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  
COM(2012) 302 final 

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

{SWD(2012) 302 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Bulgaria’s 2012 national reform programme  

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

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament,4 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

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

is  needed 

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for 
the economic policies of the Member States and the Union (2010 to 2014) and, on 21 
October  2010,  adopted  a  decision  on  guidelines  for  the  employment  policies  of  the 

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OJ L 209, 02.08.1997, p. 1 
OJ L 306, 23.11.2011, p. 25 
COM(2012)302 final 
P7_TA(2012)0048 and P7_TA(2012)0047 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

Member States5, which together form the ‘integrated guidelines’. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

On  12  July  2011,  the  Council  adopted  a  recommendation  on  Bulgaria’s  national 
reform  programme  for  2011  and  delivered  its  opinion  on  Bulgaria’s  updated 
convergence programme for 2011-2014. 

On 23 November 2011, the Commission adopted the second Annual Growth Survey, 
marking  the  start  of  the  second  European  Semester  of  ex-ante  and  integrated  policy 
coordination,  which  is  anchored  in  the  Europe  2020  strategy.  On  14  February  2012, 
the  Commission,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  adopted  the  Alert 
Mechanism  Report6, in which it identified Bulgaria as one of the Member States for 
which an in-depth review would be carried out. 

On 2 March 2012, the European Council endorsed the priorities for ensuring financial 
stability,  fiscal  consolidation  and  action  to  foster  growth  (in  line  with  the  Council’s 
conclusions  of  9  December  2011  and  further  to  the  Commission’s  Annual  Growth 
Survey).  It  underscored  the  need  to  pursue  differentiated,  growth-friendly  fiscal 
consolidation, to restore normal lending conditions to the economy, to promote growth 
and  competitiveness,  to  tackle  unemployment  and  the  social  consequences  of  the 
crisis, and to modernise public administration. 

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

On 13 April 2012, Bulgaria submitted its convergence programme covering the period 
2012-2015 and its 2012 national reform programme. In order to take account of their 
interlinkages,  the  two  programmes  have  been  assessed  at  the  same  time.  The 
Commission  has  also  assessed,  in  an  in-depth  review  under  Article  5  of  Regulation 
(EU) No 1176/2011, whether Bulgaria is affected by macroeconomic imbalances. The 
Commission concluded in its in-depth review7 that Bulgaria is experiencing an internal 
macroeconomic imbalance, although not excessive. 

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

(9) 

Based  on  the  assessment  of  the  2012  convergence  programme  pursuant  to  Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 

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Council Decision 2012/238/EU of 26 April 2012 
COM(2012) 68 final 
SWD(2012)151 final 

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scenario underpinning the budgetary projections in the programme is optimistic for the 
2012-13 period, when annual growth is expected to reach 1.4% in 2012 and 2.5% in 
2013. The Commission's 2012 spring forecast foresees a GDP growth of 0.5% in 2012 
and 1.9% in 2013. After the correction of the excessive deficit in 2011, the objective 
of the budgetary strategy outlined in the programme is to achieve a budgetary position 
which is close to balance, both in terms of the structual and headline budget balances, 
by  the  end  of  the  programme  period.  The  medium-term  budgetary  objective (MTO), 
defined in structural terms, has been marginally revised from a deficit of 0.6% of GDP 
to a deficit of 0.5% of GDP. The new MTO adequately reflects the requirements of the 
Stability  and  Growth  Pact.  Based  on  the  (recalculated)  structural  deficit8,  Bulgaria 
plans to achieve its MTO over the programme period. . In 2012-14, the growth rate of 
government  expenditure,  taking  into  account  discretionary  revenue  measures,  would 
respect the expenditure benchmark of the Stability and Growth Pact, yet breach it in 
2015.  Panned  fiscal  consolidation  faces  important  risks  stemming  from  (i)  lower 
revenue  given  the  optimistic  macroeconomic  scenario  as  well  as  less  tax-rich 
underlying growth structure of the economy and (ii) inefficiencies in the public sector, 
particularly in healthcare and education, which may lead to considerable expenditure 
pressures. The debt ratio is below 60% of GDP and, according to the programme, it is 
expected  to  peak  at  close  to  20%  of  GDP  in  2012  and  then  to  decrease  over  the 
programme  period.  There  is  considerable  scope  for  improvement  in  tax  compliance 
and advancing in this area would allow Bulgaria to support higher growth enhancing 
expenditures.  A  requirement  to  keep  the  budget  deficit  below  2 %  and  limiting 
government expenditure to 40 % of GDP was adopted as an amendment to the Organic 
Budget  Law,  thus  strengthening  the  binding  nature  of  the  fiscal  framework  and 
improving the predictability of budgetary planning. However, challenges remain with 
respect  to  further  improving  the  contents  of  the  medium-term  budgetary  framework 
and strengthening the reporting on accrual basis.  

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

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

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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. 

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

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

insufficient  autonomy  of  schools, 

lack  of 

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

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

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

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

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

(19) 

(20) 

(21) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Bulgaria’s  economic  policy.  It  has  assessed 
the 
convergence  programme  and  national  reform  programme,  and  presented  an  in-depth 
review.  It  has  taken  into  account  not  only  their  relevance  for  sustainable  fiscal  and 
socio-economic  policy  in  Bulgaria  but  also  their  compliance  with  EU  rules  and 
guidance,  given  the  need  to  reinforce  the  overall  economic  governance  of  the 
European  Union  by  providing  EU-level  input  into  future  national  decisions.  Its 
recommendations under the European Semester are reflected in recommendations (1) 
to (7) below.  

In  the  light  of  this  assessment,  the  Council  has  examined  Bulgaria’s  convergence 
programme, and its opinion9 is reflected in particular in recommendation (1) below. 

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

9 

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

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

1. 

2. 

3. 

4. 

5. 

6. 

7. 

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

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

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

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

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

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

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

Done at Brussels, 

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For the Council 
The President 

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