the
 budgetary position evolves according to the spring 2012 forecast until 2013. The ‘convergence 
programme’ scenario depicts the sustainability gap under the assumption that the budgetary plans 
in the programme are fully implemented. 

82.8
25.8

16.3
17.4

* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 
2030.

Figure. Medium-term debt projection 

32

 
 
 
 
Table VI. Taxation 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)
Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

             - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth
     p.m.  Environmental taxes 2
3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

2001

30.8

2005

31.3

2007

33.3

2008

32.3

2009

29.0

2010

27.4

12.8

15.9

16.5

17.2

14.7

14.5

8.4

1.2

2.4

0.8

12.4

0.0

5.1

0.4

2.5

10.2

2.0

2.6

1.1

11.5

0.0

3.0

0.8

3.0

10.4

2.7

3.0

0.4

10.3

0.0

5.6

0.9

3.4

10.9

2.8

3.0

0.4

9.7

0.1

4.3

1.0

3.4

9.0

2.8

2.7

0.3

9.7

0.1

3.7

0.8

3.0

9.2

2.5

2.6

0.2

8.9

0.1

3.1

0.8

2.9

52.2

66.1

68.9

75.6

64.1

68.0

Note: 
1 T ax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission (2012), 

T axation trends in the European Union, for a more detailed explanation.

2 T his category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 T he VAT  efficiency is measured via the VAT  revenue ratio. T he VAT  revenue ratio is defined as the ratio between the actual VAT  revenue collected and the revenue 

that would theoretically be raised if VAT  was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due to large 

exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection gap'). See 

European Commission (2011), T ax reforms in EU Member States, European Economy 5/2011, for a more detailed explanation.

Source: Commission

33

 
 
 
 
Table VII. Financial market indicators 

2007

2008

2009

2010

2011

111.3
55.2
…

101.4
56.7
81.6

103.9
57.3
83.4

108.8
58.3
83.7

2.5
14.9
23.1
32.1
37.9
128.1
0.0
…
72.6

2.1
13.8
24.8
63.8
70.6
105.6
0.0
…
…

Total assets of the banking sector (% of GDP)
Share of assets of the five largest banks (% of total assets)
Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans) 1)
              - capital adequacy ratio (%) 2)
              - return on equity (%) 1), 3)
Bank loans to the private sector (year-on-year % change)
Lending for house purchase (year-on-year % change)
Loan to deposit ratio
CB liquidity as % of liabilities
Banks' exposure to countries receiving official financial assistance  (% of GDP)4)
Private debt (% of GDP)
Gross external debt (% of GDP) 4)
            - Public
            - Private
Long term interest rates spread versus Bund (basis points)*
Credit default swap spreads for sovereign securities (5-year)*
Notes: 
1) 2008-2009 figures include foreign bank branches. Latest June 2011.
2) The capital adequacy ratio is defined as total capital divided by risk weighted assets.   
3) Net income to equity ratio. After extraordinary items and taxes. Tier 1 capital. Latest June 2011.
4) Latest data 2011Q3.
* M easured in basis points.
Source :
Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

6.4
17.0
10.2
4.0
7.5
126.7
0.0
…
76.2

11.9
17.5
7.9
1.1
4.7
117.3
0.0
…
74.6

7.5
76.1
139.3
498.6

7.8
74.6
326.2
259.0

7.8
74.3
399.3
353.1

10.2
66.4
32.3
…

108.2
…
…

13.5
17.7
7.9
3.4
0.0
107.9
0.0
…
…

6.6
67.1
274.8
276.0

34

 
 
 
 
 
Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate 
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women 
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment 
(% of total employment)
Part-time employment of women  
(% of women employment)
Part-time employment of men  
(% of men employment)
Fixed term employment 
(% of employees with a fixed term contract)
Unemployment rate1 (% of labour force)
Long-term unemployment2  (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)

Early leavers from education and training (% of 
pop. 18-24 with at most lower sec. educ. and not 
in further education or training)
Tertiary educational attainment (% of population 
30-34 having successfully completed tertiary 
education)
Labour productivity per person employed 
(annual % change )
Hours worked per person employed  (annual % 
change)
Labour productivity per hour worked (annual % 
change; constant prices)
Compensation per employee (annual % change; 
constant prices)
Nominal unit labour cost growth (annual % 
change)

3.1

-0.3

3.4

-0.5

3.1

Real unit labour cost growth (annual % change)

-3.5

Notes:

2006

2007

2008

2009

2010

2011

65.1

68.4

70.7

68.8

65.4

63.9

4.3

4.6

3.3

-3.2

-6.2

-3.4

60.4

63.5

65.4

64.0

61.7

61.2

69.9

73.4

76.1

73.8

69.1

66.6

39.6

42.6

46.0

46.1

43.5

43.9

1.9

2.4

1.4

6.2

9.0

5.0

1.7

2.1

1.3

5.2

6.9

4.1

2.4

2.8

2.0

5.0

5.6

2.9

2.4

2.7

2.1

4.7

6.8

3.0

19.5

15.1

12.7

16.2

2.4

2.6

2.2

4.5

10.2

4.8

23.2

17.3

14.9

14.8

14.7

13.9

24.5

24.9

26.0

26.9

27.1

3.2

0.0

3.1

3.2

9.3

0.1

3.5

0.1

3.4

7.3

-2.9

-0.1

-2.9

4.9

12.5

12.7

3.7

8.1

5.3

-0.1

5.4

8.2

5.6

2.7

2.4

2.6

2.2

4.1

11.2

6.3

26.6

:

:

:

6.1

1.0

5.1

2.2

1.1

-3.7

Youth NEET3 rate (% of population aged 15-24)

22.2

19.1

17.4

19.5

21.8

1 According to ILO definition, age group 15-74)
2 Share of persons in the labour force who have been unemployed for at least 12 months.
3 NEET are persons that are neither in employment nor in any education or training.

Sources: 
Commission (EU Labour Force Survey and European National Accounts) 

35

 
 
 
 
Expenditure on social protection 
benefits (% of GDP)
Sickness/Health care
Invalidity
Old age and survivors
Family/Children
Unemployment
Housing and Social exclusion n.e.c.
Total
of which:  Means tested benefits
Social inclusion indicators
Risk-of-poverty or exclusion1 (% of total 
population)
Risk-of-poverty or exclusion of children (% of 
people aged 0-17)
Risk-of-poverty or exclusion of elderly (% of 
people aged 65+)
At-risk-of-poverty rate2 (% of total population)
Value of relative poverty threshold (single 
household per year) - in PPS
Severe material deprivation3  (% of total 
population)
Share of people living in low work intensity 
households 4 (% of people aged 0-59 not 
student)
In-work at-risk-of poverty rate (% of persons 
employed)

Notes:

2005

2006

2007

2008

2009

4.23
1.23
6.78
0.99
0.28
0.00
15.1
1.01

3.59
1.26
6.59
1.02
0.30
0.00
14.2
0.84

3.70
1.13
6.41
1.18
0.28
0.00
14.1
0.67

4.41
1.15
6.74
1.30
0.35
0.00
15.5
0.71

3.92
1.39
7.79
1.99
0.52
0.01
17.2
0.74

2006

2007

2008

2009

2010

62.2

60.7

44.8

46.2

41.6

62.0

60.8

44.2

47.3

44.6

73.9

18.4

71.1

22.0

65.5

21.4

66.0

21.8

55.9

20.7

1920

1979

2859

3451

3528

57.7

57.6

41.2

41.9

35.0

15.1

15.9

8.1

5.4

5.8

7.5

6.9

7.5

7.9

7.7

1 People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) 
and/or suffering from severe material deprivation (SM D) and/or living in households with zero or very low 
work intensity (LWI).

2 At-risk-of poverty rate: share of people with an equivalised disposable income below 60% of the national 
equivalised median income. 

3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or 
utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have 
a washing machine, viii) have a colour TV, or ix) have a telephone.

4 People living in households with very low work intensity: share of people aged 0-59 living in households 
where the adults work less than 20% of their total work-time potential during the previous 12 months.

Sources: 
For expenditure on social protection benefits ESSPROS; for social inclusion EU-SILC.

36

 
 
 
 
Table IX. Product market performance and policy indicators 

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, water 
(annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Patent intensity in manufacturing2 (patents of the 
EPO divided by gross value added of the sector)

2002-
2006

3.5

5.6

2007

2008

2009

2010

2011

3.1

13.2

3.5

2.7

-2.9

6.4

2.4

2.5

10.0

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

-2.4

-3.0

-7.4

-3.0

24.0

n.a.

0.7

n.a.

n.a.

n.a.

n.a.

n.a.

Policy indicators

Enforcing contracts3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries 5
(Index; 0=not regulated; 6=most regulated)

2002-
2006

n.a.

n.a.
0.5

2007

2008

2009

2010

2011

564

32
0.5

564

49
0.5

564

18
0.5

564

18
0.6

24.4

26.0

27.1

27.9

27.7

564

18
n.a.

n.a.

4.3

4.1

4.6

n.a.

n.a.

n.a.

2005

2006

2008

2009

2010

2011

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Notes:
1Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Patent data refer to applications  to the European Patent Office (EPO). They are counted according to the year in which 
they were filed at the EPO. They are broken down according to the inventor's place of residence, using fractional counting if 
multiple inventors or IPC classes are provided to avoid double counting. 
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 
4 The methodologies for the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.

5 Aggregate ET CR.

*figure for 2007.

Source :

Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

37

 
 
 
 
 
 
 
Table X. Indicators on green growth 

Bulgaria

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users 
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS
Transport energy intensity
Transport carbon intensity
Change in the ratio of passenger transport and GDP

Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share of renewable energy in energy mix

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €
%

%
HHI
HHI
%

2001-
2005

1.20
4.10
7.17
n.a.
0.6%
15
4.64
22.5%
9.1%

1.01
13.5
n.a.

n.a.
n.a.
0.0%
n.a.
1.15
3.16
-3.4%

47.1%
n.a.
0.27
4.7%

2006

2007

2008

2009

2010

1.06
3.50
7.07
13.11
2.3%
15
-2.9
28.2%
9.4%

0.73

14.8

0.05
n.a.
n.a.
0.0%

1.20
3.27
-1.5%

46.3%
0.80
0.26
5.5%

0.98
3.45
6.87
13.06
-7.5%
13
-3.5
31.9%
10.1%

0.62
n.a.
0.05
0.01%
0.01%
0.0%
54.6%
1.16
3.20
-0.4%

51.3%
0.54
0.27
4.7%

0.91
3.13
7.01
13.00
-8.4%
14
-1.3
34.9%
10.7%

0.54
n.a.
0.06
0.03%
0.00%
0.0%
55.5%
1.22
3.35
-0.7%

52.1%
0.56
0.27
4.8%

0.84
2.85
5.84
n.a.
-5.3%
13
3.2
30.6%
10.5%

0.37
n.a.
0.06
0.01%
0.00%
0.0%
53.8%
1.15
3.23
n.a.

45.3%
0.57
0.26
6.2%

0.85
n.a.
n.a.
n.a.
-5.9%
14
-3.7
n.a.
n.a.

n.a.

n.a.
0.06
n.a.
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

Country-specific notes: 
The year 2011 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN explanations given below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)
          Resource intensity: Domestic M aterial Consumption (in kg) divided by GDP (in EUR)
          Waste intensity: waste (in kg) divided by GDP (in EUR)
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport (in kgoe) divided by gross value added of industry (in EUR) 
Transport carbon intensity:  greenhouse gas emissions in transport divided by gross value added of the transport sector
Passenger transport growth : measured in %-change in passenger kilometres
Energy import dependency: net energy imports divided by gross inland energy consumption incl. of international bunkers

Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share of renewable energy in energy mix: percentage-share in  gross inland energy consumption, expressed in tonne oil equivalents

38