Recommendation for a COUNCIL RECOMMENDATION on Bulgaria’s 2013 national reform programme and delivering a Council opinion on Bulgaria’s convergence programme for 2012-2016
Date: 2013-05-29
Institutions: European Commission
Subjects: Bulgaria, Structural Funds, administrative transparency, budget deficit, coordination of EMU policies, educational reform, retirement conditions, stability programme, youth unemployment

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 352 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Bulgaria’s 2013 national reform programme  

and delivering a Council opinion on Bulgaria’s convergence programme for 2012-2016

{SWD(2013) 352 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Bulgaria’s 2013 national reform programme  

and delivering a Council opinion on Bulgaria’s convergence programme for 2012-2016 

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 9(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
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 Parliament4, 

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

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

(3) 

On 29 June 2012, the Heads of State or Government decided on a Compact for Growth 
and  Jobs,  providing  a  coherent  framework  for  action  at  national,  EU  and  euro  area 

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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2013)352 final. 
P7_TA(2013)0052 and P7_TA(2013)0053. 
Council Decision 2013/208/EU of 22 April 2013. 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

levels using all possible levers, instruments and policies. They decided on action to be 
taken  at  the  level  of  the  Member  States,  in  particular  expressing  full  commitment  to 
achieving the objectives of the Europe 2020 Strategy and to implementing the country-
specific recommendations. 

On 6 July 2012, the Council adopted a recommendation on Bulgaria’s national reform 
programme  for  2012  and  delivered  its  opinion  on  Bulgaria’s  updated  convergence 
programme for 2011-2015. 
On  28  November  2012,  the  Commission  adopted  the  Annual  Growth  Survey6, 
marking  the  start  of  the  2013  European  Semester  for  economic  policy  coordination. 
Also  on  28  November  2012,  the  Commission,  on  the  basis  of  Regulation  (EU)  No 
1176/2011,  adopted  the  Alert  Mechanism  Report7,  in  which  it  identified  Bulgaria  as 
one of the Member States for which an in-depth review would be carried out. 

On  14  March  2013,  the  European  Council  endorsed  the  priorities  for  ensuring 
financial stability, fiscal consolidation and action to foster growth. It underscored the 
need  to  pursue  differentiated,  growth-friendly  fiscal  consolidation,  to  restore  normal 
lending conditions to the economy, to promote growth and competitiveness, to tackle 
unemployment  and  the  social  consequences  of  the  crisis,  and  to  modernise  public 
administration. 
On  10  April  2013,  the  Commission  published  the  results  of  its  in-depth  review8  for 
Bulgaria,  under  Article  5  of  Regulation  (EU)  No  1176/2011.  The  Commission’s 
analysis leads it to conclude that Bulgaria is experiencing macroeconomic imbalances, 
which deserve monitoring and policy action. In particular, the impact of deleveraging 
in  the  corporate  sector  as  well  as  the  continuous  adjustment  of  external  positions, 
competitiveness and labour markets deserve continued attention. 

On 19 April 2013, Bulgaria submitted its 2013 convergence programme covering the 
period 2012-2016 and its 2013 national reform programme. In order to take account of 
their interlinkages, the two programmes have been assessed at the same time. 

Based on the assessment of the 2013 convergence Programme pursuant to Regulation 
(EC) No 1466/97, the Council is of the opinion that public finances in Bulgaria have 
overall  been  sound.  The  medium-term  objective  (MTO)  was  reached  in  2012.  The 
macroeconomic  scenario  underpinning  the  budgetary  projections  in  the  convergence 
Programme  is  plausible  for  the  2013-14  period,  when  annual  growth  is  expected  to 
reach 1.0% in 2013 and 1.8% in 2014. The Commission 2013 spring forecast foresees 
a GDP growth of 0.9% in 2013 and of 1.7% in 2014. The objective of the budgetary 
strategy outlined in the programme is to keep the structural budget balance close to the 
MTO throughout the programme period. The programme confirms the previous MTO 
of -0.5% of GDP which is more ambitious than required by the Stability and Growth 
Pact.  Based  on  the  (recalculated)  structural  budget  balance,  which  is  estimated  to 
weaken slightly form a deficit of 0.4% of GDP in 2012 to between 0.7-0.8% of GDP 
over  2013-2016.  Bulgaria  falls  marginally  below  its  MTO  over  the  Convergence 
Programme period. In 2013-15, 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 2016. The debt ratio is below 60% of 
GDP and, according to the Convergence Programme, it is expected to peak at 20.4% 

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COM(2012) 750 final. 
COM(2012) 751 final. 
SWD(2013) 114 final. 

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of  GDP  in  2014  and  then  to  decrease  over  the  Programme  period.  Similarly,  the 
Commission 2013 spring forecast foresees the debt ratio to amount to 20.3% of GDP 
in 2014. 

(10)  Bulgaria has substantially strengthened its fiscal framework in recent years which has 
contributed to maintaining fiscal discipline and increasing fiscal policy credibility. The 
new  public  finance  law  which  will  enter  into  force  in  2014  retains  the  existing 
numerical  fiscal  rules,  further  strengthens  requirements  at  the  municipal  level  and 
reforms  the  three-year  medium-term  budgetary  framework.  It  is  important  that  the 
authorities maintain the reform momentum and prepare the ground for implementation 
of  the  new  law,  in  particular  by  establishing  the  envisaged  independent  fiscal  and 
giving  it  a  clear  mandate,  functional  autonomy  and  adequate  resources.  There  is 
considerable scope for improvement in tax compliance and progress in this area would 
allow  Bulgaria  to  support  higher  growth-enhancing  expenditure.  While  Bulgaria  has 
taken  some  recognisable  steps  to  reduce  compliance  costs  and  to  improve  revenue 
collection,  the  tax  system  remains  characterised  by  significant  tax  evasion  and  low 
administrative  efficiency.  Administrative  costs  for  tax  collection  are  high,  as  are  the 
costs  for  businesses  associated  with  paying  taxes.  Despite  the  measures  taken  to 
improve tax compliance, the share of the shadow economy is still estimated to be high 
and reducing it requires sustained long-term efforts.  

(11)  Reducing  early  labour  market  exit  is  a  key  challenge  for  improving  the  adequacy  of 
the pension system, as well as for the supply of labour. The employment rate of older 
workers,  in  particular  of  older  women,  is  below  the  EU  average  and  results  in 
inadequate pension entitlements for a large share of the beneficiaries. Whilst important 
reforms are already being undertaken in this area, the remaining special schemes for 
certain  professions  are  among  the  factors  contributing  to  lowering  the  effective 
retirement age. Continuing the progress achieved in raising the pension age, Bulgaria 
should also prepare and set a date for the introduction of the same statutory retirement 
age  for  men  and  women  with  full  career  contributions.  A  review  of  the  criteria  and 
controls for the allocation of invalidity pensions (e.g. introduction of ability to work as 
criterion) would be an important contribution to effectively limiting abuse. 

(12)  Bulgaria  suffers  from  below-average  and  declining  employment  as  well  as  high 
unemployment disparities across regions and population subgroups. The crisis has had 
a particularly strong impact on low-skilled workers and has significantly raised youth 
unemployment. Long-term unemployment has risen faster than in the rest of the EU. A 
reformed  Employment  Agency  would  have  the  potential  to  play  a  prominent  role  in 
matching  supply  and  demand  in  Bulgaria’s  labour  market  through  more  effective 
counselling,  targeted  employment  measures  and  better  forecasting  of  future  skills 
requirements. An early evaluation of the on-going Youth Employment Initiative could 
help to ensure that resources are directed to those actions that generate the highest job-
creation  returns.  It  remains  a  challenge  to ensure  that  the  system  of  minimum  social 
security contributions attains the objective of reducing the shadow economy, while not 
pricing  out  low-skilled  workers.  Bulgarian  citizens  experience  the  highest  risk  of 
poverty or social exclusion in the EU. The implementation of the national Strategy for 
Combating Poverty and Social Exclusion should be treated as priority. There is a need 
to  improve  the  accessibility  and  effectiveness  of  social  transfers  and  to  enhance  the 
efficiency and access to social services, in particular for children and older people. The 
National  Roma  Integration  Strategy  should  be  accompanied  by  an  action  plan 
indicating specific measures, sufficient funding and the establishment of a monitoring 
mechanism for measuring the impact of actions. 

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(13)  Bulgaria is facing the challenge of improving the overall quality and efficiency of its 
education  system.  The  final  adoption  of  the  School  Education  Act  before  the  end  of 
2013  would  provide  a  framework  for  progress  on  the  necessary  reforms,  including 
modernising  curricula  and  implementing  improvements  to  teachers’  training  and 
incentives.  In  higher  education,  reforms  have  made  very  limited  progress.  The 
existence  of  an  important  disparity  between  higher  education  outcomes  and  labour 
market  demand  worsens  structural  unemployment  and  hampers  the  development  of 
high-value, innovative sectors. The poor performance of higher education is linked to 
a  lack  of  incentives  at  institutional  level  as  well  as  to  the  standard  of  individual 
researchers and teachers. Improving the quality and coverage of the health-care system 
is  a  long-standing  challenge  for  Bulgaria.  Increased  transparency  in  health-care 
financing would contribute to growth and competitiveness in the sector. The share of 
healthcare  spending  on  ambulatory  care  is  low,  limiting  access  to  cost-effective 
healthcare  services.  The  high  rate  of  out-of-pocket  payments  effectively  excludes 
certain segments of the population from health-care services. Bulgaria faces important 
challenges in the rationalisation and management of the hospital sector. 

(14)  The competitiveness of domestic companies and the attraction of foreign investments 
would  benefit  greatly  from  improvements  to  Bulgaria’s  business  environment, 
including increased efficiency of public services. A speedier, systematic introduction 
of e-government offers considerable potential and could, inter alia, reduce compliance 
costs  and  the  administrative  burden  for  business.  Moreover,  full  implementation  and 
enforcement  of  corporate 
insolvency 
procedures,  would  considerably  improve  the  framework  conditions,  not  least  for 
SMEs.  Inadequate  access  to  finance  remains  a  brake  on  SME  development.  A  well-
functioning,  independent  judicial  system  is  a  prerequisite  for  sustainable  economic 
development. Bulgaria has over recent years made progress in reforming the judicial 
system, in particular in modernising the legal and institutional framework. At the same 
time,  there  remains  considerable  potential  for  making  full  use  of  this  framework, 
securing  the  sustainability  of  results  and  enhancing  the  ownership  of  reforms  at  all 
levels.  Enhanced  efforts  to  fight  corruption  would  likewise  constitute  a  positive 
contribution to improving the business environment.  

legislation,  including 

late-payments  and 

(15)  Effective implementation of EU funds remains critical to necessary public investment. 
The  2011  reform  of  public-procurement  legislation  was  a  significant  step  towards 
improving  the  monitoring,  prevention  and  punishment  of  irregularities.  While  new 
rules covering inter alia EU co-funded projects have entered into force, giving broader 
powers to the Public Procurement Agency would further enhance the effectiveness of 
ex ante control.  

(16)  The  capacity  and  independence  of  regulators  in  key  economic  sectors  are  important 
framework  conditions  for  competitiveness.  Bulgaria’s  transport  infrastructure  has 
experienced  some  improvements  over  recent  years,  whilst  considerable  potential 
remains for making service provision and maintenance sufficiently efficient. Bulgaria 
has  yet  to  fully  implement  its  obligations  under  the  Internal  Energy  Market. 
Considerable challenges remain at both wholesale and retail levels. Persistent market 
barriers,  guaranteed  profit  arrangements  and  regulated  prices,  together  with  the 
absence  of  a  wholesale  market  for  electricity  and  natural  gas,  constitute  areas  of 
particular  concern.  Given  its  considerable  dependence  on  a  single  energy  route, 
Bulgaria  is  highly  exposed  to  the  risk  of  supply  shocks.  The  implementation  of 
electricity  and  gas  interconnector  projects  should  be  speeded  up  to  improve 
diversification  and  security  of  supply.  Low  energy  efficiency  remains  a  significant 

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(17) 

(18) 

(19) 

economic  burden  on  both  business  and  private  consumers.  In  particular,  the  energy 
efficiency of buildings, both public and private, holds considerable potential.  

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  the  national  reform  programme  and  the  convergence  programme.  Its 
recommendations  under  Article  6  of  Regulation  (EU)  No  1176/2011  are  reflected  in 
recommendations (3), (4) and (5) below, 

HEREBY RECOMMENDS that Bulgaria should take action within the period 2013-2014 to: 

1. 

2. 

3. 

4. 

Preserve  a  sound  fiscal  position  by  ensuring  compliance  with  the  medium-term 
objective and pursue a growth-friendly fiscal policy as envisaged in the convergence 
programme. Implement a comprehensive tax strategy to strengthen all aspects of the 
tax  law  and  collection  procedures  with  a  view  to  increase  revenue,  notably  by 
improving  tax  collection,  tackling  the  shadow  economy  and  reducing  compliance 
costs.  Establish  an  independent  institution  to  monitor  fiscal  policy  and  provide 
analysis and advice. 

Phase  out  early  retirement  options,  introduce  the  same  statutory  retirement  age  for 
men  and  women  and  implement  active  labour  market  policies  that  enable  older 
workers  to  stay  longer  in  the  labour  market.  Tighten  the  eligibility  criteria  and 
controls for the allocation of invalidity pensions to effectively limit abuse. 

Accelerate the national Youth Employment Initiative, for example through a Youth 
Guarantee.  Reform  the  Employment  Agency  with  a  view  to  providing  effective 
counselling  to  jobseekers  and  develop  capacity  for  forecasting  and  matching  skill 
needs.  Enhance  active  labour-market  policies,  in  particular  concerning  national 
employment  schemes.  Undertake  a  review  of  the  minimum  thresholds  for  social 
security contributions to ensure that the system does not price the low-skilled out of 
the labour market. Ensure concrete delivery of the National Strategies on Poverty and 
Roma integration. Improve the accessibility and effectiveness of social transfers and 
services, in particular for children and older people. 

Adopt  the  School  Education  Act  and  pursue  the  reform  of  higher  education,  in 
particular through better aligning outcomes to labour-market needs and strengthening 
cooperation  between  education,  research  and  business.  Improve  access  to  inclusive 
education for disadvantaged children, in particular Roma. Ensure effective access to 
healthcare  and  improve  the  pricing  of  healthcare  services  by  linking  hospitals’ 
financing to outcomes and developing out-patient care. 

9 

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

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5. 

6. 

7. 

Take  further  steps  to  improve  the  business  environment,  by  cutting  red  tape, 
implementing  an  e-government  strategy  and  implementing  the  legislation  on  late 
payments.  Improve  the  quality  and  independence  of  the  judicial  system  and  fight 
corruption more effectively. Improve the access to finance for SMEs and start-ups. 

Accelerate  the  absorption  of  EU  funds.  Ensure  sound  implementation  of  public-
procurement  legislation  by  extending  ex-ante  control  by  the  Public  Procurement 
Agency to prevent irregularities. 

Strengthen the independence of national regulatory authorities and the administrative 
capacity  in  particular  in  the  energy  and  transport  sectors,  as  well  as  for  waste  and 
water  management.  Remove  market  barriers,  quotas,  territorial  restrictions  and 
regulated  prices  and  complete  the  market  design  by  setting  up  a  transparent 
wholesale  market  for  electricity  and  natural  gas.  Accelerate  electricity  and  gas 
interconnector  projects  and  enhance  the  capacity  to  cope  with  disruptions.  Step  up 
efforts to improve energy efficiency. 

Done at Brussels,  

For the Council 
The President 

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