COMMISSION STAFF WORKING DOCUMENT Country Report Bulgaria 2018 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: Bulgaria, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 201 final  COMMISSION STAFF WORKING DOCUMENT Country Report Bulgaria 2018 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances  Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2018) 120 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the Macroeconomic Imbalance Procedure 

in-depth review 

4.  Reform priorities 

4.1.  Public finances 

4.2.  Financial sector 

4.3.  Labour market, education and social policies 

4.4.   Investment and competitiveness 

4.5.   Sectoral policies 

Annex A: Overview Table 

Annex B: Macroeconomic Imbalance Procedure Scoreboard 

Annex C: Standard Tables 

References 

LIST OF TABLES 

Table 1.1: 

Financial soundness indicators - all banks in Bulgaria 

Table 1.2: 

Key economic and financial indicators – Bulgaria 

Table 2: 

Summary table on CSR assessment 

Table 3.1: 

Macroeconomic Imbalance Procedure assessment matrix for Bulgaria 

Table B.1: 

The MIP scoreboard for Bulgaria (AMR 2018) (1), (2), (3) 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

1 

5 

12 

17 

21 

21 

24 

30 

39 

47 

52 

59 

60 

66 

9 

11 

14 

19 

59 

60 

61 

62 

63 

64 

65 

 
 
 
 
 
LIST OF GRAPHS 

Graph 1.1: 

Real GDP growth by demand components 

Graph 1.2:  GDP growth and GDP per capita 

Graph 1.3: 

Potential growth breakdown 

Graph 1.4: 

Nominal wage growth in Bulgaria in comparison with wage benchmarks 

Graph 1.5: 

Activity, employment and unemployment rates 

Graph 1.6: 

Level of income inequality in EU, 2016 

Graph 1.7: 

Current account developments 

Graph 1.8: 

Net international investment position 

Graph 1.9: 

Domestic credit growth 

Graph 1.10:  House prices overvaluation gaps 

Graph 2.1:  Overall multiannual implementation of 2011 - 2017 CSRs to date (1), (2), (3) 

Graph 4.1.1: 

Tax revenue by main category 

Graph 4.1.2:  Public expenditure by category, average 2011-2015 

Graph 4.2.1:  NPLs share of total loans and advances, all banks 

Graph 4.2.2:  Private debt breakdown 

Graph 4.2.3:  NFC debt ratio against the fundamental-based benchmark (1) and prudential 

threshold (2) 

Graph 4.2.4:  NPLs, share of total loans and advances - total, households and NFCs 

Graph 4.2.5:  Share of companies facing financial stress 

Graph 4.2.6:  Determinant of growth for financially and non-financially stressed NFCs 

Graph 4.3.1:  Population projections (2016-2080) 

Graph 4.3.2:  Employment by sector, year-on-year changes 

Graph 4.3.3:  Unemployment rate and potential additional labour force 

Graph 4.3.4:  Expenditure on and participation in activation measures, 2017 

Graph 4.3.5:  Early school leaving disaggregated by the urban status, Bulgaria and the EU average 

Graph 4.3.6:  Expenditure on health 

Graph 4.3.7:  At-risk-of-poverty or social exclusion rate, components 

Graph 4.3.8:  At-risk-of-poverty or social exclusion rate, age groups 

Graph 4.4.1:  Gross fixed capital formation as % of GDP 

Graph 4.4.2:  FDI in NFCs by economic activity, 2016 

Graph 4.4.3:  Evolution of export market share 

Graph 4.4.4:  Quality and share of exports by category 

Graph 4.4.5:  Rate of change of ULC, breakdown 

Graph 4.4.6:  Real effective exchange rate based on ULC 

Graph 4.4.7:  Proportion of contract award notices where the negotiated procedures without prior 

publication were used, 2013-17 

Graph 4.5.1:  Employment and value added in manufacturing 2009-2015 

Graph 4.5.2:  Air quality — PM10 concentrations in relation to the daily limit value in 2015 in the EU28 

5 

5 

6 

6 

7 

7 

8 

8 

10 

10 

12 

21 

22 

26 

27 

28 

28 

28 

29 

30 

32 

32 

33 

35 

36 

37 

37 

39 

39 

42 

42 

42 

43 

45 

47 

50 

 
 
 
LIST OF BOXES 

Box 2.1: Tangible results delivered through EU support to structural change in Bulgaria 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 4.4.1: Investment challenges and reforms in Bulgaria 

Box 4.4.2: Policy highlights 

16 

31 

40 

44 

 
 
 
 
EXECUTIVE SUMMARY 

the  rest  of 

Bulgaria's  strong  economic  situation  could 
facilitate  structural  reforms.  Strong  economic 
growth  and  a  sound  fiscal  position  represent  an 
that  could 
opportunity  for  structural  reforms 
accelerate  catching  up  with 
the 
European  Union  and  reduce  persistent  high  levels 
of poverty and inequality. The economy's cyclical 
upswing helped a solid labour market recovery, but 
persistent  skills  shortages  and  mismatches  require 
a  structural  response.  The  authorities'  response  to 
the  challenges 
in  banking  and  non-banking 
strengthened the financial sector and these reforms 
to  consolidate  recent 
need 
progress. (1) 

to  be  completed 

Economic growth remains robust, but catching-
up with the rest of the EU is slow. GDP growth is 
estimated  to  have  been  3.8 %  in  2017,  slightly 
lower  than  2016.  The  main  engine  of  growth, 
however,  has  changed  from  the  external  sector  to 
domestic  demand  as  private  consumption  grew 
stronger and investment growth turned positive. In 
2018  and  2019,  GDP  growth  is  expected  to  slow 
down somewhat but to remain strong, still mainly 
driven  by  domestic  demand.  Despite  the  positive 
economic  outlook,  convergence  with  the  EU 
average  income  slowed  down  again  in  2017  as 
growth  in  the  rest  of  the  EU  has  picked  up. 
Increasing  the  growth  potential  of  the  economy 
could  accelerate  the  catching-up  process,  but 
moderate  increases  in  capital  and  labour  limit  the 
growth  potential.  Further  gains  in  total  factor 
productivity,  the  main  driver  of  potential  GDP 
growth  since  2015,  could  be  constrained  by 
relatively low investment.  

Labour  market  conditions  have  recently 
improved.  Employment  and  activity  rates  have 
increased,  while 
the  unemployment  rate  has 
decreased  substantially,  to  6.3 %  in  2017.  Based 

(1)  This report assesses Bulgaria’s economy in the light of the 
European Commission’s Annual Growth Survey published 
on 22 November 2017. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
European  economy  more  productive, 
resilient  and 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic policy – boosting investment, pursuing structural 
reforms  and  ensuring  responsible  fiscal  policies.  At  the 
same 
the  Alert 
the  Commission  published 
Mechanism Report (AMR) that initiated the seventh round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found that Bulgaria warranted an in-depth review, which is 
presented in this report. 

time, 

1 

on 2016 data, the compensation of employees was 
very  low  relative  to  the  EU  average.  The  strong 
wage  growth  in  2017  will  improve  wages,  but  if 
continued  and  not  accompanied  by  similar 
productivity  developments 
to 
competitiveness losses. Low educational outcomes 
and 
socio-economic 
background  represent  major  obstacles  to  human 
capital 
improvement,  with  potential  knock-on 
effects on skill levels and the growth potential. 

inequalities 

it  could 

linked 

lead 

to 

The fiscal performance remains sound creating 
room to address economic and social challenges. 
The general government budget remained balanced 
in  2017  in  both  nominal  and  structural  terms  and 
public  debt  decreased.  The  fiscal  outlook  remains 
positive  in  the  medium  term  with  a  small  surplus 
projected for 2019 and could be further reinforced 
by  improvements  in  tax  collection,  as  planned  by 
the  authorities.  On  the  expenditure  side,  while 
budget  planning  and  execution  are  overall  sound 
and stable, there is room to improve efficiency and 
monitoring of public spending to support economic 
and social development and convergence. 

The soundness of the financial sector continued 
to  improve  despite  remaining  vulnerabilities. 
Capital and liquidity levels have increased and the 
improved.  Profitability 
quality  of  assets  has 
remained  strong.  Households  are  among  the  least 
indebted in the EU but non-financial corporations' 
debt,  and  non-performing  loans  are  still  higher 
than  in  peer  countries,  albeit  decreasing.  Still, 
some  vulnerabilities  persist  despite  measures  to 
follow-up  the  banking  and  non-banking  sector 
reviews and increased supervisory efforts.  

Bulgaria has made some progress in addressing 
the  2017  country-specific  recommendations. 
Some progress was achieved in tax collection and 
tax  compliance, 
in  stepping-up  enforcement 
measures  to  reduce  the  informal  economy  and 
undeclared work,, in taking follow-up measures on 
the  financial  sector  reviews  and  in  enhancing 
non-banking 
banking 
in 
reduction  of  non-performing 
facilitating 
corporate  loans,  in  improving  the  targeting  of 
active  labour  market  policies  and  the  integration 
between  employment  and  social  services, 
in 
improving  the  coverage  and  adequacy  of  the 
minimum 
in  ensuring  efficient 
implementation  of  the  2014-2020  National  Public 
Procurement Strategy. Limited progress was made 

income,  and 

supervision, 

and 

the 

 
 
                                                           
in  increasing  the  provision  of  quality  mainstream 
education,  in  particular  for  Roma,  in  increasing 
health  insurance  coverage,  in  reducing  out-of-
in  addressing  shortages  of 
pocket  payments, 
healthcare  professionals,  and  in  establishing  a 
transparent  mechanism  for  setting  the  minimum 
wage. 

Regarding progress in reaching the national targets 
under  the  Europe  2020  strategy,  Bulgaria  appears 
to  be  already  ahead  in  reaching  its  targets  for 
reducing greenhouse gas emissions and increasing 
the  share  of  renewable  energy.  Measures  have 
been  taken  to  improve  energy  efficiency  but 
energy consumption remained above the indicative 
national targets. Bulgaria has made progress on the 
employment  rate  and  tertiary  education,  but  the 
targets  are  still  to  be  met.  The  situation  has 
deteriorated  regarding  the  targets  on  early  school 
leaving, poverty reduction and R&D intensity. 

active 

Bulgaria  faces  challenges  with  regard  to  a 
number  of  indicators  of  the  Social  Scoreboard 
supporting the European Pillar of Social Rights. 
Whilst  the  high  economic  growth  has  translated 
into improved employment outcomes, the levels of 
poverty  and  income  inequality  remain  very  high 
and 
are 
labour  market 
underdeveloped.  The  education  system  does  not 
fully equip students with relevant skills and access 
to  quality  education  remains  unequal.  Moreover, 
Bulgarians face difficulties in accessing healthcare 
and  housing.  On  the  positive  side,  Bulgaria  has  a 
low  gender  employment  gap  and  an  increasing 
gross disposable household income per capita. 

policies 

findings  of 

The  main 
review 
contained  in  this  report  and  the  related  policy 
challenges are as follows: 

in-depth 

the 

but 

vulnerabilities 

  The  financial  sector  has  been  strengthened 
remain. 
overall, 
Substantial  effort  has  been  made  to  improve 
banking and non-banking supervision, with the 
on-going implementation of the action plan for 
banking  supervision  and  the  adoption  of  an 
action  plan 
for  non-banking.  Legislative 
amendments  introduced  a  somewhat  tighter 
risk  management  of  related-party  exposures  in 
the  banking  sector  and  a  broader  definition  of 
‘related  parties’  in  the  non-banking  sector,  in 
international  standards.  Further 
line  with 
fully 
measures  which 

remain 

be 

to 

Executive summary 

the 

implemented include dealing with exposures to 
hard-to-value assets and in the insurance sector 
with  the  treatment  of  specific  reinsurance 
level 
contracts  and 
supervision.  In  the  pension  funds  sector,  the 
concentration of assets on the relatively illiquid 
traded  and  non-traded  domestic  market,  and 
cross-ownership 
complex  ownership 
structures require further monitoring. 

inadequate  group 

and 

  Despite  the  ongoing  debt  reduction,  high 
private  debt  is  still  a  concern.  High  non-
financial  corporations'  debt  could  hamper 
medium-term growth prospects. Problems with 
the valuation of illiquid assets and the lack of a 
deep  secondary  market  for  non-performing 
loans constrain Bulgaria’s ability to reduce this 
high corporate indebtedness. 

  The  reform  of  the  insolvency  framework 
continues. Despite new legislation on business 
restructuring,  some  elements  of  a  functioning 
framework  are  still  missing.  In  particular, 
Bulgaria  lacks  rules  for  granting  a  second 
chance  to  consumers  and  entrepreneurs  in  a 
reasonable  timeframe  following  a  bankruptcy, 
and  an  effectiveness  analysis  of  existing  and 
new  procedures.  Data  collection  in  the  field 
remains a challenge. 

  Despite 

solid 

labour  market  recovery 
structural  challenges  persist.  A  shrinking 
working  age  population,  skills  shortages  and 
mismatches,  particularly  in  digital  skills,  and 
high  inactivity  remain  major  concerns  for 
sustainable growth. Undeclared work continues 
to  distort  the  labour  market.  Active  labour 
market  policies  have  low  coverage  and  are 
mostly  focused  on  direct  job  creation  and 
employment  incentives.  The  young,  the  low-
skilled, the Roma and the rural population face 
particular  difficulties  in  entering  employment. 
Measures  addressing  jobseekers'  employability 
and  skills  gaps  are  not  sufficiently  developed. 
The  minimum  wage  is  still  being  adjusted 
without  a  clear  and  transparent  mechanism,  in 
part  due  to  the  current  challenges  in  social 
dialogue. 

Other key structural issues analysed in this report, 
which point to particular challenges for Bulgaria’s 
economy, are the following: 

2 

 
 
  The social protection system is insufficient to 
tackle  the  significant  social 
issues.  The 
percentage of the population at risk of poverty 
or social exclusion is among the highest in the 
EU  particularly  among 
the  disadvantaged 
social  groups.  The  adequacy  and  coverage  of 
social  assistance  benefits  are  low  and  there  is 
no objective mechanism to update the benefits. 
The  flat  personal  income  tax  has  a  small 
redistributive impact. Inequality of opportunity 
in education, healthcare and housing remains of 
concern.  The  provision  of  social  services  is 
insufficient  and  their  integration  with  labour 
market services remains incomplete. 

  Recent  measures  aim  to  modernise  the 
education  system,  but  challenges  remain. 
Educational  outcomes  are  low  and  strongly 
influenced  by  socioeconomic  status.  Early 
school  leaving  is  high  and  kindergarten  fees 
contribute  to  an  unequal  start  in  education. 
Integration of Roma remains a major challenge. 
A mechanism to identify out-of-school children 
has been  established, but measures  to  improve 
school  attendance  and  retention  are  still 
limited.  The 
labour  market 
insufficient 
relevance  of  vocational  education  and  training 
remains  a  challenge.  Adult  participation  in 
learning  is  insufficient  to  address  the  need  for 
upskilling.  

  Access  to  healthcare  is  limited  by  low  and 
uneven  distribution  of  resources.  Public 
healthcare expenditure is very low, resulting in 
a  high  proportion  of  non-reimbursed  medical 
expenditure. The number of medical doctors is 
relatively  high  and 
their  emigration  has 
decreased.  However,  district-level  differences 
in  the  distribution  of  doctors,  and  the  low 
number  of  nurses,  remain  a  problem.  Despite 
improvement  in  recent  years,  the  number  of 
Bulgarians  reporting  problems  with  accessing 
healthcare is much higher than the EU average. 

  Efforts to improve the business environment 
are  ongoing.  Businesses  remain  concerned 
about  corruption,  institutional  shortcomings 
supply.  Several 
and 
labour 
insufficient 
multiannual  projects 
to 
investment but the speed of implementation of 
the reforms is insufficient to catch up with peer 
public 
countries. 

reduced  barriers 

progress  with 

Slow 

Executive summary 

administration reform, including e-government, 
has  held  back  the  quality  of  public  services. 
Despite  improvements  in  public  procurement, 
administrative  capacity  is  still  weak  and  the 
measures  included  in  the  National  Public 
Procurement  Strategy  have  not  been  assessed 
yet. E-procurement is not yet fully in place and 
the  potential  of  central  purchasing  remains 
untapped. The fight against corruption has been 
hampered  by  the  fragmented  landscape  of 
corruption-prevention  institutional  structures, 
and  by  procedural  and  legal  obstacles  to  the 
effective investigation and prosecution of high-
level corruption. Recent efforts to address these 
issues  still  need  to  show  concrete  results. 
Significant  progress  has  been  made  towards 
reinforcing  the  independence  of  the  judiciary 
but further follow-up is needed on this as well 
as  on  addressing  other  shortcomings  in  the 
judicial  system,  which  weaken  the  business 
environment and deter investment.  

to 

and 

currency 

improve  management 

  The fiscal performance is sound but there is 
space 
and 
governance. Improving tax compliance and the 
efficiency  of  the  tax  administration  remains  a 
key objective for public finances' sustainability 
and  the  promotion  of  a  socially  fair  and 
growth-friendly  economic  environment.  Fiscal 
is  supported  by  strong  political 
stability 
commitment 
board 
the 
arrangement,  but  checks-and-balances  in  the 
insufficient.  Public 
fiscal 
expenditure  management  is  sound  in  terms  of 
monitoring  and  medium-term  planning  of  the 
main  aggregates  but 
is  not  governed  by 
performance  goals  or  benchmarks.  Enhancing 
the  operation  of  the  Fiscal  Council  remains  a 
challenge. State-owned enterprises are a source 
of economic and fiscal risks, as their corporate 
governance  structures  are  rarely  subject  to 
professional  management  or  rules  that  ensure 
independent and transparent decision making. 

framework  are 

  Further  challenges  exist  in  specific  sectors. 
Shortcomings in the research, development and 
innovation  system  limit  its  contribution  to 
productivity  and  growth.  Reforms  are  still 
needed in the energy sector to ensure a reliable, 
competitive and sustainable supply of energy to 
businesses and the society at large. The energy 
saving  potential  remains  untapped  and  air 

3 

 
 
Executive summary 

quality  continues  to  give  cause  for  serious 
concern.  Shortcomings  in  infrastructure  are 
reflected 
low  effectiveness  and 
the 
performance of the transport sector. 

in 

4 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth  

exports’  contribution  to  growth  is  expected  to 
remain close to zero. 

Bulgaria’s  economy  is  growing  steadily,  with 
the drivers of growth shifting from the external 
sector  to  domestic  demand.  Real  GDP  growth 
was  estimated  at  3.8 %  for  2017.  Increases  in 
wages and improved household expectations had a 
positive  impact  on  private  consumption,  Public 
consumption  growth,  was  also  stronger  than  in 
previous  years  reflecting  mainly  higher  spending 
on  wages 
consumption. 
Investment  is  slowly  recovering  from  its  6.6 % 
drop  in  2016,  as  confidence  is  improving  in  the 
business sector  and  implementation  of  EU funded 
projects  has 
re-started.  Net  exports,  which 
performed  very  well  in  2016,  lost  momentum  in 
2017 as export growth slowed and higher domestic 
demand  fuelled  a  rise  in  imports.  The  difference 
between actual and potential GDP, the output gap, 
closed in 2017 and is set to turn positive in 2018. 

intermediate 

and 

Convergence  

Following  relatively  fast  income  convergence 
prior  to  the  crisis,  catching  up  with  the  rest  of 
the EU has slowed down. The GDP per capita gap 
with  the  EU  average,  measured  in  purchasing 
power  standards  (PPS),  closed  by  almost  13  pp. 
between  2006  and  2017  (Graph  1.2).  The  process 
of  convergence  slowed  after  the  global  crisis,  but 
has  revived  as  growth  gained  momentum  since 
2014. Convergence with the EU and the euro area,, 
however,  has  been  slower  than  in  other  Member 
States with broadly comparable levels of income at 
the time of accession (e.g. Lithuania, Romania and 
Poland).  For  that  reason,  Bulgaria’s  distance  in 
terms  of  real  income  from  some  of  its  peers  has 
increased. 

Graph 1.1: 

Real GDP growth by demand components 

Graph 1.2:  GDP growth and GDP per capita 

2017-19: Winter forecast 2018 for real GDP growth, otherwise  
Autumn forecast 2017 
Source: European Commission 

Wage  increases  and  faster  implementation  of 
EU  funds  are  expected  to  drive  economic 
in  the  medium  term.  Investment's 
growth 
contribution 
to 
to  economic  growth 
somewhat  increase  with  faster  implementation  of 
EU funds. Public consumption is forecast to grow, 
mostly  driven  by  the  planned  increases  in  public 
sector wages in 2018. Wages will continue to have 
a positive impact on private consumption but their 
growth  is  expected  to  slow.  Both  export  and 
import  growth  rates  are  projected  to  drop  and  net 

is  set 

5 

Note: GDP per capita adjusted for differences in price levels 
(PPS: purchasing power standards) 
2017-19: Winter forecast 2018 for real GDP growth, otherwise 
Autumn forecast 2017 
Source: European Commission 

labour 

Potential  GDP  growth  has  benefited  from 
productivity  improvements  but  is  constrained 
by  modest  capital  and 
increases. 
Potential  GDP  is  expected  to  grow  at  an  annual 
rate  of  close  to  3 %  (Graph  1.3).  Although  above 
those of many other EU Member-States, this rate is 
below  the  potential  GDP  growth  forecast  for 
several  regional  peers.  The  contribution  of  total 
factor productivity (TFP) to potential GDP growth 
has  increased  since  2014  and  its  importance  is 
shrinking 
contrast  with 
growing, 

the 

in 

-15-10-50510150607080910111213141516171819%, ppsChanges of inventoriesInvestment (GFCF)ConsumptionNet exportsReal GDP growthforecast-5051015202530-1001020304050600607080910111213141516171819Rate of change y-o-y (%)PPS (EU28=100)BG - GDP per capita in PPS (EU28=100)BG - growth rate (rhs)EU28 - growth rate (rhs)forecast 
 
 
 
1. Economic situation and outlook 

exchange  rate),  but is faster  than developments  in 
labour  productivity,  prices  and  the  unemployment 
rate would predict (Graph 1.4) (2) Moreover, wage 
increases seem to have had so far no impact on the 
domestic demand deflator. 

Graph 1.4:  Nominal wage growth in Bulgaria in 
comparison with wage benchmarks 

contribution of capital accumulation, which is at its 
lowest level in 10 years. Private investment did not 
recover completely after the international financial 
crisis and experienced a second drop in 2013-2014. 
Despite the gradual recovery of public investment 
which  started  in  2017,  the  capital  stock  is  not 
forecast  to  increase  significantly  in  the  medium 
term  due  to  a  number  of  structural  obstacles  to 
business  and  investment  that  will  take  time  to 
eliminate (see Section 4.4). Labour’s contribution, 
although  positive  since  2015,  remains  subdued 
reflecting the relatively slow increase in the labour 
force (see Section 4.3). 

Graph 1.3: 

Potential growth breakdown 

2017 data reflect the European Commission Forecast 
Source: European Commission based on the methodology 
described by Arpaia and Kiss (2015) 

Labour market, poverty and social exclusion 

and 

rates 

Unemployment  is  falling  mainly  because  of  the 
improved  economic  outlook.  The unemployment 
rate fell from a peak of 13 % at the end of 2013 to 
just  below  7 %  in  2016  and  6.3 %  in  2017. 
Activity 
increased 
employment 
substantially in the last few years, recovering from 
the sharp drop during the crisis period (Graph 1.5). 
In  2017  the  employment  rate  is  expected  to  have 
increased  further  and,  for  the  first  time  since  the 
crisis,  to  reach  a  level  close  to  the  71 %  recorded 
in  the  pre-crisis  period.  However,  there  is  still  a 
sizeable  potential  labour  force.  Labour  market 
prospects  are  expected  to  remain  positive  but  to 
moderate  somewhat  in  2018  and  2019  due  to 
limited labour supply. 

The  impact  of  the  positive  labour  market 
performance  is  not  evenly  spread  across  the 
population. In particular, people without a job for 
more  than  a  year,  inactive  young  people,  Roma 
and  those  living  in  poorer  regions  and  rural  areas 
continue to face significant difficulties in obtaining 

(2)  As measured by the wage benchmark calculation. For more 
details on the methodology see Arpaia and Kiss (2015). 

2017-19: Winter forecast 2018 for real GDP growth, otherwise 
Autumn forecast 2017 

Source: European Commission 

Prices and wages 

Prices are rising after a long period of deflation. 
Annual consumer price (HICP) inflation was 1.2 % 
in  2017  due  to  strong  domestic  demand,  higher 
administrative  prices  for  utilities,  and  recovering 
energy and commodity prices. Inflation is forecast 
to  gradually  increase  in  2018  and  2019  to  1.4 % 
and 1.5 %, respectively.  

pressures.  Compensation 

Strong  wage  increases  have  not  yet  created 
inflationary 
of 
employees  increased  by  7.8 %  in  2017  and  is 
expected  to  grow  8.3 %  in  2018.  Unit  labour  cost 
(ULC)  in  nominal  terms  increased  by  4.6 %  in 
2017  (against  2.3 %  in  2016).  Real  ULC  growth 
jumped from almost zero in the previous two years 
to 4% in 2017. Nominal wage growth has been in 
line with a stable evolution of cost competitiveness 
(as  measured  by  an  unchanged  real  effective 

6 

-4-20246-4-202460607080910111213141516171819% of GDPRate of change y-o-y (%)Labour (hours)Capital accumulationProductivity (TFP)Potential growth (rhs)Real growth (rhs)forecast-2024681012141618060708091011121314151617Rate of change y-o-y (%)Wage growth consistent with constant UCL-based REERActual nominal wage growthPrediction based on inflation, productivity and unemployment 
 
 
                                                           
1. Economic situation and outlook 

training  and 

work.  The  overall  rate  of  young  people  not  in 
employment,  education  or 
the 
proportion  of  the  inactive  population  within  that 
group  are  still  high.  Skills  shortages  and 
mismatches  remain  a  challenge.  The  so-far  low 
participation in active labour market measures and 
the  limited  focus  on  training  do  not  help  to 
improve this situation. 

Graph 1.5:  Activity, employment and unemployment 

rates 

for families with dependent children, is decreasing 
but remains among the highest in the EU. Market 
income  inequality  for  the  working  age  population 
is  only  slightly  higher  than  the  EU  average. 
However,  the  effect  of  taxes  and  transfers  on 
reducing  inequality  is  among  the  weakest  in  the 
EU.  This  is  partly  due  to  the  relatively  small 
redistribution  impact  of  the  flat  personal  income 
tax system, as  well as the relatively low spending 
on  social  protection  and 
the  absence  of  a 
mechanism  to  better  target  and  update  social 
transfers to the population in need. 

Graph 1.6: 

Level of income inequality in EU, 2016 

Source: European Commission 

in 

Structural labour market issues may hinder the 
sustainability  of  economic  growth 
the 
term.  The  shrinking  working  age 
medium 
population  is  a  long-term  drag  on  the  potential  of 
the economy (see above). Skills and qualifications 
mismatches  also  hamper  the  functioning  of  the 
labour  market,  despite  a  trend  toward  upskilling 
(see  Section  4.3).  The  levels  of  undeclared  work 
remain  high 
(see  Section  4.1),  which  has 
considerable implications for fiscal revenue, labour 
conditions  and  the  adequacy  of  income  after 
retirement.  Minimum  wage  setting  is  still  not 
based on objective socio-economic criteria. 

Growth has not been inclusive enough to reduce 
poverty  and  economic  and  social  inequalities. 
Bulgaria  has  one  of  the  highest  levels  of  poverty 
and  income  inequality  in  the  EU  (see  Graph  1.6 
and  Box  4.3.1).  Close  to  one  quarter  of  the 
population  have 
the  "risk-of-
poverty"  level.  Extreme  poverty,  as  measured  by 
indicators  such  as  severe  housing  deprivation (3) 

income  below 

(3)  This  measures 

in 
households  living  in  dwelling  that  are  overcrowded  and 

the  percentage  of 

the  population 

Note: The Gini coefficients range from 0 to 100. The value 0 
corresponds to perfect equality (same income to 
everybody) while 100 corresponds to maximum inequality 
(all income distributed to only one person and all the others 
have nothing). 
Pensions are included in social transfers. 
For IE, IT and LU data from 2015. 
Source: European Commission 

Inequality  of  opportunities  is  also  high.  Access 
to  social  services 
is  characterised  by  big 
discrepancies  between  rural  and  urban  areas,  as 
well as among regions. Poor education and health 
of  some  groups,  including  Roma,  form  another 
important driver of inequality irrespectively of the 
region. Health inequalities, measured by the gap in 
unmet needs for medical examination between the 
highest and  lowest  income  households,  have  been 
declining in recent years, but remain above the EU 
trans-
average.  Another  factor 
generational  transmission  of  social  and  economic 
conditions.  Poverty  among  children  with  low-
skilled parents is 15 times higher than it is among 

the  strong 

is 

deprived,  meaning  there  is  no  bath  or  toilet,  the  roof  is 
leaking, or the dwelling is considered too dark. 

7 

02468101214455055606570758006Q107Q108Q109Q110Q111Q112Q113Q114Q115Q116Q117Q1% of labour force% of populationUnemployment rate 15-74 (rhs)Activity rate 20-64Employment rate 20-640510152025300102030405060SKSICZFIBENLATSEDKHULUMTFRDEHRIEPLUKCYITEEPTELESLVROLTBG% of total populationGini indexGini based on market income (before taxes and transfers)Gini based on disposable income (after taxes and transfers)At risk of poverty (rhs) 
 
                                                           
 
 
                                                                                   
1. Economic situation and outlook 

children  with  high-skilled  parents (4).  Similarly, 
the socioeconomic background of parents seems to 
have  a  strong 
the  educational 
impact  on 
performance of students. The level of digital skills 
is overall among the lowest in the EU and is very 
diverse  among  different  socioeconomic  groups, 
adding  to  social  exclusion  and  inequality  of 
opportunities. 

(mainly  pension  funds  but  also  banks).  Persistent 
current account surpluses combined with a capital 
account  surplus  and  nominal  economic  growth 
have  also  contributed  to  the  positive  NIIP  trend 
since 2009. Foreign direct investment (FDI) is the 
NIIP's main source of finance. 

Graph 1.8:  Net international investment position 

External position 

at 

3 % 

around 

of  GDP 

The  current  account  balance  remains  positive, 
albeit  decreasing.  The  current  account balance  is 
estimated 
in 
2017,significantly  lower  from  its  2016  peak  of 
5.3 %  of  GDP.  Growing  demand  from  trading 
partners  is  being  outstripped  by  strong  domestic 
demand,  leading  to  a  higher  increase  in  imports 
than  in  exports  in  2017.  This  trend  is  expected  to 
continue  in  2018  and  2019,  when  the  current 
account surplus is expected to drop. 

Graph 1.7:  Current account developments 

Source: European Commission 

External  sustainability  risks  are  expected  to 
decline further as the negative NIIP is shrinking 
Based  on  current  trends,  by  the  end  of  2018  the 
NIIP is expected to be below the MIP threshold (-
35%),  as  well  as  the  country-specific  prudential 
threshold for Bulgaria, estimated at -34 % of GDP 
(see  European  Commission,  2016a).  Taking  into 
account  the  fundamentals  of  the  economy,  to 
maintain or to improve this NIIP level the current 
account  balance  should  be  above  -2.3%  of  GDP; 
this  is  the  so-called  current  account  norm. (5)  The 
projected  current  account  surpluses,  well  above 
this  norm,  are  paving 
the  way  for  further 
improvement  in  NIIP.  The  positive  marketable 
external  debt  position  is  an  additional  positive 
indicator of the external sustainability. This is due 
to  the  high  share  of  net  direct  investment  in  NIIP 
(Graph 1.8), as the high level of reserves (50% of 
GDP in 2017, the highest level in  the EU) offsets 
corporate foreign debt liabilities. 

(5)  The  current  account  'norm'  benchmark  is  derived  from 
reduced-form  regressions  capturing  the  main  determinants 
of  the  saving-investment  balance,  including  fundamental 
determinants (e.g. demographics, resources), policy factors 
and global financial conditions. See European Commission 
(2016a and 2017h). 

Source: European Commission 

international 

The  net 
investment  position 
(NIIP)  has  significantly  improved  in  recent 
years.  From  a  very  negative  position  of  -95 %  of 
GDP  in  2009,  the  NIIP  improved  to  -47.7 %]  of 
GDP in 2017. This improvement is mainly related 
to  an  increase  in  reserve  assets,  the  reduction  of 
bank  liabilities  to  parent  companies  and  higher 
holdings  of  foreign  assets  by  domestic  companies 

(4)  The percentage of children of low-skilled parents at risk of 
poverty is critically high, at 78.4% in 2016. This contrasts 
with  the  relatively  low  poverty  risk  for  children  of  high-
skilled parents of 5.4%. 

8 

-40-30-20-100102007080910111213141516% of GDPCapital account (KA)Secondary income balancePrimary income balanceTrade balance - servicesTrade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+KA)-150-100-500509899000102030405060708091011121314151617*% of GDPNet portfolio invest., equity and investment fund shares/unitsNet portfolio invest., debt securitiesOther invest. (net)Net direct invest.Net financial derivativesNet portfolio invest., debt securitiesNet international investment positionMarketable debt (portfolio debt instr., other invest. and res. assets, net) 
 
                                                           
 
                                                           
1. Economic situation and outlook 

due  to  the  falling  volume  of  NPLs  and  the  rising 
total  volume  of  loans6.  In  addition,  the  ratio  of 
loans with forbearance measures to total loans was 
8 %, above the EU average of 2. 9%. Provision for 
NPLs  went  up  slightly, 
to  51.1 %,  between 
September 2016 and September 2017. 

from 

robust  capital 

The  vulnerabilities  from  the  level  of  NPLs  is 
partly  mitigated  by  the  higher  levels  of  capital 
and  above  average  provisioning.  Capital  buffers 
are  comfortable  overall,  providing  space  for  a 
balance-sheet  clean-up.  However,  not  all  banks 
levels 
benefit  equally 
(European  Commission,  2017).  Furthermore, 
capital  adequacy  ratios  alone  will  not  provide 
sufficient incentives to reduce NPLs. Other factors, 
such  as  a  functioning  secondary  market  for  loans, 
adequate  legal  frameworks  for  foreclosure  and 
accurate  valuation  of  collateral,  are  needed  to 
facilitate  balance-sheet  clean-up.  In  cases  where 
collateral  is  overvalued  relative  to  its  market 
price (7),  higher  provisioning  requirements  could 
encourage banks to work out NPLs. In this context, 
implementing the IFRS 9 accounting regulation as 
of  January  2018  should  help  strengthen  loan-loss 
provisioning for some banks. 

Lending  activity  picked  up,  with  a  shift  in  favour 
of loans in leva (BGN). The total stock of private 
sector loans increased by 7.2 % in November 2017 
as  compared  to  a  year  earlier,  driven  by  a  rise  of 
about  15  %  in  lending  in  BGN.  Lending  in  euro 
decreased by about 10 %. Lending to non-financial 
corporations  remained  almost  flat  and  was  driven 
by  loans  in  BGN,  while  those  in  euros  fell.  The 
stock  of  residential  mortgage  credit  expanded  by 
about  7.8%  y-o-y,  supported  by  lending  in  BGN, 
while its counterpart in euros declined. The change 
in  currency  preference  is  somewhat  counter-
intuitive,  given  the  opposite  shift  in  interest  rates 
for  both  deposits  and  loans.  For  all  categories  of 
loans,  interest  rates  for  new  business  declined 
more and to lower levels for loans denominated in 
euros than for those in BGN. 

(6)  The  BNB  uses  a  more  conservative  definition  of  NPLs, 
according  to  which  the  NPL  ratio  declined  from  12.9%  at 
end-2016 to 10.2% at end-2017 

(7)  Anecdotal evidence from debt collectors suggests that there 
could  also  be  a  gap  between  the  value  of  collateral  in  the 
banks’ balance sheet and the market price. This would also 
hamper the development of a functioning secondary market 
for NPLs. 

Financial sector  

characterise 

the  balance 

the  banking 

Steady  expansion  of 
sheet, 
improved  quality  of  assets  and  higher  capital 
sector. 
levels 
Commercial  banks’  total  assets  grew  by  6.2 %  at 
end  2017,  compared  to  12  months  earlier.  Banks’ 
funding has been driven entirely by the significant 
increase  in  deposits.  Household  deposits  grew  by 
4.8. %,  while  the  growth  rate  of  non-financial 
corporate  deposits  was  13.1 %  (BNB,  2017a). 
Depositors  showed  sustained  preference 
for 
domestic currency. As a result of positive liquidity 
developments,  the  loan-to-deposit  ratio  declined 
further from 78 % in September 2016 to 74.8 % in 
September 2017. 

Banks'  profitability  remained  strong  in  2017. 
There was nonetheless a decrease in pre-tax return 
on equity from 10.4% in December 2016 to  9.3% 
in  December  2017  This  high  profitability  may  be 
overstated  because  of  accrued  interest  income, 
which  is  not  backed  by  cash  inflows.  These 
interest  accrual  practices  on  impaired  loans  are 
acceptable under International Financial Reporting 
Standards (IFRS) but they increase the risk that, as 
legacy  assets  are  worked  out, 
such  high 
profitability  levels  may  not  be  sustainable.  Profits 
helped  to  strengthen  the  banks’  capital  positions, 
with  the  CET1  ratio  increasing  from  18.5 %  in 
June 2016 to 20 % in June 2017. 

Table 1.1: 

Financial soundness indicators - all banks in 
Bulgaria 

* ECB aggregated balance sheet: loans excl to gov and MFI 
/ deposits excl from gov and MFI 
Source: ECB 

The share of non-performing loans continued to 
decline,  but  remains  high.  The  ratio  of  non-
performing  loans  (NPLs),  which  is  at  10.6 %  of 
gross  debt  as  of  June  2017  (ECB  data),  remains 
much higher than the EU average of 3.5%. It has, 
nonetheless,  declined,  from  12.3%  in  June  2016, 

9 

(%)20102011201220132014201520162017Q2Non-performing debt17.919.719.818.614.413.011.210.6Non-performing loans----16.014.512.812.1Non-performing loans NFC----20.723.121.119.9Non-performing loans HH----17.416.913.913.1Coverage ratio42.044.449.453.048.950.151.351.6Loan to deposit ratio*117.4107.6102.494.186.077.573.675.1Tier 1 ratio15.215.715.116.019.619.920.321.0Capital adequacy ratio17.417.616.617.021.521.621.522.2Return on equity**6.44.74.74.47.28.011.3-Return on assets**0.80.60.60.60.91.01.5- 
 
 
 
                                                           
1. Economic situation and outlook 

Graph 1.9:  Domestic credit growth 

Public finances 

Bulgaria has successfully consolidated its public 
finances  and  budgetary  developments  are 
to  remain  positive.  The  general 
expected 
government budget remained balanced in 2017. On 
the  expenditure  side,  public  investment  started  to 
recover, despite the slower-than-expected progress 
with implementing EU funded projects and public 
sector wages increased. On the revenue side, taxes 
and  social  security contribution  revenue  increased 
and  the  recovery  of  transfers  from  the  EU 
outweighed the rise in expenditure . The structural 
budget was also balanced in both 2016 and 2017. 

Graph 1.10:  House prices overvaluation gaps 

Overvaluation gaps with respect to price/income, price/rent 
and fundamental model valuation gaps. Long-term values 
are computed over 1995-2016. 
Source: European Commission calculations 

The  general  government  budget  is  forecast  to 
remain  balanced  in  2018  and  to  record  a 
surplus  in  2019.  A  further  rise  in  public  sector 
wages  and  investment  is  expected  to  be  offset  by 
strong  revenue  performance.  Higher  wages  in  the 
private 
security 
and  higher 
contribution rates are set to have a positive impact 
on public revenues. Revenue from indirect taxes is 
also  projected  to  increase,  in  line  with  higher 
consumption and public investment. 

sector 

social 

The general government debt declined in 2017. 
The drop to below 26 % of GDP in 2017 is due to 
the positive impact of the primary surplus and debt 
repayment  (worth  around  2  pp.  of  GDP)  out  of 
accumulated fiscal reserves. The primary surpluses 
and  low  interest  payments  projected  for  2018  and 
2019 are expected to lead to a further reduction in 
the general government debt. 

Based on index of notional stocks 
Source: ECB 

Asset  prices  have  increased  recently,  without 
signs  of  over-valuation  so  far.  House  prices 
increased  by  15.7 %  in  real  terms  between  June 
2015  and  June  2017  (23 %  in  the  capital,  Sofia) 
and by 7.2 % in the second quarter of 2017 alone. 
Rapid growth was also seen in the domestic stock 
exchange,  with  the  main  index,  SOFIX,  gaining 
18 %  in  one  year,  as  of  mid-January  2018.  The 
recovery  appears  to  be  supported  by  fundamental 
economic  improvements,  such  as  an  increase  in 
disposable income, an improved labour market and 
favourable lending conditions. 

There are no signs yet of over-valuation of real 
estate. Despite recent growth, house prices appear 
to  be  in  line  with  fundamentals  (Graph  1.10). 
Indicators  of  affordability  and  the  return  on 
investment of owner-occupied houses remain well 
below  their  long-term  average.  In  particular,  the 
rapid  increase  in  gross  disposable  income  means 
that  the  price-to-income  ratio  continued  to  fall  in 
2016.  While  the  number  of  building  permits  has 
increased  rapidly  in  the  first  quarters  of  2017,  it 
remains much lower than the pre-crisis levels. This 
suggests that supply constraints may play a role in 
the increase in house prices and that the economic 
impact  of  this  increase  remains  modest  so  far. 
However,  the  recent  pace  of  the  increase  and  the 
modelling  uncertainty  affecting 
the  above-
mentioned  indicators,  call  for  continued  close 
monitoring of house price developments. 

10 

-3-11357911Feb-12May-12Aug-12Nov-12Feb-13May-13Aug-13Nov-13Feb-14May-14Aug-14Nov-14Feb-15May-15Aug-15Nov-15Feb-16May-16Aug-16Nov-16Feb-17May-17Aug-17Nov-17Rate of change y-o-y (%) Total privateNon-financial corporationsHouseholdsMortgage credit-60-40-200204060801001201409698000204060810121416% gap between actual house prices and the benchmark consideredModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg. 
 
 
1. Economic situation and outlook 

Table 1.2: 

Key economic and financial indicators – Bulgaria 

(1) NIIP excluding direct investment and portfolio equity shares     
(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches.     
Source: Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise) 

11 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)6.91.11.13.63.93.83.73.5Potential growth (y-o-y)6.21.81.63.03.03.23.33.3Private consumption (y-o-y)9.51.00.14.53.6...Public consumption (y-o-y)2.4-0.40.41.42.2...Gross fixed capital formation (y-o-y)16.5-4.31.82.7-6.6...Exports of goods and services (y-o-y)15.02.96.35.78.1...Imports of goods and services (y-o-y) 19.7-1.14.75.44.5...Contribution to GDP growth:Domestic demand (y-o-y)10.8-0.60.53.61.2...Inventories (y-o-y)0.7-0.7-0.3-0.10.4...Net exports (y-o-y)-4.62.20.90.12.3...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1.8-1.0-0.40.30.40.40.40.3Capital accumulation (y-o-y)2.02.01.11.00.70.70.80.8Total factor productivity (y-o-y)2.30.80.91.72.02.12.22.2Output gap1.50.1-1.5-1.4-0.50.00.50.7Unemployment rate9.59.312.29.27.66.46.05.7GDP deflator (y-o-y)7.54.1-0.12.22.20.62.12.1Harmonised index of consumer prices (HICP, y-o-y)6.84.6-0.6-1.1-1.31.21.41.5Nominal compensation per employee (y-o-y)8.69.87.25.65.87.88.36.9Labour productivity (real, person employed, y-o-y)3.82.71.13.33.4...Unit labour costs (ULC, whole economy, y-o-y)4.56.96.02.32.34.64.83.5Real unit labour costs (y-o-y)-2.72.66.10.10.13.92.71.4Real effective exchange rate (ULC, y-o-y)2.84.56.8-0.21.04.84.61.3Real effective exchange rate (HICP, y-o-y)3.41.6-0.4-3.3-0.40.31.5.Savings rate of households (net saving as percentage of net disposable income)-15.9-6.6-4.8-2.63.5...Private credit flow, consolidated (% of GDP)26.69.23.1-0.34.0...Private sector debt, consolidated (% of GDP)86.1129.4127.7110.5104.9...of which household debt, consolidated (% of GDP)16.225.023.121.720.9...of which non-financial corporate debt, consolidated (% of GDP)69.9104.4104.688.884.0...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).14.716.513.011.2...Corporations, net lending (+) or net borrowing (-) (% of GDP)-6.11.78.27.16.310.010.010.2Corporations, gross operating surplus (% of GDP)27.128.729.330.627.128.828.128.1Households, net lending (+) or net borrowing (-) (% of GDP)-9.9-5.1-2.2-1.61.1-4.8-5.2-5.4Deflated house price index (y-o-y)24.8-6.81.01.67.1...Residential investment (% of GDP)3.93.41.71.42.7...Current account balance (% of GDP), balance of payments.-6.50.70.05.32.52.22.0Trade balance (% of GDP), balance of payments.-6.7-0.60.84.4...Terms of trade of goods and services (y-o-y)2.81.20.31.43.4-1.30.60.5Capital account balance (% of GDP).1.11.73.12.2...Net international investment position (% of GDP)..-74.3-61.2-47.0...Net marketable external debt (% of GDP) (1)..9.120.729.3...Gross marketable external debt (% of GDP) (1)..60.254.854.5...Export performance vs. advanced countries (% change over 5 years)59.525.810.313.95.1...Export market share, goods and services (y-o-y)6.4-0.13.5-2.18.0...Net FDI flows (% of GDP).-6.1-2.5-5.1-0.7...General government balance (% of GDP)1.4-1.6-2.9-1.60.00.00.00.2Structural budget balance (% of GDP)..-0.8-1.10.10.0-0.2-0.1General government gross debt (% of GDP)25.014.822.026.029.025.724.322.8Tax-to-GDP ratio (%)30.927.228.329.129.029.529.629.4Tax rate for a single person earning the average wage (%)20.521.521.621.6....Tax rate for a single person earning 50% of the average wage (%)12.121.521.621.6....forecast 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

the 

the 

introduction  of 

implementation  of 

Progress  with 
the 
in 
recommendations  addressed  to  Bulgaria 
2017 (8)  has  to  be  seen  in  a  longer  term 
perspective  since 
the 
European  Semester  in  2011.  Looking  at  the 
multi-annual  assessment  of  the  implementation  of 
the CSRs since these were first adopted, 74% of all 
the  CSRs  addressed  to  Bulgaria  have  recorded  at 
least 'some progress'. 26% of these CSRs recorded 
'limited'  or  'no  progress'  (see  Graph  2.1).  Since 
2011,  the  successive  changes  of  six  governments 
(two  caretaker  and  four  regular  ones)  further 
slowed down reform efforts. However, the current 
government  seems  committed  to  follow  up  on 
reform priorities and continue reform efforts in key 
sectors.  Measures  have  been  taken  in  several 
policy areas subject to CSRs, but further efforts are 
needed  to  have  more  tangible  results  of  reform 
implementation.  The  latter  also  complicates  the 
CSR implementation assessment.  

Graph 2.1:  Overall multiannual implementation of 2011 - 

2017 CSRs to date (1), (2), (3) 

(1) The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact 
(2) 2011 annual assessment: Different CSR assessment 
categories 
(3) The multiannual CSR assessment looks at the 
implementation until 2018 Country Report since the CSRs 
were first adopted. 
Source: European Commission 

The most notable progress has been achieved in 
statutory 
equalizing 
increasing  and 
retirement age by the 2015 pension reform. The 
authorities  are  taking  sustained  efforts  in  tackling 
the challenges of the labour market related to the  

the 

(8)  For  the  assessment  of  other  reforms  implemented  in  the 

past see, in particular, Section 4. 

participation  of  disadvantaged  groups,  but  some 
important  problems  persist.  The  reform  of  the 
public  employment  service 
is  another  good 
example  of  continuous  reform  implementation. 
Combatting  poverty 
social 
inclusion remain a big challenge and the measures 
taken  in  response  to  the  recommendations  fall 
below the magnitude of the problem. The work on 
the minimum wage setting mechanism, a CSR for 
several years, has stalled. 

and  promoting 

The  adoption  of  the  Pre-school  and  School 
Education Act is another example of successful 
implementation.  The  higher  education 
CSR 
reform accelerated. However, since 2014 Bulgaria 
has  not  progressed  significantly  on  improving  the 
provision  of  quality  education  for  disadvantaged 
groups, despite some recent measures.  

legislative  measures  are 

Healthcare  reforms  initiated  in  2015-2016  have 
addressed concerns raised in successive CSRs, but 
still  under 
many 
preparation,  and  implementation  of  others  has 
stalled,  such  as  selective  contracting  based  on  the 
National Health Map.  

Recommendations  on  public  procurement,  first 
introduced in 2011, have not significantly changed 
over  the  years.  A  number  of  measures  have  been 
put in place, but the concrete impact on the public 
procurement  landscape  remains  to  be  seen.  There 
has  been  insufficient  progress  so  far  in  enhancing 
administrative capacity in public procurement and 
no specific achievements in e-procurement. 

Bulgaria made some progress in improving tax 
collection  over  the  period  2015-2017  and  in 
reducing  the  informal  economy.  It  did  address 
the  recommendation  to  have  a  comprehensive 
strategy, but with a delay. 

Some  progress  was  achieved  over  2015-2017  in 
reviewing  assets  and  balance  sheets  in  the 
financial sector and in taking follow-up actions 
and  strengthening  supervision  .  The  authorities 
completed the asset quality review and stress tests 
the  degree  of 
in 
independence and the nature of the stress tests did 
not  fully  comply  with  the  recommendation.  The 
pension  funds  and  insurance  sector  reviews  were 

the  banking  sector,  but 

12 

0%25%52%13%10%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
 
                                                           
 
2. Progress with country-specific recommendations 

in 

improving 

Some  progress  was  done 
the 
targeting  of  active  labour  market  policies  and  the 
integration  between  employment  and  social 
for  disadvantaged  groups.  Limited 
services 
progress  was  made  in  increasing  the  provision  of 
quality  mainstream  education,  in  particular  for 
Roma and in increasing health insurance coverage, 
reducing  out-of-pocket  payments  and  addressing 
shortages  of  healthcare  professionals.  Limited 
progress was achieved in establishing a transparent 
mechanism  for  setting  the  minimum  wage,  while 
some progress was done in improving the coverage 
and  adequacy  of  the  minimum  income.  Finally, 
some  progress  was  done  in  ensuring  efficient 
implementation  of  the  2014-2020  National  Public 
Procurement Strategy. 

completed with a high degree of independence and 
transparency.  Follow-up  actions  have  been 
addressed,  and  their  implementation  is  ongoing. 
Measures to improve supervision have been taken 
and remain to be finalised. 

Some  progress  was  made  in  reforming  the 
insolvency  framework  since  2014.  A  procedure 
for  business  restructuring  has  been  adopted,  but 
measures are needed to ensure it fulfils its purpose. 
Some  elements  of  a  functioning  framework  are 
still lacking.  

the 

collection 

improving 

Overall,  Bulgaria  has  made  some progress  in 
addressing 
country-specific 
2017 
recommendations. (9) Some progress was made in 
tax 
tax 
further 
compliance,  and 
in  stepping-up  enforcement 
measures  to  reduce  the  informal  economy,  in 
particular  undeclared  work.  Some  progress  was 
the 
made 
financial sector reviews, in improving banking and 
non-banking  supervision  and  in  facilitating  the 
loans. 
reduction  of  non-performing  corporate 

taking  follow-up  measures  on 

and 

in 

(9)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. 

13 

 
                                                           
 
2. Progress with country-specific recommendations 

Table 2: 

Summary table on CSR assessment 

Source: European Commission 

14 

Bulgaria Overall assessment of progress with 2017 CSRs: Some  CSR 1: Further improve tax collection and tax compliance, including through a comprehensive set of measures beyond 2017. Step up enforcement of measures to reduce the extent of the informal economy, in particular undeclared work.   Some progress in improving tax collection  Some progress in stepping-up enforcement measures to reduce the extent of the informal economy, in particular undeclared work.1     CSR 2: Take follow-up measures on the financial sector reviews, in particular concerning reinsurance contracts, group-level oversight, hard-to-value assets and related-party exposures. Improve banking and non-banking supervision through the implementation of comprehensive action plans, in close cooperation with European bodies. Facilitate the reduction of still high corporate non-performing loans, by drawing on a comprehensive set of tools, including by accelerating the reform of the insolvency framework and by promoting a functioning secondary market for non- performing loans. (MIP relevant)  Some progress   Some progress in taking follow-up measures on the financial sector reviews  Some progress in improving banking and non-banking supervision  Some progress in facilitating the reduction of still high corporate non-performing loans  CSR 3: Improve the targeting of active labour market policies and the integration between employment and social services for disadvantaged groups. Increase the provision of quality mainstream education, in particular for Roma. Increase health insurance coverage, reduce out-of-pocket payments and address shortages of healthcare professionals. In consultation with social partners, establish a transparent mechanism for setting the minimum wage. Improve the coverage and adequacy of the minimum income.  (MIP relevant)  Limited progress   Some progress in improving the targeting of active labour market policies and the integration between employment and social services for disadvantaged groups  Limited progress in increasing the provision of quality mainstream education, in particular for Roma  Limited progress in increasing health insurance coverage, reducing out-of-pocket payments and addressing shortages of healthcare professionals   Limited progress in establishing a transparent mechanism for setting the minimum wage  Some progress in improving the coverage and adequacy of the minimum income  CSR 4: Ensure efficient implementation of the 2014-2020 National Public Procurement Strategy.  Some progress   Some progress in ensuring efficient implementation of the 2014-2020 National Public Procurement Strategy                                                              1 This overall assessment of CSR1 does not include an assessment of compliance with the Stability and Growth Pact.  
 
 
 
 
2. Progress with country-specific recommendations 

in  the  context  of  the  EU  economic  governance 
process  (i.e.,  implementation  of  country-specific 
recommendations),  but  the  scope  of  the  SRSS 
support is wider as it can also cover reforms linked 
to  other  Commission  priorities,  or 
reforms 
undertaken at the initiative of Member States.  

Bulgaria  has  requested  technical  support  from 
the SRSS to help implement reforms in various 
areas,  such  as  revenue  administration,  small 
and medium-sized enterprises, education, access 
to  capital markets, judicial  reform,  energy  and 
environmental  sector,  financial  management 
and  internal  audit.  In  particular,  the  SRSS  has 
already  provided  support  through  an  independent 
analysis  of  the  structural  and  functional  model  of 
the  Prosecutors  Office,  assisted  with  the  set-up of 
the  Fiscal  Council  and  supported  the  design  of  a 
system of disability benefits and services. 

improving 

ESI  Funds  are  pivotal 
in  addressing  key 
challenges to inclusive growth and convergence 
in  Bulgaria.  This  is  done  notably  by  investing  in 
public  administration  reform,  including  public 
the  overall  business 
procurement, 
environment  and  enhancing  SME  access 
to 
finance.  ESI  Funds  are  also  instrumental  in  the 
reform  of  the  higher  education  system  by  making 
the  reform  a  pre-condition  for  future  investments 
in  the  area.  Obstacles  to  investment  in  the 
education and health sector are being reduced and 
health  care  efficiency  is  enhanced  by  shifting  the 
system from hospital to ambulatory care. 

can 

from 

request 

Member  States 
the 
Commission  technical  support  to  prepare, 
implement  growth-enhancing 
design,  and 
structural  reforms.  The  Structural  Reform 
Support  Service  (SRSS)  provides,  in  cooperation 
with  the  relevant  Commission  services,  tailor-
made technical support, which does not require co-
financing  and  is  provided  at  a  Member  State's 
request. The support addresses priorities identified 

15 

 
 
 
2. Progress with country-specific recommendations 

Box 2.1: Tangible results delivered through EU support to structural change in Bulgaria 

Bulgaria  is  a  beneficiary  of  significant  European  Structural  and  Investment  Funds  (ESI 
Funds) support and can receive up to EUR 9.8 billion until 2020. This represents around 3 % of 
GDP annually over the period 2014-2018 and 55% of public investment1. By 31 December 2017, 
an  estimated  EUR  5.3 billion (54  %  of  the total)  was  allocated  to  projects on  the ground: 3,000 
SMEs received grant support, 300 new start-ups were created and 600 unemployed were able to 
start  a  new  business.  In  addition,  waste  recycling  capacity  will  increase  by  105,000  tonnes  and 
220,000  more  people  will  be  served  by  improved  water  supply  and  sanitation.  Compared  to  the 
2007-2013 period, over EUR 500 million is to be delivered via financial instruments, a two-fold 
increase. 

ESI  Funds  help  address  structural  policy  challenges  and  implement  country-specific 
recommendations.  Actions  financed  cover,  among  others,  measures  to  improve  the  overall 
business  environment  and  general  human  resource  development,  including  through  facilitating 
access of small and medium enterprises to finance, as well as to reducing obstacles to investment 
in education, social and health sectors by improving administrative and technical capacities of the 
local public administration and actions to improve the effectiveness of the justice system. 

Various reforms were undertaken already as precondition for ESI Funds support2. A Smart 
Specialisation Strategy was developed to focus research and innovation investments on products 
with  strong  market  potential.  Taking  the  research  and  innovation  reform  further  requires  very 
strong  commitment  of  the  Bulgarian  authorities  in  order  to  facilitate  involvement  of  local 
businesses  and  improve  cooperation  between  enterprises  and  public  research  institutions.  The 
national  transport  plan  has  allowed  the  timely  preparation  of  road  and  railway  projects, 
implemented not only with support from ESI Funds, but also from the Connecting Europe Facility 
(CEF),  European  Investment  Bank  (EIB)  loans  and  national  funding.  Reform  of  public 
procurement,  including  e-procurement  is  increasing  the  efficiency  of  public  spending.  The 
mapping of health infrastructure needs in the Bulgarian emergency health care system intends to 
enhance  coordination  and  targeting  of  investments  improving  access  to  healthcare.  The  higher 
education system was reformed as a pre-condition for investments in that area. 

Bulgaria is advancing the take up of the European Fund for Strategic Investments (EFSI). 
As of December 2017, overall financing volume of operations approved under the EFSI amounted 
to EUR 349 million, which is expected to trigger total private and public investment of EUR 1.5 
billion.  More  specifically,  3  projects  have  been  approved  so  far  under  the  Infrastructure  and 
Innovation  Window,  amounting  to  EUR  281  million  in  EIB  financing  under  the  EFSI.  This  is 
expected  to  trigger  nearly  EUR  652  million  in  investments.  Under  the  SME  Window,  9 
agreements  with  financial  intermediaries  have  been  approved  so  far.  European  Investment  Fund 
financing  enabled  by  the  EFSI  amounts  to EUR 68  million, which  is  expected  to  mobilise  more 
than EUR 923 million in total investment. Some 6 000 smaller companies or start-ups will benefit 
from this support. SMEs rank first in terms of operations and volume approved, followed by RDI. 

Funding under Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is 
additional to the ESI Funds. By the end of 2017, Bulgaria has signed agreements for EUR 406 million for 
projects under the Connecting Europe Facility.  

1 Public investment is defined as gross fixed capital formation + investment grants + national expenditure on agriculture 

and fisheries – see also https://cohesiondata.ec.europa.eu/countries/BG 

2  Before  programmes  are  adopted,  Member  States  are  required  to  comply  with  a  number  of  so-called  ex-ante 

conditionalities, which aim at improving conditions for the majority of public investments areas.  

16 

 
 
 
 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MACRO 

ECONOMIC IMBALANCE PROCEDURE IN-DEPTH REVIEW 

The in-depth review for the Bulgarian economy 
is  presented  in  this  report.  In  spring  2017, 
Bulgaria  was 
identified  as  having  excessive 
macroeconomic  imbalances,  in  particular  relating 
to pockets of vulnerabilities in the financial sector 
coupled  with  a  high  corporate  indebtedness  in  a 
context  of  incomplete  labour  market  adjustment. 
The  2018  Alert  Mechanism  Report  (European 
Commission, 2017l) concluded that a new in-depth 
review should be undertaken for Bulgaria to assess 
developments  relating  to  identified  imbalances. 
Analyses  relevant  for  the  in-depth  review  can  be 
found  in  section  4.2  financial  sector,  including 
developments  in  private  indebtedness  in  section 
4.2.3. An additional IDR relevant topic through its 
links to private indebtedness and growth is that of 
investment, analysed in section 4.4. Labour market 
related adjustment aspects are dealt with in section 
4.3. 

3.1. 

IMBALANCES AND THEIR GRAVITY 

further 

low  capital  buffers  of 

The  overall  robustness  of  the  banking  sector 
has 
improved  despite  remaining 
vulnerabilities. The 2016 asset quality review and 
tests  (AQR/ST)  showed  robust  results 
stress 
overall. It also identified pockets of vulnerabilities, 
including 
two  banks. 
Recently  the  banks'  balance  sheets  expanded,  the 
quality  of  their  assets  improved  and  their  capital 
levels  increased.  The  two  banks  retored  their 
buffer  and  work  is  ongoing  to  restore  their 
robustness.  Some  vulnerabilities  still  warrant 
attention, 
to  hard-to-value 
assets, and related-party transactions. The share of 
non-performing  loans  has  decreased  but  remains 
high. 

including  exposure 

increased, 

together  with 

The  soundness  of  the  non-banking  financial 
sector  has  improved  but  some  issues  remain. 
Net  assets  held  by  pension  funds  and  insurance 
companies 
the  debt 
securities market and the capitalisation of the stock 
market.  Two  insurers  had  their  licence  withdrawn 
as a result of the independent balance sheet review. 
Despite 
increased  supervisory  efforts,  some 
specific issues remain. These include the treatment 
of  specific  reinsurance  contracts,  the  valuation  of 

some  non-traded  assets  and  the  group  level 
supervision.  

further 

international 

investment 
The  negative  net 
position 
improved.  Bulgaria's  net 
international  investment  position  has  increased 
from - 92% of GDP in 2010 to [- 47.7%] of GDP 
in 2017 and is expected to further improve in 2018. 
Although  still  low,  it  partly  reflects  the  country's 
status  as  a  catching-up  economy.  Moreover,  the 
investment  position  consists 
net 
mostly  of  FDI,  reserves  are  high  and  net  external 
debt  is  positive.  For  these  reasons,  the  external 
position is not considered an imbalance. 

international 

Despite  ongoing  deleveraging,  private  sector 
debt  remains  high  relative  to  regional  peers. 
Private  sector  debt  has  decreased  from  132%  of 
GDP in 2013 to 105% of GDP in 2016. This drop 
is mainly linked to debt reduction in non-financial 
corporations, while the debt ratio of households is 
among  the  lowest  in  the  EU.  The  corporate  debt 
burden  could  negatively  affect  investment  and 
growth  over  the  medium  term.  The  still-high 
aggregate  NPL  ratio  confirms  that  vulnerabilities 
remain. 

labour  market  has 

The 
improved,  but 
structural  issues  still  hamper  its  functioning. 
Despite  the  strong  drop  in  the  unemployment  and 
the  long-term  unemployment  rates,  the  share  of 
young  people  not  in  employment,  education  or 
training  remains  high.  Labour  shortages  and 
mismatches  negatively  impact  the  functioning  of 
the  labour  market  and  the  adjustment  capacity  of 
the economy..  

3.2. 

EVOLUTION, PROSPECTS AND POLICY 
RESPONSES 

The  positive  macroeconomic  developments, 
together  with  some  policy  action  resulted  in 
unwinding  of  imbalances.  The  robustness  of  the 
financial  sector  improved,  both  in  banking  and 
non-banking.  The  deleveraging  process  in  the 
private  sector  continued.  The  labour  market  also 
continued  improving.  The  growth  momentum  is 
expected to carry on and support the debt reduction 
and the labour market.  

17 

 
 
4.1. Public finances and taxation 

3.3.  OVERALL ASSESSMENT 

Bulgaria  still  faces  imbalances  in  the  form  of 
remaining  fragilities  in  the  financial  sector, 
combined with a relatively high corporate debt. 
The economy has improved and the external sector 
does not represent an imbalance. The robustness of 
the  financial  sector  has  increased  albeit  further 
progress  is  needed  to  complete  recent  reforms. 
Private sector debt has decreased due to the better 
economic  conditions,  but  remains  relatively  high. 
The same is true for the share of NPLs, suggesting 
potential  problems  with  credit  allocation  and  a 
need  for  tools  to  reduce  NPLs.  The  reform  of  the 
insolvency  framework  has  advanced,  but  is  still 
incomplete.  The  labour  market  has  improved, 
despite  some  remaining  structural  issues.  Overall, 
imbalances have abated but some fragilities in the 
financial  sector  and  the  high  corporate  debt  could 
constrain economic growth.  

and 

(BNB) 

has 
to 

addressed 
banks 

The  measures  to  address  vulnerabilities  in  the 
financial sector are being taken but are not yet 
completed.  Important  steps  were  made  towards 
reducing potential macro-financial risks stemming 
from  the  banking  sector.  The  Bulgarian  National 
follow-up 
Bank 
recommendations 
their 
implementation  is  ongoing.  Amendments  to  the 
Law  on  Credit  Institutions  were  adopted,  to 
strengthen  the  requirements  for  managing  and 
reporting  related-party  transactions.  Measures  to 
be completed include finalising the revision of the 
review  and  assessment  manual, 
supervisory 
strengthening  the  resolution  framework  for  banks 
and 
plans. 
banks' 
Implementation  of  follow-up  measures  to  the 
independent  reviews  in  the  non-banking  financial 
sector  continues.  The  non-bank  supervisor  took 
some  steps  to  improve  its  functioning  and  others 
could  be 
in 
supervision persist. Amendments to the Law on the 
FSC  aimed  at 
improving  supervision  were 
adopted. An action plan to address shortcomings in 
non-banking 
supervision  has  been  adopted. 
Remaining  issues  in  the  financial  sector  include 
related-party  exposures,  hard-to-value  assets, 
group-level  oversight,  treatment  of  reinsurance 
contracts and a still high ratio of NPLs. 

finalised  soon,  but  challenges 

approving 

resolution 

Reduction  of  the  high  corporate  indebtedness 
level  is  hindered  by  the  incomplete  insolvency 
framework  reform  and 
the  still  shallow 
secondary  market  for  NPLs.  The  insolvency 
framework reform is progressing slowly, but some 
elements  of  a  functioning  framework  remain 
missing.  Furthermore,  a  deeper  market  for  NPLs 
could facilitate disposing of banks' NPL stock and 
restructuring viable businesses.  

Persistent  challenges  make it  difficult  to match 
supply  and  demand  of 
labour  effectively, 
despite some measures. The matching of demand 
and  supply  is  hindered  by  persistent  structural 
issues.  In  spite  of  there  being  a  methodology  in 
place  for  monitoring  the  effectiveness  of  policy 
measures,  there  remains  potential  to  improve  the 
targeting and effectiveness of active labour market 
policies. Structural issues remain, including a high 
share  of  young  people  not 
in  employment, 
education  or  training,  and  labour  shortages  and 
mismatches.  In  addition,  Bulgaria  still  lacks  a 
transparent  mechanism  for  setting  the  minimum 
wage. 

18 

 
 
 
Table 3.1: 

Macroeconomic Imbalance Procedure assessment matrix for Bulgaria 

4.1. Public finances and taxation 

19 

(Continued on the next page) 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) Financial sector Risks stemming from the banking and non-banking financial sectors are related to credit quality concerns, loan-origination standards in some institutions, the valuation of collateral and some non-traded assets. The ownership structure of some institutions is not conducive to the most sound business practices. The materialisation of these risks would pose a challenge for financial stability, for the efficiency of resource allocation in the economy as well as for public finances.  The ratio of bank non-performing loans remains among the highest in Europe, in particular for NFCs. A high NPL ratio constrains credit growth by limiting both demand and supply of bank financing.  Potential risks to macro-financial stability from the pension funds and insurance industries have recently increased in light of their growing role. The pension funds and insurance companies review confirmed the need to identify related parties and to improve the valuation of investments in illiquid markets and instruments.  The central bank asked two banks to restore their capital buffers on the basis of the results of the AQR/ST exercise. The banks respected the deadline to restore their buffers and work is ongoing to restore their robustness. Overall, there is no public information on progress with implementing the recommendations that were addressed to banks as a result of the AQR (beyond the capital requirements). The favourable macroeconomic environment has helped banks to gradually reduce the size of their non-performing loans.  The high level of non-performing loans continues to pose a challenge. The shallow market for non-performing loans hinders their workout. Although on aggregate, these deficits are relatively small compared to the capital requirements and the available own funds of the insurance sector, the insurance sector review showed that a quarter of the reviewed companies and groups did not fully meet the capital requirements.  The BNB has addressed follow-up recommendations to banks. Their implementation is ongoing.  The ECB guidance to establish strategies to tackle the NPLs on banks' books applies to the subsidiaries of euro-area banks operating in Bulgaria. Earlier plans by the BNB to extend this guidance to domestically owned banks (European Commission, 2018d) have not been confirmed”.. Parliament adopted amendments to Article 45 of the Law on Credit Institutions to strengthen the requirements for managing and reporting related-party transactions (see Section 4.2.1).  Challenges going forward include dealing with exposures to hard-to-value assets and improving supervision The Financial Supervision Commission (FSC) addressed recommendations to the companies with capital needs and with governance deficiencies, following up on the results of the reviews of insurance companies' balance sheets and pension funds' assets. A second round of reviews was organised by the FSC to check the implementation of follow-up actions originating from the first reviews.  Changes to the Social Insurance Code, including a broader definition of related parties in line with international standards, were adopted by the national parliament in November 2017. Amendments to the Law on the FSC aimed at improving supervision were adopted. An action plan to address shortcomings in non-banking supervision has been adopted. Some issues remain to be further addressed, such as the treatment of specific reinsurance contracts, the valuation of some non-traded assets and the group level supervision (see Section 4.2.2)  Corporate debt and deleveraging NFC debt had grown well above fundamentals in the run-up to the global financial crisis but has started to adjust since 2013 and is now converging towards fundamental levels just below prudential levels. Credit misallocation reflected in the high level of NPLs, however, has the potential to be a drag on growth in the medium-term. (see Section 4.2.4). Any deleveraging pressures may weigh on investment and growth, in particular in the medium term (see Section 4.4). Private debt, the majority comprising NFCs, is still high relative to peers. However, the deleveraging process has continued. In addition, robust nominal GDP growth is set to further support the ongoing deleveraging path (see Section 4.2.4). Further policy steps are needed to improve the insolvency framework, including implementing newly adopted legislation, and improving institutions and practices (see Section 4.2.5).    
 
 
 
4.1. Public finances and taxation 

Table (continued) 

Source: European Commission 

20 

Adjustment issues Labour market Despite improvements in unemployment rates, activity and employment rates remain below the EU average. The rate of young people neither in employment nor in education and training is still high. The existing labour shortages and mismatches impair the functioning of the labour market and its adjustment capacity. Minimum wage levels are still decided without a transparent mechanism based on relevant macro-indicators. Without such a mechanism, the right balance between the objectives of supporting employment and competitiveness while safeguarding labour income cannot be ensured (see Section 4.3.1). The decrease in the unemployment and long-term unemployment rates since 2014 is expected to continue in the next years. However, structural issues persist, including a high share of young people not in employment, education or training, and labour shortages and mismatches. The administratively-decided 9.5 % raise in the minimum wage for 2017 and 10.9% for 2018 is to be followed by increases of 9.8% in 2019 and 8.9% for 2020.  The government has taken steps to improve the targeting and coverage of active labour market policies. However, participation in such policies remains limited. The integration of employment and social services remains incomplete. The policy gap persists in the area of setting the minimum wage, as a transparent mechanism has still to be developed (see Section 4.3.1).   Conclusions from IDR analysis  Bulgaria continues to be subject to stock imbalances related to some fragilities in the financial sector and corporate indebtedness high relative to regional peers. Albeit decreasing, these imbalances could still weigh on credit developments and medium-term growth prospects.   The stabilisation of the banking sector since 2015 continued. Exposures to hard-to-value assets and unsound business practices remain a challenge for the supervisory authorities. Deleveraging in the corporate sector continued, with a still-large private sector debt stock and a high NPL ratio. Despite general labour market improvements, the share of young people not in employment, education or training remains high and labour shortages and mismatches persist.   Follow-up measures from the asset quality review are ongoing. Steps to further strengthen bank supervision were taken and are being implemented. Shortfalls in the insurance sector and issues related to certain reinsurance contracts persist. Risks to the long-term benefits of pension fund account holders remain. Steps to improve non-banking financial supervision were taken, but some issues remain. The reform of the insolvency framework has advanced but is still incomplete.    
 
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES 

4.1.1.  TAX POLICY 

Bulgaria  has  a  relatively  low  level  of  taxation 
and  a  growth-friendly 
tax  structure.  Tax 
revenue  as  a  percentage  of  GDP  is  the  lowest  in 
the  EU  and  well  below  the  EU  average  (Graph 
4.1.1). Indirect (mostly consumption) taxes are the 
main source of revenue. They represent more than 
15 %  of  GDP,  against  an  EU  average  of  around 
13 %. Environmental taxes, especially on transport 
fuels,  form  a  considerable  part  of  tax  revenues 
compared  to  other  Member  States (10).  This  is 
despite  the  low  tax  rates  on  the  main  motor  fuels 
(petrol  and  diesel),  which  are  just  above  the 
minimum  EU  level  and  have  not  been  increased 
since  2011  for  petrol  and  2013  for  diesel. 
Consumption 
to 
taxes  are 
economic growth, but are often regressive. 

less  detrimental 

Graph 4.1.1:  Tax revenue by main category 

Source: European Commission 

Despite  a  simple  tax  system  the  administrative 
burden of paying taxes remains high. Corporate 
and  personal  income  tax  rates  are  flat  —  at  10 % 
— and among the lowest in the EU, with the aim 
to attract investors. Income tax bases are relatively 
broad,  with  little  use  of  tax  exemptions.  At  the 
same  time,  the  overall  administrative  burden  of 
complying  with  the  tax  system  is  reported  to  be 
high. Paying taxes is more time consuming than in 
other  Member  States  (PWC,  2017)  mainly  due  to 

(10)  Bulgaria  was  ranked  10th  in  the  EU  in  2015  (European 

Commission, 2017) 

4.1. Public finances and taxation 

the  compliance  requirements  for  labour  taxes  and 
social security contributions.  

is 

limited. 

social  disparities 

The power of the tax system to correct poverty 
Income 
and 
inequality, as measured by the Gini coefficient for 
disposable income (i.e. after taxes and benefits), is 
the highest in the EU. The ’at-risk-of-poverty’ rate 
was  the  second  highest  in  2016  (see  Section  1). 
The  relatively  small  difference  between  market 
and disposable income inequality suggests that the 
tax  and  benefit  system  plays  a  limited  role  in 
combating income inequalities. By design, the flat 
are  usually 
personal 
characterised  by  a 
low  (or  no)  degree  of 
progressivity.  The  low  tax-to-GDP  ratio  also 
provides little scope for the supply of public goods 
reduce 
and  services,  which  would  possibly 
inequalities and foster social mobility (see section 
4.3.4) and economic development. 

systems 

income 

tax 

shadow 

economy (11),  while 

slightly 
The 
decreasing,  remains  a  considerable  challenge. 
The  value  added  tax  (VAT)  gap  remains  large, 
21 %  of  the  total  VAT  liability  (close  to  2.3%  of 
GDP),  well  above  the  EU  average  of  12.8 % 
(CASE,  2017).  Although  there  are  no  official 
measures of the size of the shadow economy, some 
model-based  studies  (12)  estimate  that  the  shadow 
economy is twice as large as the EU average. The 
Bulgarian Industrial Capital Association estimated 
the loss of revenue due to the grey economy (13) at 
more than 2 % of GDP in 2016. In many of these 
measures  Bulgaria's  performance  has  improved 
over  time,  but  its  ranking  within  the  EU  is  still 
very low.  

Undeclared work continues to distort the labour 
market  and  impede  fair  working  conditions. 

(11)  The  informal  or  shadow  economy  includes  all  economic 
activities by workers and economic units that are – in law 
or  in  practice  –  not  covered  or  insufficiently  covered  by 
formal arrangements. (ILO, 2018). 

(12)  See  e.g.  Schneider  (2016).  In  this  study,  the  shadow 
economy  ‘includes  all  market-based  legal  production  of 
goods  and  services  that  are  deliberately  concealed  from 
public  authorities’  in  order  to  avoid  payment  and  legal 
obligations.  

(13)  See BIA (2017). This study calculates foregone revenue on 
the basis of the change in the GDP and its components. 

21 

051015202530354010111213141516% of GDPActual net social contributionsDirect taxesIndirect taxesEU28 tax revenue 
 
 
                                                           
                                                           
4.1. Public finances and taxation 

4.1.2.  EFFICIENCY OF PUBLIC SPENDING 

indicates 

The  public  budget  provides  limited  resources 
for  the  promotion  of  social  and  economic 
development.  Average  public  expenditure  was 
close  to  36 %  of  GDP,  against  an  EU  average  of 
46 %  of  GDP  in  2017.  The  structure  of  public 
that  pressing  social  and 
spending 
economic  needs  receive  only  limited  resources. 
Budgets  for  social  policies,  education  and  health 
are  much  lower  as  a  percentage  of  GDP  than  the 
EU average (Graph 4.1.2). This partly explains the 
small impact of public policy on reducing poverty 
and inequality. Similarly, the low level of growth-
friendly  expenditure,  often  defined  as  public 
expenditure  on  investment,  education  and  health 
care, indicates a lack of proper targeting of growth 
enhancing policy areas.  

Graph 4.1.2:  Public expenditure by category, average 

2011-2015 

While  the  introduction  of  one-day  contracts  in 
agriculture  has  helped  to  reduce  undeclared  work 
in  the  sector  (Industry  Watch,  2017),  the  number 
of  people  working  without  a  contract  economy-
wide is increasing - from 37500 in 2012 to 55900 
in  2016  (National  Statistical  Institute,  2013  and 
2017).  One  in  seven  employees  has  reported 
(‘envelope’)  wages 
receiving  under-declared 
(William  and  Horodnic,  2017)  and  the  national 
authorities  consider  47 %  of  employers  and  58 % 
of employees at risk of engaging in under-declared 
employment (14).  Joint  inspections  between  fiscal 
labour  authorities  have  been  organised, 
and 
promising  future  improvements  in  efficiency  and 
scope. 

A  number  of  measures  are  in  place  to  tackle 
persistent  problems  with  tax  collection  and  to 
reduce  the  administrative  burden  of  paying 
taxes.  In  2015,  Bulgaria  put 
into  effect  a 
comprehensive tax compliance strategy and action 
plan.  The  authorities  also  continued  to  introduce 
and adjust a number of control measures. In 2017, 
the  implementation  of  the  strategy  was  improved, 
and controls and measures to collect tax debt were 
intensified. By the end of 2017, more than 60 % of 
the  measures  included  in  the  strategy  had  been 
launched, but not all of them had been completed. 
The  authorities  are  considering  extending  the 
strategy beyond 2017. 

to 

improve 

the  measures 

Efforts  to  improve  tax  compliance  are  bearing 
fruit but the impact on revenues is still limited. 
Tax  revenues  remained  relatively  stable  as  a 
percentage of GDP between 2013 and 2016 (Graph 
4.1.1).  The  authorities  estimate  the  additional 
revenue  from 
tax 
compliance  at  more  than  0.8 %  in  2017.  In  the 
same  year,  a  number  of  other  policy  measures  – 
already  adopted  and  implemented  -  including 
increases in social contributions and excise duties, 
were  expected  to  lead  to  additional  revenue  of 
0.5 %  of  GDP  (Ministry  of  Finance,  2017). 
Despite  these  developments,  tax  revenues  are 
estimated  to  have  increased  by  just  a  fraction  of 
the combined impact of the policy measures. This 
implies that the tax system is still unable to reach 
its full potential in tax revenue. 

(14)  According  to  a  risk  analysis  by  the  Risk  Management 
Directorate  of  the  National  Revenue  Agency  on  under-
declared employment. 

Source: European Commission 

Depending  on  the  policy  area,  higher  or  more 
efficient  public  expenditure  could  make  a 
difference.  According  to  a  recent  cross-country 
comparison for the EU, the performance of public 
expenditure, i.e. policy outcomes measured with a 
range  of  indicators,  is  found  to  be  comparatively 
low  in  all  expenditure  categories.  In  education, 
health  and  public  services,  where  public  spending 
the  EU,  policy 
is  among 
performance,  although  low,  is  at  levels  similar  to 
or  better  than  Member  States  with  comparable 
spending  patterns,  pointing  to  somewhat  higher 
level  of  efficiency.  The  efficiency  of  public 
expenditure  is  relatively  low  in  high-spending 
areas,  such  as  public  order  and  safety  and 
(European  Commission,  2016). 
infrastructure 

lowest 

the 

in 

22 

05101520EnvironmentCultureDefenceHousingOrder and safetyPublic serviceEducationHealthEconomic affairsSocial protection% of GDPEU28BG 
                                                           
 
4.1. Public finances and taxation 

Corporate  governance  of  SOEs  remains  a 
challenge.  The  SOE  governance  framework  does 
not  fulfil  most  of  the  conditions  set  out  in  the 
OECD  guidelines  on  Corporate  Governance  of 
SOEs (OECD, 2015). The main challenges are: (i) 
the  unclear  rationale  for  state  ownership  in  many 
cases  and  the  fragmented  supervisory  framework, 
(ii) a lack of financial targeting and accountability, 
and  (iii)  management  appointments  often  made 
without 
value-
maximising incentives (see also Bower, 2017). The 
presence  and  role  of  the  political  authority  is 
strong. This often comes at the expense of longer-
term  vision  and  coordination,  transparency  and 
high-level management standards. 

competitive 

procedures 

or 

4.1.4.  FISCAL FRAMEWORK 

requirements 

Bulgaria  took  further  steps  towards  improving 
its  fiscal  framework.  The  authorities  recently 
amended  the  Public  Finance  Act  to  bring  it  into 
the  EU’s  budgetary 
full  compliance  with 
frameworks 
(Council  Directive 
2011/85). The amendments aimed at: (i) improving 
the  transparency  of  public  finances  by  extending 
the requirement to systematically compare official 
projections  with  the  most  recent  Commission’s 
the  effectiveness  of 
forecasts,  (ii) 
domestic 
specifying 
consequences  for  non-compliance  with  the  two 
rules  governing  expenditure  developments,  and 
improving  multi-annual  budget  planning 
(iii) 
through  systematic  use  of  a  no-policy-change 
scenario  as  a  benchmark  for  different  policy 
scenarios.  

increasing 

numerical 

rules 

by 

The  Bulgarian  Fiscal  Council  has  expanded  its 
activities,  but  there  are  number  of  constraints 
on  its  effective  functioning.  Based  on  its  broad 
mandate,  the  Council  has  started  to  publish  its 
monitoring reports on the annual and medium-term 
fiscal  plans  and  on  budgetary  execution  and 
compliance with the Public Finance Act. However, 
the  Council  still  faces  significant  challenges  in 
performing its core tasks, mainly due to the limited 
resources  available.  Recent  attempts  by 
the 
Council to increase its financial autonomy did not 
receive the necessary support from the government 
and the Parliament. However, in February 2018 the 
Parliament  adopted  a  legislative  amendment  that 
increases  the  Council's  staff  from  three  to  five 
experts

More  recent  data  broadly  confirm  the  assessment 
(Cepparulo et al, 2018). 

recipients  of 

social  benefits 

implementation  are 
Budget  planning  and 
sound,  but  there  is  limited  monitoring  of 
developments inside expenditure categories. The 
Ministry  of  Finance  prepares  the  annual  and 
term  budget  and  monitors  budget 
medium 
implementation  on  a  monthly  basis.  However, 
information  affecting  major  public  spending  such 
as  pay  systems,  size  of  public  sector  employment 
remains 
and 
the 
fragmented.  Following  a  decision  by 
the  World  Bank  has 
government 
focusing  on 
undertaken  a  spending 
maintenance  and  staff  expenditure 
in  seven 
ministries  and  21  municipalities,  including  an  in 
depth  assessment  of  spending  on  police  and  fire 
protection 
services  as  well  as  of  waste 
management systems. The project is expected to be 
completed by the summer of 2018, and to conclude 
with  a  set  of  recommendations  and  a  manual  for 
future spending reviews.  

in  2016, 

review 

4.1.3.  STATE OWNED ENTERPRISES 

The  economic  performance  of  state-owned 
enterprises  (SOEs)  is  weak  compared  with 
countries  in  the  region  and  the  private  sector. 
Measured  by  return  on  equity,  SOEs  profitability 
in  most  sectors  is  significantly  lower  than  that  of 
the private sector (Bower, 2017). Similarly, SOEs 
in Bulgaria perform worse in terms of capital and 
labour  efficiency  than  both  the  private  sector  and 
peer  countries  (Bower,  2017).  Energy  is  the  most 
loss-making  sector  and  its  SOEs  are  the  most 
indebted.  In  the  transport  sector,  the  two  railway 
SOEs  account  for  liabilities  worth  2.6 %  of  GDP. 
The  government  intends  to  use  funds  from  the 
concession  of  the  management  of  Sofia  airport  to 
loss-making  and  highly 
help  modernise 
indebted state railway operator, BDZ. 

the 

The performance of state-owned enterprises is a 
source  of  uncertainty  and  risk  for  public 
finances. Total liabilities of SOEs’ where the state 
owns at least 50 % and exerts control amounted in 
June  2017  to  close  to  17 %  of  GDP  (Ministry  of 
Finance,  2017).  Almost  half  of  these  liabilities 
belong 
the  general 
government,  and  are  thus  contingent  liabilities 
which the state often has to guarantee or cover.  

to  companies  outside 

23 

 
4.2.  FINANCIAL SECTOR 

A  robust  financial  sector  is  an  important 
milestone  on the  road  to  joining  the  euro  area. 
Adopting the euro also means joining the Banking 
Union.  Therefore  it  is  crucial  to  ensure  that  the 
financial  sector  is  robust  and  well-regulated  and 
supervised, 
systemically-significant 
institutions in particular. 

and 

4.2.1.  BANKING SECTOR  

the  BNB 

Banks have made progress in implementing the 
recommendations  of  the  Bulgarian  National 
Bank  (BNB)  following  the asset  quality review, 
but  some  efforts  are  still  needed.  The  review 
conducted  by 
in  2016  (European 
Commission,  2017)  found  that  two  banks  needed 
to replenish their capital buffers, although they still 
complied  with  the  regulatory  minimum  capital 
requirement  (BNB,  2016).  The  banks  met  the 
deadline to restore their capital buffers and work is 
ongoing to restore their robustness. The two banks 
are working with external advisers to improve risk 
management practices, in particular regarding their 
non-performing  portfolios,  and  to  de-risk  their 
balance  sheets,  partly  by  selling-off  repossessed 
collateral.  Mitigating  the  risks  associated  with 
large exposures and improving collateral valuation 
is key to strengthening balance sheets and boosting 
the resilience of the banks in general. In addition, 
the larger of the two banks has tried to raise fresh 
capital, including by attracting new core investors, 
but it has been unsuccessful by end-January 2018. 
The  restructuring  of  the  sector  was  reinforced  by 
the  BNB's 
the 
privatisation  of  a  mid-sized  bank  to  an  acquirer 
which, however, is not a banking entity. 

preliminary 

approval 

of 

The 

and 

Banks' 

procedures. 

Banks are working on improving their internal 
policies 
BNB 
recommendation  to  improve  internal  policies  and 
procedures  was  addressed  in  particular  to  banks 
that  underperformed  in  the  2016  stress  tests  and 
thus  needed  to  strengthen  their  resilience  to 
shocks. 
these 
recommendations  and  have  also  prepared  for  the 
introduction  of  the  new  International  Financial 
Reporting  Standard  (IFRS 9),  which  entered  into 
force  in  January  2018.  The  BNB  put  in  place  a 
two-stage  review  of  banks’  level  of  preparedness. 
The  fact 
loss 
provisioning  rules  could  result  in  higher  loan-loss 
provisions  in  some  banks  contributes  to  the 

the  new  IFRS 9  credit 

followed-up 

that 

on 

cleaning  of  banks’  balance  sheets  and 
the 
reduction of the still high level of non-performing 
loans (NPLs). 

There  has  been  notable  progress  in  improving 
bank supervision, but some important measures 
remain  to  be  fully  implemented.  The  BNB  has 
implemented  forcefully  its  2015  detailed  plan  to 
improve  banking  supervision.  Key  measures  that 
remain  to  be  completed  include  finalising  the 
revision of the supervisory review and assessment 
manual,  strengthening  the  resolution  framework 
and approving banks’ resolution plans. In addition, 
the process of upgrading the ICT tools available to 
the  banking  supervision  department  is delayed.  In 
November 
adopted 
amendments  to  several  pieces  of  legislation  to 
strengthen  the  BNB's  decision-making  framework 
and improve the supervisory process. 

the  Parliament 

2017, 

of 

risk 

from 

The authorities have taken steps to improve the 
supervision 
related-party 
exposures.  Parliament  adopted  amendments  to 
Article 45 of the Law on Credit Institutions, which 
sets limits to related-party exposures. The changes 
aim  to  extend  the  scope  of  relevant  legislation  to 
better  capture  the  risks  involved.  It  remains  to  be 
seen  how  well  they  can  integrate  economic 
interlinkages  into  the  assessment  of  related-party 
transactions.  Requirements  for  managing  and 
reporting related-party transactions have also been 
strengthened.  

The  banking  supervisor  no  longer  intends  to 
follow the ECB's approach for non-performing 
loans. The ECB guidance on non-performing loans 
(NPLs), published in March 2017, asked euro-area 
banks,  in  particularly  those  with  high  levels  of 
impaired  loans,  to  establish  internal  strategies  to 
tackle  NPLs  on  their  books  (ECB,  2017a).  This 
guidance also applies to the Bulgarian subsidiaries 
of  euro-area  banks.  Earlier  plans  by  the  BNB  to 
extend this guidance to domestically owned banks 
(European  Commission,  2018d)  have  not  been 
confirmed. The ongoing work of the EBA on this 
issue may be considered instead. 

4.2.2.  NON-BANKING SECTOR  

Independent  reviews  examined  the  balance 
sheets of insurance companies and the assets of 
private  pension  funds.  As  part  of  its  plan  to 

24 

 
 
4.2. Financial sector 

and 

ownership 

around  2020. Some  funds were found  not to have 
proper tools to identify and monitor related parties. 
Complex 
cross-ownership 
structures  were  also  identified  in  some  cases. 
Compliance with the law is respected but may not 
be  enough  to  ensure  the  best  interest  of  pension 
funds'  account  holders.  The  FSC  took  measures 
towards  some  pension  funds  in  order  to  have 
valuations  adjusted  to  market  valuations,  for 
instance on certain investment properties. 

those  with  shortcomings 
the 

The  FSC  issued  a  series  of  recommendations, 
but  some  issues  need  to  be  further  addressed. 
Following  the  reviews  in  the  pension  fund  and 
insurance  sectors,  the  FSC  made  a  series  of 
recommendations  both  to  companies  with  capital 
in 
to 
needs  and 
governance.  In 
insurance  sector,  a  new 
inspection by external experts with cut-off date of 
31 December 2016 was completed upon request by 
the  FSC,  following-up  on  the  implementation  of 
the  adjustments  required.  Remaining  issues  with 
possibly 
some 
companies’  capital  levels  include  the  treatment  of 
specific  reinsurance  contracts,  the  valuation  of 
some  non-traded 
level 
assets 
supervision. 

and  group 

implications 

important 

for 

the  overall 

The  FSC  adopted  an  action  plan  to  address 
important  issues  identified  by  an  independent 
assessment.  The  asset  quality review  on  pensions 
and insurance balance sheet review were followed 
by  an  independent  assessment  of  supervision 
performed by the IMF and the World Bank as part 
of 
sector  assessment 
financial 
programme  (FSAP).  The  reviews  highlighted 
important  supervisory  shortcomings  and  areas  in 
need of improvement. These include legislation, its 
implementation and the overall setup and operation 
of  the  supervisory  institution.  The  FSC  worked 
with EIOPA to draw up an action plan for the most 
pressing issues, which has recently been adopted. 

Important  steps  have  been  taken  and  further 
action has been scheduled for the coming years. 
in  2017  significant 
The  Parliament  adopted 
changes to the law, reinforcing the FSC’s financial 
independence  through  direct  collection  of  levies 
from  the  industry,  higher  fines  and  financial 
framework.  The 
penalties,  and 
legislative  changes  also  cover 
the  FSC’s 
governance  structure,  legal  protections  and  pay 
scales. In addition, changes to the Social Insurance 

judicial 

the 

address excessive macroeconomic imbalances, the 
government mandated the non-bank supervisor, the 
Financial  Supervision  Commission  (FSC), 
to 
conduct independent reviews of the balance sheets 
of  insurance  companies  and  the  assets  of  private 
pension  funds.  Additionally,  stress  tests  of  the 
insurance  market  were  done  on  the  post-review 
balance  sheets,  to  provide  the  FSC  with  more 
information  on  potential  risks.  The  reviews  were 
completed in early 2017. 

and 

contracts (15) 

In the insurance sector, problems relating to the 
treatment  of  reinsurance  contracts  and  group-
level  supervision  persist  despite  some  progress. 
The  reviews/stress  tests  found  shortcomings  in 
terms  of  solvency  requirements  in  the  insurance 
sector,  and  issues  relating  to  the  treatment  of 
reinsurance 
group-level 
supervision (16). Although the insurance sector was 
found  to  be  well-capitalised  overall,  a  quarter  of 
the  reviewed  companies  and  groups  did  not  fully 
meet 
the 
the  capital  requirements..  Most  of 
companies  identified   with  capital  shortfalls  took 
measures to meet the solvency capital requirement 
and  to  address  some  governance  deficiencies,  as 
followed-up  by  the  supervisor.  Two  insurers  had 
their licence withdrawn. Still, further issues remain 
to be addressed through supervisory measures.  

reviewers 

adjustments, 

Risks to the long-term benefits of pension fund 
account  holders  remain  a  challenge.  While  the 
private pension funds’ assets were subject to only 
highlighted 
minor 
important  concerns  for  some  of  the  funds.  These 
include  concentration  of  assets  on  the  traded  and 
non-traded  domestic  market,  low  liquidity  and 
trading  volumes  on  the  domestic  stock  exchange 
and not enough information on exposure to related 
parties.  All  these  risks  could  have  a  significant 
impact on the funds available to account holders in 
the  pay-out  phase,  which  will  start  in  earnest 

insurers,  as 

(15)  The  valuation  of  the  coverage  provided  to  insurers  by 
clean-cut reinsurance contracts had been overestimated for 
certain 
less 
conservative approach than the one clarified by EIOPA in a 
Q&A.  The  supervisor  is  now  expected  to  adequately 
implement  the  more  conservative  approach,  based  on  the 
insurers’ reporting in 2018. 

the  supervisor  has  used  a 

(16)  The group-level assessment during the review, reflecting a 
crucial aspect of the risk-based supervisory approach under 
the  Solvency  II  framework,  has  not  been  adequate  and  in 
some cases has not been performed. This is true especially 
for  those  insurance  undertakings  questioning  the  scope  of 
their group-level assessment in court. 

25 

 
                                                           
in 

line  with 

Code  include  a  broader  definition  of  ‘related 
parties’, 
international  standards. 
Further  planned  measures  include  increasing  the 
FSC’s  resources  in  terms  of  staff  numbers  and 
skills,  and  improving  supervisory  practices  with 
the support of a proper risk assessment framework. 

to 

2017 

A  specific  example  of  better  supervision  is  the 
car  insurance  sector.  The  authorities  started  in 
November 
automatically  match 
information  from  car  registration  databases  with 
third-party  liability  motor  insurance  contracts,  to 
combat  fraud  in  connection  with  these  contracts. 
The  FSC  has  taken  further  measures  to  ensure 
proper compensation of victims of car accidents, in 
particular  regarding  cancelled  insurance  contracts 
and the obligation on all Bulgarian insurers to have 
a  network  of  claims  representatives  in  all  EU 
Member  States  under 
Insurance 
Directive.  As  the  measures  taken  are  recent,  their 
effectiveness  will  need  to  be  assessed  in  the 
coming months. 

the  Motor 

4.2.3.  NON-PERFORMING LOANS 

The ratio of NPLs to the loan portfolio held by 
the banking sector has fallen substantially over 
is 
last  two  years.  The  banking  sector 
the 
dominated by subsidiaries of foreign-owned banks, 
but  domestic  banks  are  also  relevant  players. 
Trends  in  NPLs  have  differed  sharply  between 
domestic  and  foreign-owned  institutions  over  the 
last  two  years.  Foreign-owned  institutions  have 
seen a gradual fall in NPLs, both in absolute terms 
and as a percentage of their overall portfolios. By 
contrast,  domestic  banks’  ratio  of  NPLs  has  been 
rising (Graph 4.2.1). 

4.2. Financial sector 

Graph 4.2.1:  NPLs share of total loans and advances, all 

banks 

Data from 2014 on based on FINREP sample. Data prior to 
2014 recalculated based on full sample 
Source: ECB 

is  partially 

recession. (17)  This 

Volumes  in  the  secondary  market  for  NPLs 
remain  low.  Despite  a  gradual  downward  trend, 
the  aggregate  NPL  ratio  remains  high,  at  about 
10.6%  as  of  June  2017  (ECB  data),  representing 
mainly the legacy of the credit-led boom before the 
the 
2009 
consequence  of  a  very  shallow  secondary  market 
for  NPLs.  It  consists  almost  entirely  of  deals 
involving  unsecured  consumer  loans (18)  and  is 
driven  mainly  by  a  few  subsidiaries  of  euro  area 
banks.  Domestic 
to 
participate.  Despite  the  long  average  period  of 
delinquency  of  most  NPLs,  market  participants 
report a large gap between the prices offered in the 
market  and  those  the  banks  are  willing  to  accept, 
given current provisioning levels. 

institutions 

tend  not 

Various hard-to-value assets exist, in particular 
those  related  to  immovable  property.  Problems 
with 
the 
the  valuation  of  collateral  reduce 
incentive  to  dispose  of  NPLs.  Some  examples 
include real-estate collateral in the banking sector, 
the 
receivables  and  real  estate  holdings 
insurance sector, and stocks, bonds, real estate and 
other  financial  instruments  in  the  pension  funds 
sector.  Anecdotal  evidence  from  debt  collectors 
the  bank 
that  mismatches  between 
suggests 

in 

(17)  The  risk  that  NPLs  pose  to  banks'  balance  sheet  is 
somewhat mitigated by loan-loss provisions. The aggregate 
coverage ratio was 51.2% as of September 2017, bringing 
the ratio of net NPLs to risk-weighted assets to 5.9%. 
(18)  Consumer non-performing loans represent less than 10% of 

the total stock of NPLs. 

26 

051015202508Q208Q409Q209Q410Q210Q411Q211Q412Q212Q413Q213Q414Q214Q415Q215Q416Q216Q417Q2Foreign subsidiariesDomestic banks% of total loans and advances 
 
 
                                                           
4.2. Financial sector 

Graph 4.2.2:  Private debt breakdown 

Source: European Commission 

remains 

is  now 

The  deleveraging  needs  of  NFCs  have  been 
reduced  in  the  last  few  years.  The  debt  ratio  of 
NFCs 
the  prudential 
just  below 
benchmark20  (see  graph  4.2.3).  The  current  debt 
ratio 
above  what  macroeconomic 
fundamentals  would  suggest,  albeit  converging 
towards  it  and  thus  progressively  unwinding  the 
large increase in leverage between 2003 and 2007. 
Overall,  and  also  in  light  of  the  improving 
macroeconomic 
stronger 
conditions 
capitalisation in the banking system, the remaining 
deleveraging  needs  in  the  corporate  sector  have 
decreased.  

and 

20   Fundamental-based 

are 

derived 

from 
benchmarks 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
Prudential  thresholds  represent  the  debt  threshold  beyond 
which 
is  high, 
minimising the probability of missed crisis and that of false 
alerts. See also European Commission (2017m), 

the  probability  of  a  banking  crisis 

auditor’s valuation (19) and the market price can be 
significant.  Similar  mismatches  were  found  on 
various  occasions  for  some  equity  and  fixed-
income  instruments  held  by  pension  funds  and 
insurance companies. This is partly due to outdated 
collateral valuations which,, according to the IMF, 
is a common problem (IMF, 2017). It follows that 
the frequency of collateral estimates is not always 
in  line  with  the  relevant  EU  regulations,  which 
require  banks  to  value  commercial  immovable 
property  at  least  once  a  year  and  residential  real 
estate at least once every three years.  

The  quality  of  auditing  appears  to  be  uneven 
relative  to  international  standards.  This  creates 
problems with the valuation of illiquid instruments 
traded  on  stock  exchanges  and  non-traded  assets, 
including  receivables,  minority  equity  stakes  and 
subsidiaries.  For  real-estate  valuations,  auditors 
rely  on  locally-licensed  appraisers.  Despite  the 
advantage  of  local  expertise,  valuation  standards 
vary  greatly  and  the  licensing  system  does  not 
appear to be sufficiently tight. With the creation of 
the  Chamber  of 
Independent  Appraisers  of 
Bulgaria, licensed appraisers were able to obtain a 
new  license  upon  request.  In  the  absence  of 
mandatory  standard  methodology,  commercial 
banks have the discretion to use different valuation 
frameworks,  which  may  create  considerable 
discrepancies  In  addition,  the  methodologies  for 
indexed  valuations  are  not  reviewed  by  the  BNB 
(IMF, 2017). 

4.2.4.  PRIVATE INDEBTEDNESS  

corporation 

Private  debt  is  mainly  concentrated  in  non-
financial  corporations and  is  high  compared  to 
regional  peers.  Private  debt  has  decreased  from 
132%  of  GDP  in  2013  to  105%  in  2016.  Most  of 
the  decrease  is  linked  to  deleveraging  in  the  non-
sector.  The 
financial 
consolidated debt of NFCs stood at 84% of GDP in 
2016,  significantly  higher  than  in  regional  peers. 
NFC  debt  could  negatively  affect  companies' 
investment decisions and have a durable impact on 
potential  growth  going  forward.  In  contrast, 
households'  indebtedness  is  among  the  lowest  in 
the EU at 21% of GDP in 2016.  

(NFC) 

(19)  The  valuation  is  provided  by  a  real  estate  valuator  but 

certified by the auditor. 

27 

02040608010012014007080910111213141516% of GDPBG HouseholdsBG Non financial corporationsEU28 Non financial corporations 
                                                           
 
                                                           
4.2. Financial sector 

Graph 4.2.3:  NFC debt ratio against the fundamental-based 

Graph 4.2.4:  NPLs, share of total loans and advances - total, 

benchmark (1) and prudential threshold (2) 

households and NFCs 

Source: European Commission 

Despite 
lower  deleveraging  needs,  NFCs 
continue to show high level of NPLs. In the first 
quarter  of  2017,  NFCs  represented  72%  of  the 
banks'  NPLs  and  about  41%  of  total  loans  and 
advances.  At  21.2%,  their  NPL  ratio  is  much 
higher  than  the  13.6%  recorded  for  households 
(Graph  4.2.4).  While  this  ratio  has  decreased  for 
NFCs  since  late  2015,  the  progress  is  clearly  less 
pronounced than for household. In this context, the 
improvement  in  the  asset  quality  of  institutions  is 
linked to the decreasing share of loans to NFCs in 
their portfolio. While loans to NFC are stagnating, 
banking  institutions  increase  their  lending  to 
financial  corporations  and  governments,  which 
have  a  much  lower  rate  of  non-performing  loans. 
Furthermore, restructuring has played only a minor 
role  in  the  NPL  dynamics.  The  forborne  loans 
represent  7%  of  total  loans  in  2017,  a  relatively 
stable  share,  and  most  of  these  remain  non-
performing.  

(1) Data from 2014 on based on FINREP sample. Data prior 
to 2014 recalculated based on full sample. 
(2) Total NPL ratio also includes loans to financial 
corporations and to public institutions  
Source: ECB 

Graph 4.2.5:  Share of companies facing financial stress 

(1) Zombies are defined as companies that are less than 10 
years old and for which the interest coverage ratio (ICR) has 
been below one for more than 3 years in a row (only 
available from 2015 on). 
(2) The analysis does not include firms in agriculture, finance 
and insurance, public administration, arts and households as 
employers. 
Source: Orbis, European Commission calculations 

The  large  proportion  of  financially-stressed 
companies (21)  acts  as  a  drag  on  growth.  As 
financially  constrained  companies 
less, 
grow less and have lower productivity (see Graph 
4.2.5), their prevalence hampers productivity at the 
macroeconomic  level.  In  sectors  with  a  large 
the 
distressed 
proportion 

companies, 

invest 

of 

(21)  Companies with interest coverage ratio below 1. 

28 

02040608010012014095969798990001020304050607080910111213141516% of GDPFundamental-based benchmarkActualPrudential benchmark101214161820222412Q413Q113Q213Q313Q414Q114Q214Q314Q415Q115Q215Q315Q416Q116Q216Q316Q417Q117Q2NPLNPL NFCsNPL Households% of total loans and advances0%10%20%30%40%50%60%70%80%90%100%13141516ZombiesICR<1ICR>1% NPLs 
 
 
 
 
                                                           
4.2. Financial sector 

the  basis 

amendments  provide 

Measures  are  needed  to  ensure  the  new 
restructuring procedure fulfils its purpose. The 
legal 
for 
streamlining  business  restructuring.  It  remains  to 
be  seen  whether  the  training  given  has  equipped 
judges to apply the new procedure effectively. No 
efforts  were  made  to  familiarise  the  business 
community  with  the  potential  benefits  of  the  new 
procedure  in  the  consultation  phase.  The  new 
procedure  remains  relatively  unknown,  especially 
to  smaller  businesses  which  stand  to  benefit  most 
from it. 

There  has  been  no  analysis  of  the  effectiveness 
of either older or new procedures, including for 
business restructuring. The lack of data gathering 
tools  prevents  an 
and  adequate  monitoring 
assessment.  At  present,  data  are  not  collected  on 
matters  such  as  the  number  of  cases  filed  and 
completed  under  the  new  procedure  or  their 
lack  of  data  also  prevents 
duration.  The 
comparison  with  the use of  alternative  procedures 
that  have  existed  until  now.  This  presents  an 
obstacle  to  analysing  the  usefulness  of  court 
procedures,  estimating  the  impact  of  legislative 
and 
changes 
ultimately 
implementing  sound  policies.  No  plans 
for 
improvements 
in  data  collection  have  been 
communicated by the authorities. 

formulating 

and 

productivity of non-financially stressed firms may 
also  suffer 
from  poor  allocative  efficiency 
(McGowan, Andrews and Millot, 2017) (see Graph 
4.2.6).  About  half  of  the  companies  in  financial 
stress  in  2016 had  experienced  such  stress  for  the 
last 3 years. The financial sector does differentiate 
between  financially  stressed  and  non-stressed 
companies in terms of prices, but volume changes 
are  similar,  raising  concerns  about  ‘evergreening’ 
of non-performing corporate debts.  

Graph 4.2.6:  Determinant of growth for financially and non-

financially stressed NFCs 

Excluding firms in agriculture, finance and insurance, public 
administration, arts and households as employers. 
Source: Orbis, European Commission calculations 

4.2.5.  INSOLVENCY FRAMEWORK 

insolvency 

The 
framework  presents  some 
weaknesses. The ineffectiveness of the insolvency 
framework  is  slowing  the  reduction  in  private 
sector  indebtedness  and  the  work-out  of  NPLs. 
Procedures  are  lengthy  and  the  recovery  rate  is 
low.  

Reform  of  the 
insolvency  framework  has 
advanced  but  is  incomplete.  In  December  2016, 
Parliament  adopted  changes  to  the  Commercial 
Act and Pledge Registry, introducing new rules on 
business restructuring. The procedure entered into 
force  on  1 July 2017.  Some  elements  of  a 
functioning 
in 
framework  are  still 
particular  rules  for  granting  second  chance  to 
entrepreneurs  and  consumers  in  a  reasonable 
timeframe following a bankruptcy.  

lacking, 

29 

-50%-40%-30%-20%-10%0%10%No fin.stressFin.stressNo fin.stressFin.stressNo fin.stressFin.stressNo fin.stressFin.stressProductivitygrowthEmploymentgrowthInvestmentDebt growthAverageMedian 
 
 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET 

Strong economic growth has led to solid labour 
market  recovery,  but  structural  challenges 
persist.  The  employment  rate  was  71.9 %  in  Q3-
2017,  wages  are  on  the  rise  and  unemployment 
decreased  substantially,  to  6.2 %  (see  Section  1). 
increasing  gross  household 
Bulgaria  displays 
disposable  income  per  capita  and  low  gender 
employment  gap.  However,  the  positive  labour 
market developments are not spreading equally as 
social safety nets are not effective in reducing the 
high inequality, poverty and social exclusion. The 
high  level  of  undeclared  work  (see  section  4.1.1) 
and  low  participation  in  active  labour  market 
policies  hinder  access  to  the  labour  market  and 
equal  opportunities.  The  high  and  rising  rate  of 
early school leaving and weak digital skills signal 
broader  problems  in  the  education  system  and 
contribute to skills shortages. 

The  population  is  ageing  and  shrinking  fast. 
This  means  fewer  workers  and  a  rising  old-age 
dependency  ratio (22).  The  population  is  expected 
to  shrink  by  as  much  as  22 %  by  2050  (Graph 
4.3.1)  due  to  net  migration,  low  birth  rates  and 
relatively high mortality. This is one of the highest 
projected drops in the EU (Eurostat, 2017a). Most 
Bulgarians  living  abroad  are  of  working  age, 
further  exacerbating  adverse  population  change. 
The high inactivity rate is a further concern.  

Graph 4.3.1:  Population projections (2016-2080) 

Disparities  between urban and  rural  areas and 
between  different  regions  are  high.  In  rural 
areas,, the rates of unemployment, of young people 
not in employment, education or training, of risk of 
poverty  and  social  exclusion  and  of  early  school 
leaving  are  all  well  above  the  EU  and  national 
averages,  despite 
in 
working  age..  This  is  leading  to  large  inequalities 
of  opportunity.  The  government  is  seeking  to 
address some of these disparities. The programme 
"Work",  addressing  high  unemployment  in  the 
most  underdeveloped  Northwest  region  will  be 
rolled out to other municipalities with the support 
of the European Social Fund (ESF..  

the  outflows  of  people 

remain 

Wages 
low  but  have 
relatively 
substantially  increased  in  recent  years.  The 
average  compensation  of  employees  per  hour 
worked  (EUR  4.6  in  2016)  is  one  fifth  of  the  EU 
average,  mostly 
explained  by  productivity 
differentials.  Wage  increases  in  recent  years, 
helped to reduce the gap with the EU average from 
34% in 2010 to 43% in 2016 (in purchasing power 
parity).  Nevertheless,  the  wage  gap  for  the  main 
destination  countries  remains  a  major  reason  for 
emigration.  In  the  first  three  quarters  of  2017, 
wage  growth  was  particularly  high 
the 
administrative  and  support  services  (13.3 %)  and 
manufacturing (9.4 %). Wage sectoral differentials 
are decreasing and the rapid growth in the private 
sector 
the 
to 
is  contributing 
public/private wage gap. 

the  closing  of 

in 

Minimum  wage  increases  are  being  adopted 
without  clear  and  transparent  criteria.  The 
minimum wage has been increased from BGN 460 
(EUR 235) to BGN 510 (EUR 261) as of 1 January 
2018 and is set to rise to BGN 610 (EUR 312) by 
2020.  Over  13%  of  the  labour  force,  some  400 
thousand  people,  earned  at  the  minimum  wage  at 
the beginning of 2017 and this number is expected 
to  grow.  These  changes  to  the  minimum  wage 
level were decided ad-hoc, which may not ensure a 
proper  balance  between  supporting  employment 
and  competitiveness  and  safeguarding 
labour 
income. The government has tabled a proposal for 
a  minimum  wage  setting  mechanism  to  address 
this  shortcoming  but  there  is  still  no  agreement 
between  the  social  partners.  In  2018,  Bulgaria 
ratified  the  International  Labour  Organisation's 
convention  131  on  minimum  wage  fixing  which 
would be a step in the right direction. 

30 

Source: European Commission 

(22)  Number of persons aged 65 over those between 15 and 64. 

01,0002,0003,0004,0005,0006,0007,0008,000-70-50-30-10103050701620253035404550556065707580'000s persons'000s personsNatural changeNet migrationTotal population (rhs) 
 
 
 
                                                           
4.3. Labour market, education and social policies 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights,  proclaimed  on  17  November  2017  by  the  European 
Parliament, the Council and the European Commission, sets out 20 principles and rights to benefit 
citizens  in  the  EU.  In  light  of  the  legacy  of  the  crisis  and  changes  in  our  societies  driven  by 
population  ageing,  digitalisation  and  new  ways  of  working,  the  Pillar  serves  as  a  compass  for  a 
renewed process of convergence towards better working and living conditions.  

Bulgaria  faces  challenges  with  regard  to  a 
number  of  indicators  of  the  Social  Scoreboard1 
supporting the European Pillar of Social Rights. 
Bulgaria  has  a  high  rate  of  poverty  and  social 
exclusion as well as income inequality. The rate of 
young  people  not  in  employment,  education  or 
training remains very high. Roma and students with 
lower  socio-economic  status  have  difficulties  in 
accessing  quality,  inclusive  education.  Individuals' 
level of digital skills is very low. At the same time, 
the  gender  employment  gap  is  low  and  gross 
is 
disposable  household 
increasing fast. 

income  per  capita 

Social transfers have a low impact on reducing 
poverty  and  income  inequality;  spending  on 
social  protection  is  well  below  the  EU  average. 
This  contributes  to  persistently  high  levels  of 
poverty (see section 4.3.4). 

To  improve  equity  in  education  and  Roma 
inclusion,  Bulgaria  has  started implementing  an 
inclusive  education  reform.  To  fight  early  school 
leaving, integrated teams were set at a local level to 
to 
support  out-of-school  children 
education.  Some  recent  measures  seek  to  support 
the  participation  of  Roma  in  education,  including 
additional language courses for students whose mother-tongue is not Bulgarian, work with parents and further 
possibilities to finalise compulsory education in the so-called "united schools''. There are also plans lower the 
compulsory  pre-school  age  to  4.  Despite  these  positive  initiatives  effective  measures  to  improve  school 
retention have not been developed yet. 

in  returning 

1   The  Social  Scoreboard  is  composed  of  14  headline  indicators,  of  which  12  are  currently  used  to  compare  Member 
States' performance. The indicators "participants in active labour market policies per 100 persons wanting to work" 
and  "compensation  of  employees  per  hour  worked  (in  EUR)"  are  not  used  due  to  reservations  by  Member  States. 
Possible alternatives will be discussed in the relevant Committees.  GDHI: gross disposable household income 

Job  creation  has  rallied  but  companies  face 
challenges in finding the right employees. In the 
first  three  quarters  of  2017,  y-o-y  employment  growth 
has  been  generally  positive  in  most  of  sectors  (Graph 
4.3.2). In 2017, job creation has spread to a larger 
part  of  the  country.  The  ratio  of  self-employed  to 
employee  has  decreased  to  12.6 %  following  a 
the  number  of 
more  dynamic 

increase 

in 

employees. Labour shortages are increasingly felt, 
in  particular  in  manufacturing,  construction  and 
the  digital  sector  (Manpower,  2017;  CEDEFOP, 
2017).  A  declining  working  age  population, 
migration  and unattractive working  conditions  are 
skills 
the  main 
mismatches  have  been  decreasing  but  remain 
among the highest in the EU. The overall level of 

causes.  Macroeconomic 

31 

Early leavers from education and training (% of population aged 18-24)To watchGender employment gapBetter than averageIncome quintile ratio (S80/S20)Critical situationAt risk of poverty or social exclusion (in %)Critical situationYouth NEET (% of total population aged 15-24)Critical situationEmployment rate (% population aged 20-64)To watchUnemployment rate (% population aged 15-74)On averageGDHI per capita growth Better than averageImpact of social transfers (other than pensions) on poverty reductionCritical situationChildren aged less than 3 years in formal childcareTo watchSelf-reported unmet need for medical care On averageIndividuals' level of digital skillsCritical situationSocial protection and inclusionDynamic labour markets and fair working conditionsEqual opportunities and access to the labour marketBULGARIAMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituations").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,please consult the draft Joint Employment Report 2018, COM (2017) 674 final.NEET:neitherinemploymentnorineducationortraining;GDHI:grossdisposablehousehold income. 
 
 
 
 
4.3. Labour market, education and social policies 

increased  with 

skills  has 
tertiary  education 
attainment  rising.  However,  growing  early  school 
leaving  and  one  of  the  lowest  rates  of  adult 
participation  in  learning  (2.2 %.  EU  average: 
10.8 %) further weaken long-term prospects. 

Graph 4.3.2:  Employment by sector, year-on-year changes 

Graph 4.3.3:  Unemployment rate and potential additional 

labour force 

Employment - domestic concept (thousand), year-on-year 
change based on non-seasonally adjusted data 
Source: European Commission 

Rates for ages 15-74, seasonally adjusted 
"Available but not seeking" are persons neither employed 
nor unemployed who want to work, are available for work in 
the next 2 weeks, but do not seek work. 
An "underemployed" is a person working part-time who 
would like to work additional hours and is available to do so. 
Source: European Commission 

The  sizeable  potential  labour  force  represents 
an  opportunity  for  the  economy.  Discouraged 
workers  (those  available  but  not  seeking  work) 
were  in  Q3-2017  equivalent  to  two  thirds  of  the 
(European  Commission,  2017k). 
unemployed 
Involuntary part-time workers, and inactive people 
seeking  work  but  not  available  to  work  were, 
combined, equivalent to a further one third (Graph 
4.3.3). Although more individuals recently entered 
employment 
from 
unemployment, the high proportion of discouraged 
workers  suggests  that  activation  support  may  be 
insufficient.  With  the  right  mix  of  active  labour 
market policies and social services, groups such as 
educated  but  inactive  young  people,  low-skilled 
long-term unemployed middle-aged men and long-
caring 
unemployed  women  with 
term 
responsibilities,  could  be  better  integrated  in  the 
labour market (World Bank, 2018). 

inactivity 

from 

than 

decreased 
unemployment 
Long-term 
substantially but challenges remain. In Q3-2017, 
it was 3.3 %, 1.1 pp. less than a year ago, and close 
to  the  EU  average.  However,  as  a  percentage  of 
remains 
total  unemployment,  at  53.4 %, 
significantly above the EU average of 44.4 % (Q3-
2017).  Many  of  the  long-term  unemployed  are 
Roma, who often face difficulties in finding a job 
in 
low 
to 
due 
recruitment (23). 

skills  and  discrimination 

it 

Young people do not yet fully share the benefits 
of an improving labour market. Regardless of a 
slight  fall  in  the  rate  of  young  people  not  in 
employment,  education  or  training  (NEET),  to 
18.2 % in 2016, it is still among the highest in the 
EU  and  significantly  above  the  EU  average  of 
11.6 %.  Over  half  of  those  not  in  employment, 
education or training were low-skilled and the rate 
of  young  Roma  who  report  not  to  be  in  work  or 
education  remains  very  high  (65 %),  in  particular 
for girls.  

(23)  The  groups  at  highest  risk  of  discrimination  in  the  labour 
market are ethnic minorities, workers without a contract or 
in  the  agricultural  sector,  the  low  qualified,  people  with 
disabilities  and  those  over  55  years  of  age  (Bulgarian 
Commission for Protection against Discrimination, 2017). 

32 

-250-200-150-100-5005010010Q110Q311Q111Q312Q112Q313Q113Q314Q114Q315Q115Q316Q116Q317Q1'000s personsAgricultureIndustryConstructionTradable servicesNon-tradable servicesPublic sectorTotal051015202508Q108Q309Q109Q310Q110Q311Q111Q312Q112Q313Q113Q314Q114Q315Q115Q316Q116Q317Q1% of labour force 15-74Unemployment rateAvailable but not seekingUnderemployedSeeking but not available 
 
 
                                                           
Measures  have  been  taken  to  address  the 
situation  of  young  people,  but  the  coverage  of 
the  Youth  Guarantee  still  remains  low.  Around 
80 % of those in the NEET category are deemed as 
inactive (among the highest rates in the EU) and as 
such  are  not  covered  by  the  Youth  Guarantee. 
Only  12%  of  those  NEET  aged  15-24  were 
enrolled  in  the  Youth  Guarantee  at  any  point 
during  2016,  a  decrease 
from  2014.  Only 
40.5 % of  those  leaving  the  scheme  took  up  an 
offer  within  4  months.  Several  outreach  measures 
are,  however,  helping  young  people  to  take  up 
work  despite  the  still  low  individual  registration 
with  the  public  employment  service.  More  active 
labour  market  policies  are  being  directed  to  the 
low-skilled  youth.  Job  fairs  as  well  as  youth  and 
Roma  mediators  at  local  level  have  proven  to  be 
among the most effective measures.  

rates  weaken 

Participation  in  active  labour  market  policies 
(ALMPs) remains limited. Low funding and low 
participation 
the  potential  of 
activation  policies  (24).  Their  efficiency  may  be 
also  limited  by  the  high  fragmentation  of  policies 
and programmes, as well as overlapping eligibility 
criteria  for  participation  (World  Bank,  2018). 
Measures  continue  to  be  overwhelmingly  focused 
on direct job creation and employment incentives. 
large  skills  mismatches,  measures 
Given 
addressing  jobseekers'  employability  and  skills 
gaps,  e.g.  training  and  retraining  programmes, 
seem underdeveloped (see Graph 4.3.4). 

the 

The  Employment  Agency 
is  undergoing  a 
comprehensive  modernisation agenda.  The  goal 
is to turn the Agency into a modern and customer-
oriented  public  employment  service.  The  reform 
covers  service  provision,  planning  mechanisms, 
management, implementation and monitoring at all 
levels  of 
the  organization.  Despite  progress, 
customer  segmentation  and  case  management 
functional 
as 
remain 
competence-oriented  and  IT  based  job  matching 
has yet to be introduced.  

incomplete, 

fully 

a 

(24)  Bulgaria  spent  only  0.14 %  of  GDP  on  ALMPs  in  2015 
(EU funding included). Consequently, only 2.7 % of those 
wanting to work participated in ALMPs. 

4.3. Labour market, education and social policies 

Graph 4.3.4:  Expenditure on and participation in activation 

measures, 2017 

Source: 2017 national data from Public Employment Services 

The  integration  of  employment  and  social 
services has continued, but is not yet complete. 
Seventy-three Centres for Employment and Social 
Assistance  have  been  set  up,  improving  the 
integration of the services provided by the Labour 
Offices and the Agency for Social Assistance. New 
labour 
services  are  planned,  such  as  family 
counselling  and  mobile  service.  However,  for  a 
one-stop-shop  approach,  considerable  investment 
is  required  to  expand  the  network  of  centres  and 
harmonize  administrative  processes  and  joint case 
management, including data collection and sharing 
(World  Bank,  2018).  The  limited  involvement  of 
the  main  providers  of  social 
municipalities, 
services, 
integration  of 
the 
employment and social services. 

is  hampering 

The  social  dialogue  faces  several  challenges. 
Collective bargaining takes place predominantly at 
company,  industry  or  branch  level  but  has  been 
undermined  by  the  low  membership  and  capacity 
of  social  partners  (25),  especially  at  branch  level. 
Bipartite  dialogue  at  national  level  deteriorated  in 
2016-2017,  as  shown  by  substantial  differences 
between  the  social  partners  on  issues  such  as 
minimum  social  security  thresholds,  the  so-called 
'seniority  bonus'  and  the  minimum  wage  setting 

(25)  Less  than  10 %  of  all  establishments  with  10  or  more 
employees  are  members  of  employers  organisations, 
significantly below the EU average of 26 % but similar to 
other  countries  in  the  region  (ECS,  2013).  In  2015,  only 
around 30 % of employees reported the existence of a trade 
union, workers council or a similar body in their company, 
among the lowest in the EU (Eurofound 2017). 

33 

0%10%20%30%40%50%60%70%80%90%100%ParticipantsExpenditurestart up incentivesdirect job creationsupported employmentemployment incentivestraining 
                                                           
 
                                                           
4.3. Labour market, education and social policies 

students  in  non-segregated  neighbourhoods  attend 
classes where all or most children are Roma.  

Despite  some  improvements,  the  impact  of 
socioeconomic  status  on  performance  remains 
high.  Low  achievement  among  disadvantaged 
students is among the highest in the EU (59 % in 
science compared to 33.8 %, on average). The gap 
in  underachievement  between  advantaged  and 
disadvantaged  students  is  also  among  the  highest 
(42  pp.  compared  to  26.2  pp,  on  average).  The 
variation  in  performance  is  strongly  associated 
with students' and schools' socioeconomic status.  

to 

care-related 

fees  are  a  barrier 
full 
Kindergarten 
participation 
in  early  education  and  care. 
Despite  the  positive  impact  of  the  introduction  of 
the  two-year  compulsory  programme  for  children 
aged 5-6, participation is not universal mainly due 
to 
than  15%  of 
fees.  Less 
municipalities  for  which  data  are  available  offer 
free-of-charge  compulsory  preschool  education, 
resulting  in  low  participation  of  Roma  children 
(66 %  in  2016)  and  an  unequal  start  in  education 
(Amalipe, 2017). Only 9 % of children aged below 
3  are  in  formal  childcare,  which  is  significantly 
below  the  Barcelona  target  of  33 %  and  the  EU 
average.  This  leads  to  a  poor  acquisition  of 
low 
Bulgarian 
educational  outcomes.  The  performance  gap 
between  students  who  speak  Bulgarian  at  home 
and those who do not (8% of the students in PISA 
2015) is significant.  

skills  and  overall 

language 

Despite  recent  measures,  early  school  leaving 
remains  a  challenge  for  the  labour  market. 
Early  school  leaving  was  13.8 %  in  2016  (EU 
average:  10.7 %;  see  graph  4.3.5),  with  higher 
levels for Roma and in rural areas (30.3 %). A new 
system to identify out-of-school children and bring 
them  back 
introduced. 
into  education  was 
However,  recent  additional  measures  to  improve 
school retention require strengthening. 

The  labour  market  relevance  of  vocational 
education  and  training  (VET)  remains  limited. 
The  proportion  of  upper  secondary  VET  students 
is  above  the  EU  average.  However,  one  in  three 
VET  students  graduate  without  a  professional 
degree  and  the  employment  rate  of  recent  VET 
graduates  (64.2 %)  is  10.8  pp.  below  the  EU 
average. The quality on offer, the attractiveness of 
VET  and  links  with  the  labour  market  remain 

Trade 

unions 

mechanism. 
the 
involvement  of  social  partners  in  the  design  and 
implementation  of  reforms  and  policies  positively 
but with room for improvement, while employers' 
views are more critical. 

consider 

4.3.2.  EDUCATION AND SKILLS 

Investment 

Education  reform  is  progressing,  but  several 
systemic  challenges  remain. 
in 
education  is  improving  in  real  terms,  but  remains 
below  the  EU  average  (in  2015,  4 %  of  GDP, 
compared to 4.9 %, and 9.8 % of total government 
spending,  compared  to  10.3 %).  Almost  50 %  of 
teachers  are  aged  50  or  more.  Initial  teacher 
education does not prepare teachers sufficiently in 
terms  of  inclusive  teaching  methods  and  for 
working  with 
from  disadvantaged 
backgrounds.  Recent  measures  seek  to  improve 
this situation. 

students 

New  curricula  seek  to  improve  currently  low 
educational outcomes. Many 15-year olds are not 
equipped  with  the  basic  skills  necessary  to  solve 
the  kind  of  problems  routinely  faced  by  today's 
adults  in  modern  societies.  29.6 % of  students  are 
low  achievers  in  all  three  tested  subjects  in  the 
international  education  survey  (science, 
PISA 
reading  and  mathematics).  The  percentage  of  top-
performing  students  is  low  (26).  The  share  of 
population with basic or above basic overall digital 
skills,  at  29%,  is  among  the  lowest  in  the  EU. 
Schools  provide  trainings  on  digital  skills,  with 
different  quality  and  intensity.  Since  2015,  a 
government  Ordinance  regulates  IT  training  in 
schools.  Implementation  is  gradually  starting,  but 
digital  skills  among  young  people  (16-24)  at 
54.3%,  remain  very  low  compared  to  the  EU 
average  of  81.9%  (Digital  Scoreboard  2017). In 2017-
18,  curriculum  reform  continued  with  grades  2,  6 
and 8. 

Low  inclusion  of  Roma  in  education remains  a 
challenge.  Of  Roma  aged  18-24,  67%  are  early 
school  leavers,  with  women  disproportionately  at 
risk of dropping-out (77 %, against 57 % for men) 
(FRA,  2016).  Implementation  of  the  ban  on  class 
segregation  remains  a  challenge.  48%  of  Roma 

(26)  2.9 %  in  science  (EU  average:  7.6 %),  3.6 %  in  reading 

(8.7 %) and 4.4% in mathematics (10.7 %).  

34 

 
                                                           
4.3. Labour market, education and social policies 

regions. Adults' participation in learning was only 
2.2 %  in  2016  (EU  average:  10.8 %).  In  the 
context  of 
the  Upskilling  Pathways  Council 
Recommendation,  training,  including  for  digital 
skills,  literacy  courses  and  projects  to  recognise 
acquired  competences,  are  being  organised, 
especially with EU funds. 

4.3.3.  HEALTH POLICIES 

Health insurance coverage is still a challenge. In 
2015,  4.7 %  of  Bulgarians  faced  problems  with 
accessing  healthcare  (11.5 %  for 
the  poorest 
quintile)  which  is above  the  EU  average of  3.2 % 
(5.5 %  for  the  poorest  quintile).  12 %  of  the 
population  has  no  insurance  (OECD/European 
Observatory  on  Health  Systems  and  Policies, 
2017)  and  out-of-pocket  expenditure  (28)  is  high. 
Some  of  those  uninsured  live  abroad  and  can  use 
systems  in  their  countries  of  residence,  but  exact 
numbers  are  not  available.  Some  groups  such  as 
the  long-term  unemployed  are  particularly  at  risk 
of  poor  access  to  healthcare.  Less  than  half  of 
Roma are estimated to be covered by public health 
insurance (FRA, 2016).  

Low  public  spending  has  a  negative  impact  on 
the  quality  and  accessibility  of  healthcare.  In 
2015,  Bulgaria  spent  less  than  40 %  of  the  EU 
average  in  healthcare  per  capita  (8.2  %  of  GDP, 
1.7  pp.  below  the  EU  average;  see  Graph  4.3.6). 
As  a  result,  public  spending  accounts  for  only  51 
%  of  healthcare  expenditure,  the  remaining  being 
covered  by  out-of-pocket  payments  by  patients. 
This is significantly above the EU average of 15%. 
More  than  40  %  of  out-of-pocket  payments  are 
spent  on  pharmaceuticals,  the  highest  percentage 
in  the  EU).  The  state  is required  to pay  insurance 
premiums  for  entitled  groups  (e.g.  some  civil 
servants) but it only covers 60 % of the premium, a 
share that is being increased by 5 pp. per year and 
will reach 100 % in 2025. 

(28)  Official  co-payments  for  medical  care 
reimbursed by public health insurance. 

that  are  not 

challenges. The authorities revised the educational 
standards for VET and are working on connecting 
supply  and  demand  for  skills  and  qualifications. 
Recent  amendments  in  the  Law  on  Pre-primary 
and  School  Education  are  related  to  additional 
financial  stimulus  for  schools  which  offer  VET 
specialties  that  correspond  to  the  labour  market 
needs.  These  developments  aim  at  labour  market 
relevance  of  VET  provision.  Structural  VET 
graduate 
to  be 
tracking  measures  have  yet 
developed. 

Graph 4.3.5:  Early school leaving disaggregated by the 
urban status, Bulgaria and the EU average 

Source: European Commission 

is 

Despite  recent  reforms  in  tertiary  education, 
is  a  challenge. 
addressing  skills  shortages 
Tertiary  education  attainment 
improving 
(33.8 %  in  2016.  EU:  39.1 %)  but  graduates' 
profiles by sector show imbalances. Shortages are 
expected  particularly  in  ICT,  teaching,  health  and 
engineering. However, the number of graduates in 
these  fields  is  rather  low,  particularly  in  health 
(27).The  government  is  undertaking  measures  to 
address the shortage of teachers. 

Low  participation  in  adult  learning  remains 
critical given the skills shortages. Almost one in 
five  adults  is  low  qualified,  resulting  in  poorer 
employment  prospects.  However,  investment  in 
adult  education  remains  insufficient,  evaluation 
is 
and  monitoring 
across 
and 
fragmented 

is  weak  and  provision 

unevenly-developed 

(27)  The  number  of  graduates 

technology, 
engineering  and  mathematics  or related  disciplines  is 13.7 
for  1.000  inhabitants  20-29,  compared  to  18.7  on  average 
in the EU. 

in  science, 

35 

0510152025303507080910111213141516% of respective poulationEU28 citiesEU28 rural areasEU28 towns and suburbsBG citiesBG towns and suburbsBG rural areas 
 
                                                           
                                                           
4.3. Labour market, education and social policies 

unattractive  partly  due  to  the  low  wages,  that  the 
available university places are not fully filled,  

The  challenges  identified  in  the  system  are 
affecting  the  health  of  the  population.  Slow 
improvement has been observed in recent years but 
life  expectancy  (at  74.7  years  in  2015)  is  still  6 
years  lower  than  the  EU  average.  Infant  mortality 
remains  almost  twice 
the  EU  average,  with 
significant  regional  disparities.  In  2016,  the  best 
performing district (the city of Sofia) had six times 
lower  infant  mortality  than  the  worst  performer 
(Yambol).  Cancer  and  cardiovascular  diseases  are 
responsible for more than 80 % of all deaths in the 
country.  This  is  partially  because  of  risk  factors 
such  as  smoking  (28 %  of  the  population  smoke, 
the  highest  rate  in  the  EU)  and  high  alcohol 
consumption 
litres  per  year).  Some 
communicable  diseases  are  still  a  challenge  too, 
e.g. more first-time blood donors have Hepatitis B 
than in most other Member States. 

(12 

4.3.4.  SOCIAL POLICIES 

Income inequality, poverty and social exclusion 
remain high. In 2016, 40 % of the population was 
at  risk  of  poverty  or  social  exclusion.  The  rate  of 
severe  material  deprivation  (31.9 %)  is  four  times 
higher than the EU average (Graph 4.3.7). Income 
inequality is among the highest in the EU and has 
been  increasing  steadily  since  the  crisis.  In  2016 
the richest 20 % households' share of total income 
was  almost  eight  times  that  of  the  poorest  20%. 
This  is  a  result  of  the  low  spending  on  social 
protection, which is partly due to the low level of 
tax revenue, and the lack of progressivity in the tax 
system (see Section 4.1.1). Social transfers have a 
very  limited  impact  on  reducing  poverty  and 
inequality. 
in 
education,  healthcare  and  housing  –  is  among  the 
highest  in  the  EU,  which  makes  success  in  life 
largely dependent on the parents' achievements. 

Inequality  of  opportunity  – 

Graph 4.3.6:  Expenditure on health 

Domestic general government health expenditure and 
domestic private health expenditure  
Source: WHO Global Health Expenditure Database, OECD 
Health Statistics, European Commission 

The  healthcare 
system  remains  hospital-
centred.  The  number  of  hospital  discharges  (29), 
one of the highest in the EU, and the high number 
of  acute  hospital  beds  shows  the  intensity  of 
hospital care utilisation. About 34 % of healthcare 
expenditure goes to hospitals, 5 pp. above the EU 
average,  whereas  outpatient  care  expenditure 
(18 %) is very low. People without insurance have 
access  only  to  emergency  services  and  limits  on 
referrals  to  specialist  care  are  imposed  on  general 
practitioners. These steers patients to a great extent 
to  hospital  care.  The  current  process  to  integrate 
health  and  social  services  may  improve  the 
(acute 
situation.  A  proportion  of  curative 
treatment)  hospital  beds  is  to  be  transformed  into 
long-term care beds.  

The  situation  of  health  professionals  is  mixed. 
The  number  of  medical  doctors  is higher  than  the 
EU  average,  but  general  practitioners  constitute 
15.6 % of all physicians (against an EU average of 
30.2 %),  showing  the  relatively  low  importance 
given  to  primary  health  care.  There  are  also  high 
district-level  differences  (from  563  doctors  per 
100,000  of  the  population  in  Pleven  to  263  in 
Razgrad).  In  recent  years,  fewer  doctors  have  left 
the  country  and  the  number  of  medical  students 
has risen. On the other hand, the ratio of nurses to 
doctors  is  very  low.  The  nursing  profession  is  so 

(29)  The  number  of  patients  staying  for  at  least  one  night  in 

hospital for treatment or diagnosis. 

36 

5.05.56.06.57.07.58.08.59.09.510.006070809101112131415% of GDPBulgariaEU28 
 
                                                           
4.3. Labour market, education and social policies 

Graph 4.3.7:  At-risk-of-poverty or social exclusion rate, 

components 

bath,  shower  or  indoor  flushing  toilets,  five  times 
the EU average.  

the 

elderly  and  people  with 
Children, 
disabilities  face  an  even higher  risk of  poverty. 
In 2016, 45.9% of those over 65 years old were at 
risk  of  poverty  or  social  exclusion,  among  the 
highest  in  the  EU  (Graph  4.3.8).  The  minimum 
pension  increase  by  22 %  in  2017  is  step  towards 
addressing  this  risk,  but  the  minimum  pension  is 
still far below the poverty line (31). When it comes 
to  children,  the  situation  is  particularly  severe 
among  disadvantaged  groups  such  as  Roma  and 
for  those  living  in  rural  areas.  The  poverty  and 
employment gap for people with disabilities is also 
among 
signalling 
in 
weaknesses  in  social  protection  and  employment 
measures. 

the  highest 

the  EU, 

Graph 4.3.8:  At-risk-of-poverty or social exclusion rate, age 

groups 

People who are at-risk-of poverty (AROP) and/or suffering 
from severe material deprivation (SMD) and/or living in 
household with zero or very low work intensity (LWI). 
Source: European Commission 

still 

related 

Roma 
to 
face  difficulties 
employment,  education,  housing  and  health 
services.  The  planning,  monitoring  and  cross-
sectoral coordination of Roma inclusion policies is 
weak. The proportion of Roma at risk of poverty or 
social  exclusion  is  estimated  at  over  90 %.  The 
majority  of  Roma  are  unemployed,  inactive  or 
working  poor  (FRA,  2016).  Two  thirds  did  not 
complete upper secondary education. Some 7% of 

* a dashed line marks a break in times series  
People who are at-risk-of poverty (AROP) and/or suffering 
from severe material deprivation (SMD) and/or living in 
household with zero or very low work intensity (LWI). 
Source: European Commission 

Poverty is strongly linked to regional disparities 
and  labour  market  participation.  The  risk  of 
poverty or social exclusion is much higher in rural 
areas,  especially  in  sparsely  populated  ones.  The 
median  income  in  rural  areas  as  a  percentage  of 
urban incomes was among the lowest in the EU, at  
60.16 %  in  2016.  Monetary  poverty  among  the 
unemployed  is  about  five  times  higher  than  for 
people in employment. However, in-work poverty 
is  also  high  (11.6  %)  and  is often  associated  with 
low level of skills and education (38.3. % of the in-
work  poor  have 
low  education)  and  with 
employment  in  subsistence  and  semi-subsistence 
agriculture. 
is 
relatively  low  in  Bulgaria,  with  16.2 %  of  the 
population (one of the highest in the EU) at risk of 
poverty  for  at  least  2  out  of  the  3  previous  years. 
This  indicates  that  it  is  difficult  to  move  out  of 
income poverty. 

social  mobility 

In  addition, 

The level of housing deprivation is high. 11.6 % 
of  population  (EU  average  4.9 %),  including 
21.5 %  of  children,  suffer  from  severe  housing 
deprivation. The housing cost overburden rate (30) 
and  overcrowding  are  also  high,  and  people  in 
monetary  poverty  are  particularly  affected.  More 
than  1  in  10  Bulgarians  live  in  houses  without  a 

(30)  One  in  five  households  allocating  more  than  40%  of  their 
income  to  housing  costs  in  2016,  double  than  the  EU 
average. 

(31)  After  this  increase  about  800  000  retirees  will  receive 
minimum  pensions.  However,  poverty  depth  will  be 
alleviated  for  around  350  000  elderly  persons,  the  vast 
majority of whom (around 260 000) are women. 

37 

05101520253035404550550809*1011121314*1516*% of populationBG, At-risk of poverty or social exclusionEU, At-risk of poverty or social exclusionAt-risk of poverty rateSevere Material DeprivationVery Low Work Intensity3035404550556065707580050607080910111213141516% of populationChildren (<18y)Working age (18-64)Elderly (65+) 
 
                                                           
 
                                                           
4.3. Labour market, education and social policies 

support 

Notwithstanding  positive  developments,  efforts 
to  help  social  assistance  beneficiaries  to  obtain 
work  are  weak.  Putting  benefit  recipients  into 
work requires the right mix of active labour market 
policies  and 
services.  The  public 
employment service has created case managers for 
long-term  unemployed  people,  including  those 
its  case 
receiving  social  benefits.  However, 
management 
the  Social 
is  not  matched  by 
Assistance  Agency  and  cooperation  between  the 
two  institutions,  including  the  inter-connection 
between  databases,  is  weak.  The  public  works 
requirement  for  social  benefits  recipients  has  no 
training  component  and  the  eligibility  criteria  for 
minimum 
income 
income  benefits  have  no 
disregard with the exception for one day contracts. 
These  elements  impact  on  the  transitions  to  the 
primary labour market.  

Bulgaria  is  pursuing  an  ambitious  programme 
to  improve  social  services.  The  government  is 
working  on  a  new  social  services  act,  to  be  ready 
in  October  2018.  The  act  is  expected  to  shift  the 
focus  of  assessment  and  the  provision  of  service 
from  individuals  to  families,  and  to  improve  case 
management. The reform is expected to reduce the 
fragmentation  of  services  and  to  improve  the 
financing mechanisms. 

Work  is  ongoing  on  disability  reform  and  de-
institutionalisation  of  adults  and  children.  The 
authorities  are  considering  the  separation  of  the 
medical  from  the  employability  assessment  of 
disability.  The  effects  on  putting  people  with 
disabilities into work remain to be seen. An action 
plan for the implementation of the National Long-
Term  Care  Strategy  (2018-2021)  adopted 
in 
January  2018,  envisages  integrated  measures  for 
provision of quality services for long-term care of 
vulnerable  people  and  new  infrastructure.  The 
government  continues 
to  make  progress  on 
deinstitutionalisation for children. 

Roma  children  aged  7-15  remain  outside  the 
education  system  and  many  children  are  not 
enrolled  in  kindergartens  (FRA,  2016)  (32).  A 
substantial proportion of Roma live in households 
without  access  to  public  utilities  or  basic  housing 
amenities.  

Access to social protection is a challenge for the 
most vulnerable workers. The self-employed and 
seasonal  workers  do  not  have  access 
to 
unemployment  protection.  Around  1  in  10  people 
employed  are  at  risk  of  not  being  entitled  to 
sickness  benefits  or  unemployment  benefits.  The 
situation  is  particularly  worrying  for  workers  in 
subsistence  and 
semi-subsistence  agriculture. 
Those who do not qualify for social assistance may 
opt in to statutory health coverage (ESPN, 2017). 

Despite  some  improvements,  the  coverage  and 
adequacy of social benefits remain low. In 2016, 
monthly  social  assistance  benefits  and  heating 
allowances  covered,  respectively,  3 %  and  6 %  of 
the  adult  population,  despite  a  loosening  of  the 
eligibility  conditions.  After  being  frozen  for  9 
years,  the  guaranteed  minimum  income  (GMI), 
which  determines  the  level  of  social  benefits  and 
access thresholds,  was increased in 2018 by  BGN 
10 (to BGN 75). It is still among the least adequate 
in  the  EU  and  significantly  below  the  at-risk-of-
poverty  threshold  (EUR  158  in  2015)  (33).  A 
Euromod  simulation  shows  that  the 2018  increase 
of monthly social benefits and heating allowances 
is  not  sufficient  to  significantly  reduce  poverty  or 
income inequality. The system has limited take-up 
and an objective mechanism for regular updates of 
GMI  is  still  lacking.  Furthermore,  the  coverage 
and  duration  of  unemployment  benefits  are  also 
among  the  lowest  in  the  EU  (34).  However,  the 
daily  minimum  unemployment  benefit  was 
recently increased by 25 %.  

(32)  Indicators  used  in  the  2016  FRA  survey  closely  resemble 
those applied in standard European surveys (EU-SILC, EU 
LFS)  but  full  comparability  was  not  intended.  For  more 
details see FRA 2016. 

(33)  According  to  the  benchmarking  exercise  in  the  area  of 
minimum  income  schemes  conducted  within  the  Social 
Protection  Committee,  see  the  draft  Joint  Employment 
Report 2018. 

(34)  According  to  the  benchmarking  exercise  in  the  area  of 
unemployment  benefits  and  active  labour  market  policies 
conducted  within  the  EMCO  Committee.  See  the  draft 
Joint Employment Report 2018 for details. 

38 

 
                                                           
4.4. INVESTMENT AND COMPETITIVENESS 

4.4.1.  INVESTMENT 

Investment activity 

the  new  cycle,  public 

Investment  levels  dropped  to  below  the  EU 
average  and  are  forecast  to  remain  subdued. 
Private investment has fallen significantly in recent 
years,  suggesting  structural  problems  and  barriers 
to  investment.  After  having  decreased  sharply  in 
2016,  mostly  due  to  the  slow  uptake of  EU  funds 
under 
is 
estimated to have recovered somewhat in 2017, in 
line  with  peer  countries.  It  is  forecast  to  continue 
to  grow,  but  not  enough  to  counter  the  decline  in 
private investment. As a result, total investment is 
not expected to keep up with the forecast increase 
in  peer  countries  and  the  EU  as  a  whole  (Graph 
4.4.1). 

investment 

Graph 4.4.1:  Gross fixed capital formation as % of GDP 

quality of infrastructure is among the lowest in the 
EU  (World  Economic  Forum,  2017).  Significant 
investment in road infrastructure, supported by the 
European  structural  and  investment  (ESI)  funds, 
seems  to  have  led  to  some  improvement,  albeit 
from  a  very  low  base.  In  rail,  investment  has  not 
been  relevant  and  the  prevailing  low  rate  of 
satisfaction reflects a lack of quality that has led to 
declining  freight  and  passenger  traffic.  Digital 
infrastructure  is  also  improving  only  slowly,  in 
part  due  to  cumbersome  authorisation  procedures 
for 
(European 
Commission, 2016c). 

deployment 

broadband 

Foreign  Direct  Investment  fell  significantly  in 
2017. After a large drop during the financial crisis, 
foreign  direct  investment  (FDI)  inflows  stabilised 
around 3% of GDP after 2010 but the trend turned 
negative since 2015. According to preliminary data 
(BNB, 2017) FDI has decreased by more than 25% 
in  the  first  nine  months  of  2017  compared  to  the 
same  period  in  2016.  In  terms  of  composition, 
about  half  all  FDI  goes  into  manufacturing  and 
ICT, with another 25% going into trade, transport 
and tourism (Graph 4.4.2). 

Graph 4.4.2:  FDI in NFCs by economic activity, 2016 

Peer countries: CZ,EE,HR,LV,LT,HU,PL,RO,SI,SK 
Source: European Commission 

High  value  added  activities  attract  relatively 
little investment. Buildings account for more than 
half  of  investment  in  tangible  assets.  Machinery 
and  equipment  account 
for  another  30 %. 
Negligible  investment  in  ICT  equipment  may 
affect  companies’  future  ability  to  compete,  as 
exports  are  becoming  more  dependent  on 
innovation and quality (see Section 4.5.1). 

The  quality  of  infrastructure  is  improving  but 
slowly and asymmetrically. Satisfaction with the 

* Wholesale and retail trade; Repair of motor vehicles and 
motorcycles; Transport, communication and services; 
Accommodation and food service activities 
Source: National Statistics Institute 

39 

152025303507080910111213141516171819% of GDPEuropean Union (28 countries)BulgariaPeer countries' averageforecast43.1%2.6%25.1%7.6%13.3%7.2%0.7%0.4%Manufacturing; Mining andquarrying and other industryConstructionTrade, repair, transport,communication, accommodationand food services*Information and communicationReal estate activitiesProfessional, scientific, technicalactivities; Administration andsupport service activitiesOther servicesAgriculture, forestry and fishing 
 
 
 
4.4. Investment and competitiveness 

Box 4.4.1: Investment challenges and reforms in Bulgaria 

Section 1. Macroeconomic perspective  

Since  the  crisis,  the  decline  in  overall  investment  has  been  sharper  than  the  EU  average, 
mainly  due  to  private  investment.  High  private  sector  indebtedness,  despite  the  ongoing 
deleveraging process, subdued credit demand and an only gradually-decreasing high stock of non-
performing loans limit banks’ capacity to boost credit and private investment (see Section 4.2.4). 
Although some steps have been taken, persistent weaknesses in the business environment continue 
to  weigh  negatively  on  investment  and  restrain  the  demand  for  credit  (see  Section  4.4.3  and 
European Commission, 2015b). Until 2015, the decline in private investment was offset by high 
public investment, as the implementation of EU ESI funds increased. The slow start of the 2014-
2020  programming  period  for  EU  funds  had  an  impact  on  public  investment,  but  a  gradual 
recovery has started  in 2017.  Total  investment  is forecast to  remain  unchanged  as percentage of 
GDP,  unlike  peer  countries  and  the  EU  as  a  whole,  where  total  investment  is  expected  to 
progressively increase. 

Section 2. Assessment of barriers to investment and ongoing reforms 

  The  business  environment  improved  somewhat,  but  institutional  weaknesses  and  corruption  remain 
among the main obstacles to investment. Despite implementation of several action plans, the regulatory 
and  administrative  burdens  are  still  high.  The  inefficiencies  of  the  public  administration  and  the  slow 
introduction of e-government restrain the improvement of investment conditions. The effect of the newly 
introduced impact assessment system on the quality and stability of the legislation is still limited.  

  The  lack  of  an  adequately  skilled  labour  force  continues  to  hamper  investment.  The  quality  of  the 
education  and  training  systems  and  their  limited  adequacy  to  the  labour  market  limit  the  supply  of 
suitably-skilled  workers,  thus  negatively  impacting  investment  decisions.  The  increasing  rate  of  early 
school leavers and low adult participation in learning further exacerbate the situation (see Section 4.3). 

  Weaknesses in the insolvency framework hamper private investment. The framework is characterised by 
lengthy procedures and a low recovery rate. The government introduced new legislation but elements of 
a  functioning  framework  remain  missing  (see  Section  4.2.5).  The  effectiveness  of  the  insolvency 
framework also depends on improving the judicial system (see Section 4.4.7). 

 

.  

Business 
investment 

environment  and  barriers 

to 

Weak  institutions  and  skills  shortages  are  key 
constraints on business development. According 
to  the  EIB  (2017),  the  percentage  of  companies 
that invest is well below the EU average. Political 

and regulatory uncertainty, the lack of workers and 
the  skills  shortages,  and  financial  constraints  are 
among  the  factors  shown  to  impede  investment 
plans. Low productivity is also a problem for long-
term  investment  (EIB,  2017).  The  latest  Global 
Competitiveness  Report  (World  Economic  Forum, 
2017)  confirms  that  institutions  remain  the  most 

40 

 
 
4.4. Investment and competitiveness 

small  and  medium-scale  projects,  but  the  overall 
role  of  the  BDB  in  the  economic  environment 
remains unclear. 

Venture  capital  and  business  angel  financing 
are  still  lagging.  The  start-up  ecosystem  is  still 
largely  dependent  on  public  support;  however, 
there  is  a  significant  delay  in  implementing 
available  public  financial  instruments.  The  first 
agreements with local financial institutions arising 
from  the  Fund  Manager  of  Financial  Instruments 
in  Bulgaria  calls  were  signed  in  December  2017, 
but  for  very  limited  amounts.  According  to  local 
stakeholders,  continuity,  political  independence 
and  suitability  for  market  needs  are  critical  for 
further improving the local financing ecosystem. 

4.4.2.  EXTERNAL COMPETITIVENESS 

Participation  in  international  trade  is  growing 
as  Bulgarian 
become  more 
products 
competitive.  Exports  and  imports  represent  64 % 
and  60 %  of  GDP,  respectively.  The  main  trade 
partners  are  Germany,  Italy,  Romania,  Turkey, 
Greece, France and Spain; the EU as a whole is the 
destination of almost two thirds of exports. Global 
export market share almost doubled between 1996 
and  2006.  It  has  continued  to  increase  since  then, 
but  more  slowly.  Goods  account  for  more  than 
70 %  of  total  exports  and  are  the  main  driver  of 
export penetration in international markets. Rising 
is  mainly  driven  by 
export  market  share 
improvements  in  competitiveness,  as  domestic 
factors seem to play a greater role than changes in 
demand in trading partners (Graph 4.4.3).  

problematic  area,  with  extremely  low  scores  for 
property rights and intellectual property protection, 
judicial 
transparency  of 
government policy-making. 

independence 

and 

to 

investment 

is  slowly  removing  barriers 

Bulgaria 
to 
investment.  Despite  delays,  an  action  plan  for 
(European 
removing  obstacles 
Commission, 2017) is progressing, with about half 
of  the  118  measures  in  place.  However,  no  prior 
assessment  or  subsequent  evaluation  has  been 
carried  out,  which  prevents better  targeting  of  the 
work. Some of the working groups created in 2016 
(European  Commission,  2017)  to  identify  and 
propose additional measures were revived in 2017. 

The  business  environment  is  improving  at  a 
slow  pace.  The  low  quality  and  availability  of 
basic  infrastructure  (see  above),  as  well  as  the 
difficulties  in  resolving  insolvencies  (see  Section 
4.2.3), paying taxes or connecting to the electricity 
grid  (World  Bank,  2017)  show  the  importance  of 
faster  and  better-targeted  reforms.  There  has  been 
the  number  of  days  and 
in 
an 
increase 
to  start  a 
formalities  needed 
administrative 
business  (GEM, 2017),  and  new  restrictions  and 
administrative formalities were introduced in some 
sectors  (e.g.  for  tourist  guides  and  mountain 
is  also 
guides).  The  business  environment 
weakened  by  the  lack  of  national  rules  for 
companies  wishing  to  directly  transfer  registered 
offices on a cross-border basis. 

SMEs’ access to finance is improving. Financing 
is  the  most  important  problem  for  just  7 %  of 
SMEs, according to the 2017 SAFE survey (ECB, 
2017).  This  is around  half  of  the  2009-2013  level 
and  on  a  par  with  the  EU  average.  The  most 
popular  sources  of  financing  are  credit  lines, 
leasing  and  bank  loans.  Only  2 %  of  SMEs  find 
equity financing relevant. 

European Structural and Investment Funds are 
improving access to finance for business. Grants 
from  the  operational  programme  Innovation  and 
for 
Competitiveness  mainly  benefit  SMEs 
investment  in  machinery,  innovation  and  energy 
efficiency.  Commercial  banks  are  developing  a 
loan portfolio expected to reach EUR 600 million 
guaranteed  by  the  operational  programme  ‘SME 
Initiative’.  Further,  a  EUR 150  million  agreement 
was  signed  by  the  Bulgarian  Development  Bank 
(BDB)  under  the  EU  Investment  Plan  to  finance 

41 

 
4.4. Investment and competitiveness 

Graph 4.4.3:  Evolution of export market share 

effective exchange rate (Graph 4.4.6) had also had 
a positive impact on external competitiveness. 

Graph 4.4.4:  Quality and share of exports by category 

Source: European Commission 

is 

is 

increasing  and 
Exports'  diversification 
quality 
improving.  Bulgaria  has  been 
diversifying  its  exports.  Basic  metals  remain  the 
largest export sector, followed by wearing apparel 
(clothing),  whose  contribution  almost  halved 
between  2006  and  2016.  Electrical  equipment, 
vehicles and pharmaceuticals are among the goods 
with  the  highest  growth  in  the  same  period  (see 
Graph 4.4.4). Based on the indicator developed by 
Vandenbussche  (2014),  quality  improvements  in 
almost  all  exporting  manufacturing  sectors  seems 
to  be  leading  the  shift  from  low  to  higher  quality 
export  products.  In  services,  growth  has  mainly 
been  driven  by  travel  services,  followed  by 
transport,  but  exports  of 
telecommunication, 
computer and information services also increased. 

reflect  wage 

increases  have  so  far  not  affected 
 Wage 
labour  cost 
external  competitiveness.  Unit 
developments 
increases,  which 
resulted  mainly  from  the  cyclical  improvement  in 
the economy (Graph 4.4.5). They are, nonetheless, 
also  affected  by  structural  weaknesses 
that 
constrain  productivity  and  labour  supply  (see 
Section  4.3).  Overall  wage  developments  seem  to 
be  mainly  driven  by  the  non-tradable  sector.  In 
manufacturing  and  services,  which  include  the 
bulk  of  exporting  companies,  unit  labour  cost 
increases  have  been  lower  than  in  the  rest  of  the 
economy35.  The  recent  stabilisation  of  the  real 

35   Constructions,  ICTs,  financial  and  insurance,  real  estate, 
professional, 
services, 
administrative  and  support services,  public  administration, 
education (ISIC F, J-P)" 

scientific 

technical 

and 

Note: A quality rank of 1 reflects the highest quality in the EU 
market for a particular "country of origin product", while a 
rank of 0 is the lowest quality rank. 
Source: European Commission 

Graph 4.4.5:  Rate of change of ULC, breakdown 

Source: European Commission 

Wage increases have so far not affected external 
competitiveness.  Unit  labour  cost  developments 
reflect wage increases, which resulted mainly from 
the  cyclical  improvement  in  the  economy  (Graph 
4.4.5).  They  are,  nonetheless,  also  affected  by 
structural  weaknesses  that  constrain  productivity 
and labour supply (see Section 4.3). Overall wage 
developments  seem  to  be  mainly  driven  by  the 
non-tradable sector. In manufacturing and services, 
which  include  the  bulk  of  exporting  companies, 

42 

-0.10-0.050.000.050.100.150.200607080910111213141516Rate of change y-o-y in ppsIS - indiosyncratic change due to developments in trade partnersMSG - market share change due to domestic factorsTotal market share change16.09.99.99.59.36.64.902468101214161800.10.20.30.40.50.60.70.8Share (%)  of exports 2016Quality indicator20062016Share of exports 2016 (rhs)-10-5051015200607080910111213141516171819Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in Euro Areaforecast 
 
                                                           
 
 
 
4.4. Investment and competitiveness 

unit labour cost increases have been lower than in 
the rest of the economy36. The recent stabilisation 
of  the  real  effective  exchange  rate  (Graph  4.4.6) 
had  also  had  a  positive  impact  on  external 
competitiveness. 

Graph 4.4.6:  Real effective exchange rate based on ULC 

Source: European Commission 

4.4.3.  PUBLIC ADMINISTRATION 

Public administration reform has been slow and 
has yielded little concrete change. Bulgaria ranks 
among  the  lowest  performers  in  the  EU  in 
executive  capacity  (Bertelsmann  Stiftung,  2017) 
While  the  evolution  of  this  indicator  registers 
improvements  in  strategic  capacity  and  evidence-
based policy-making, the implementation capacity 
appears generally stalled. 

Reform  of  the  regulatory  impact  assessment 
system  is  beginning  to  have  results.  After  one 
year,  250  preliminary  and  11  comprehensive 

36   Constructions,  ICTs,  financial  and  insurance,  real  estate, 
professional, 
services, 
administrative  and  support services,  public  administration, 
education (ISIC F, J-P)" 

scientific 

technical 

and 

impact  assessments  were  completed.  Some 
capacity 
to  perform  ex  ante  assessment  of 
legislative  proposals  has  already  been  built. 
Quality,  however,  is  often  impacted  by  a  lack  of 
data  and  the  large  number  of  legal  acts  to  be 
assessed.  The  regulatory  board  recently  set  up  to 
prevent  the  introduction  of  new  administrative 
burdens  is  also  a  positive  step  towards  curbing 
bureaucracy 
business 
environment.  

improving 

and 

the 

There  has  been  little  improvement  in  the 
quality of public services. According to the 2016 
Eurobarometer  survey,  only  22 %  of  respondents 
considered  public  services  to  be  of  good  quality, 
while  fully  75 %  were  of  the  opposite  opinion. 
Further  progress  on  the  concept  of  integrated 
services  is  still  hampered  by  legal  and  technical 
constraints.  The  introduction  of  shared  services  is 
in an early analytical phase; a model has yet to be 
devised.  The  next  step  will  involve  conducting  a 
pilot among administrations on a voluntary basis. 

E--government  reforms  progressed, 
though 
more  slowly  than  scheduled.  A  number  of  steps 
were  taken  to  improve  e-government.  A  strategic 
framework is in place, the agency on e-government 
is fully operational, and the ICT budget framework 
has  been  optimised.  However,  some  European 
Social  Fund-supported  e-government  projects  are 
still  in  the  early  stages  of  implementation,  while 
the  centralised  IT  system  for  registering  citizens 
and  the  introduction  of  new  identity  documents, 
electronic  identification  and  electronic  signature 
are  taking  longer  than  planned.  The  e-voting 
system and fully electronic exchange of documents 
between  administrations  are  both  planned  for  the 
end  of  2018.  The  conclusions  of  the  2016  E-
government  Benchmark  Report  remain  valid: 
performance  on  user-centricity,  transparency  and 
cross-border mobility is moderate. 

43 

10011012013014015016017006070809101112131415161999=100BGEA19EU28 
 
                                                           
4.4. Investment and competitiveness 

Box 4.4.2: Policy highlights 

Since  2015  the  Bulgarian  government  has  followed  an Open Data  policy,  in  line  with  its  5-year 
strategy on the priorities for developing public administration until 2020. 

An Open Data Portal (https://opendata.government.bg/) allows the publication and management of 
reusable  information  in  an  open,  machine-readable  format.  The  platform  permits  complete 
extraction of published information. Data are freely available and can be used for commercial or 
non-commercial purposes. The government updates annually the list of data sets by priority area 
and defines deadlines for their publication. National guidelines on publication are available and all 
regional  initiatives  are  coordinated  at  regional  level,  ensuring  consistency  among  the  data 
published. 

There  are  currently  over  7000  datasets  from  different  national  and  regional  administrations  and 
agencies.  The  system  also  supports  different  formats.  The  records  include  data  on  public 
procurement,  the  education  system,  healthcare  facilities,  regional  public  transport  facilities, 
transport data, pollution, the registers of employment agencies and public non-profit organizations 
(European Commission, European Digital Progress Report, 2017).  

There is no progress on feedback-based human 
resources  management.  Since  the  2012  reform, 
no  further  steps  have  been  taken  to  find  solutions 
and fix shortcomings in the performance-based pay 
system  for  civil  servants.  The  introduction  of 
been 
centrally  managed 
postponed for October 2019. 

competitions 

has 

4.4.4.  PUBLIC PROCUREMENT 

Many  of  the  measures  included  in  the  national 
public  procurement  strategy  were  put  in  place 
but  efficiency  is  still  low.  A  handbook  on  the 
public  procurement  cycle  is  available  online  to 
practitioners.  In  addition,  a  public  procurement 
training  plan,  a  precondition  of  European 
Structural  and  Investment  Funds  (ESI  Funds),  is 
expected  to  improve  capacity  among  contracting 
authorities  involved  in  managing  ESI  Funds, 
especially  municipalities.  The  Public  Procurement 
Agency (PPA) has been given a revamped ex ante 
risk  priorities  and 
control 
introducing  random  checks,  but  this  has  not  yet 
been  evaluated.  To 
improve  efficiency  and 
consistency  of  interpretation,  ex  ante  and  ex  post 
control  bodies  are  required  to  cooperate  regularly 
in a Permanent Methodological Council.  

function,  setting 

the  public 
Monitoring  and  evaluation  of 
envisaged.  The 
procurement 
authorities  signed  an  agreement  with  the  World 
Bank in November 2017 on an independent review 

system  are 

of the public procurement sector. The agreement is 
under  implementation,  which  will  be  completed 
before the end of 2018. According to business and 
non-governmental organisations, the overall public 
procurement 
to 
improve.  However,  transparency  and  corruption 
are still a matter of concern.  

landscape  has  already  begun 

The  benefits  of  centralised  procurement  for 
contracting  authorities  are  largely  untapped. 
This is particularly evident when it comes to public 
procurement at local level. Administrative capacity 
remains 
in 
the  public  procurement 
the  central 
problematic.  The  potential  which 
purchasing body offers to municipalities has so far 
been  left  unexplored.  Professionalisation  is  still 
insufficient, especially at municipal level. Still, the 
Public Procurement Agency, which is expected to 
provide a strong lead, is only slowly addressing its 
staffing problems. 

sector 

An  efficient  public  procurement  system  is 
particularly  important  for  the  health  sector. 
The  public  procurement  authorities  in  the  health 
sector  still  predominantly  opt  for  the  lowest  price 
rather  than  including  quality  criteria.  They  also 
make no use of aggregation, which could improve 
the  economic  return  from  tenders  managed  by 
specialised  procurement  bodies.  A 
central 
purchasing body for the health sector has been set 
up  but  its  expected  benefits  are  being  delayed  by 
tender appeals. 

44 

 
 
 
4.4. Investment and competitiveness 

increase transparency and limit corruption. Despite 
a  contract  being  concluded  for  e-procurement 
platforms,  meeting  the  legally  set  deadline  for  e-
procurement  could  still  be  at  risk  due  to  previous 
delays caused by the appeals of that tender.  

4.4.5.  CORRUPTION 

involved 

institutions 

Corruption remains a significant challenge. The 
fight  against  corruption  has  been  highlighted  in 
successive cooperation and verification mechanism 
(CVM)  reports  as  an  area  with  only  limited 
progress  so  far.  The  remaining  challenges  include 
the  fragmentation  of 
in 
preventing  corruption,  and  procedural  and  legal 
obstacles  hampering  effective  investigation  and 
prosecution  of  high-level  corruption.  A  national 
anti-corruption  strategy  adopted  in  2015  provides 
the current policy framework. At the end of 2017, 
Bulgaria  adopted  a  comprehensive  anti-corruption 
law,  setting  up  a  single  anti-corruption  agency  to 
ensure a better-coordinated approach to the risk of 
corruption  among  high-level  officials  and  to  deal 
with  issues  such  as  conflicts  of  interest  and 
declaration  of  personal  assets.  Civil  society  and 
opposition  actors  raised  a  number  of  concerns 
about aspects of the law, which eventually entered 
into force only after a new vote in January 2018 to 
override the Presidential veto. The implementation 
of 
the 
establishment of the new anti-corruption body as a 
credible and independent institution, remains to be 
seen. Apart from efforts to reform key institutional 
structures, a track record of effective investigation, 
detection and prosecution of corruption has yet to 
be  established.  Work  has  begun  to  address  the 
issue, including on measures to reform the system 
of  public  prosecution  and  criminal  procedures. 
Results remain to be seen (European Commission, 
2017b).  

anti-corruption 

including 

law, 

the 

in 

the 

limited  results 

The 
fight  against 
corruption  are  reflected  in  public  perceptions. 
According  to  the  Business  Flash  Eurobarometer 
of 
(European  Commission, 
businesses  consider 
that  corruption  creates 
problems  for  their  company  when  doing  business 
in  Bulgaria  (EU  average:  37 %)  (37).  87 %  of 

2017f), 

62 % 

(37)  The 

latest  World  Economic  Forum 

survey  on 
competitiveness also concludes that corruption remains the 

the 

could  hamper 

The  frequent  application  of  less  transparent 
procedures 
system's 
effectiveness. Bulgaria  has  significantly  increased 
the  use  of  the  negotiated  procedure  without  prior 
publication (see Graph 4.4.7). Whereas in 2016 the 
direct  awards  amounted 
to  14.8%  of  all 
procedures,  in  2017  they  reached  26%,  with  the 
EU average at 5% (European Commission, 2018a). 
The  share  of  direct  awards  in  the  healthcare 
tenders  has  been  also  high  (10 % 
in  2016 
compared  to  the  EU  average  of  4 %).  This 
tendency  could  significantly  hamper  competition 
in  the  sector  and  prevent  final  users  from  reaping 
the benefits of competitive tendering. This finding 
relates both to the quality of products and supplies 
and to price savings. The lack of competition may 
innovative  solutions  for 
also  result 
procurement in the health sector.  

less 

in 

Graph 4.4.7:  Proportion of contract award notices where 

the negotiated procedures without prior 
publication were used, 2013-17 

Source: European Commission based on OJ/TED data 

The growing number of appeals puts at risk the 
timely  implementation  of  important  projects. 
There  is  a  wide-spread  phenomenon  of  appealing 
large  tenders  by  using  the  possibility  offered  by 
low appeal fees. At the same time, the contracting 
authorities often suspend, and thus prolong, tender 
procedures,  even  where  the  appeals  are  launched 
on grounds not related to the award decision. Still, 
the  comprehensive  overview of  the  appeal  system 
and  the  recommendations  for  its  optimisation  led 
to  cooperation  agreements  between  the  PPA  and 
the appeal bodies. 

The  e-procurement  platforms  have  suffered 
further  delay.  E-procurement  is  important  to 

45 

-20%-15%-10%-5%0%5%10%15%20%25%30%35%CYBGSIROCZLVESHUITEEHRNLDKPLSKEU28DEFRLTUKATBEFIGRPTIELUMTSE2017average 2013-2017change 2013-2017  in pps 
 
                                                           
 
4.4. Investment and competitiveness 

time.  In  some  cases,  individual  stakeholders  have 
raised  concerns  about  the  quality  of  legislation  or 
their involvement in the process. 

Important  developments  also  took  place  in  the 
judiciary.  A  new  Supreme  Judicial  Council  was 
elected  under  new  rules  included  in  2015  in  the 
Constitution,  notably  with  individual  magistrates 
directly electing representatives to the council (the 
judicial  quota)  on  a  "one  magistrate-one  vote" 
basis.  Some  concerns  were  expressed  by  civil 
society  about  the  transparency  of  elections  to  the 
parliamentary  quota  of  the  council.  Still,  the 
overall  process  showed  the  merits  of  the  new 
constitutional  framework  (European  Commission, 
2017b). 

The  perceived  independence  of  the  judiciary  is 
among  the  lowest  in  the  EU.  According  to  the 
2018  EU  Justice  Scoreboard 
(forthcoming), 
Bulgaria improved only marginally on the previous 
year.  According  to  the  Scoreboard,  a  reason  for 
this perception is that the general public thinks that 
judges  face  interference  with  their  work,  or 
pressure,  from  economic  interests  and  from  the 
government and politicians.  

system 

hinders 

evaluation 

Indicators  of  the  quality  of  justice  show  room 
for  improvement.  The  lack  of  a  reliable  and 
continuous 
the 
functioning  of  the  justice  system.  In  addition,  the 
use  and  follow-up  of  the  results  of  surveys 
limited 
conducted  among  court  users  are 
(European  Commission,  2018b).  These  are, 
however, important clues to the shortcomings and 
the  needs  of 
justice  system,  and  could 
contribute  to  improving  it.  According  to  the  2018 
EU  Justice  Scoreboard  (forthcoming),  other  ways 
of further improving the quality of justice include 
compulsory training for judges.  

the 

Some  first-instance  court  cases  are  handled 
speedily. These include administrative court cases 
and proceedings related to specific areas of EU law 
which  are  of  particular  economic  relevance 
(European Commission, 2018b). There is room for 
improvement  in  resolving  civil  and  commercial 
cases,  as  the  rate  at  which  they  are  cleared 
continues  to  be  below  100 %,  which  means  that 
more  cases  come  into  these  courts  than  they 
resolve, adding to a backlog. 

companies  think  that  bribery  and  the  use  of 
connections  is  often  the  easiest  way  to  obtain 
certain  public  services  (EU  average:  60 %)  and 
94 %  think  that  over-close  ties  between  business 
and politics lead to corruption (EU average: 79 %). 
Conflicts  of  interest  in  the  evaluation  of  bids 
(61 %),  tailor-made  specifications  for  particular 
(61 %)  and  unclear  selection  or 
companies 
evaluation  criteria  (54 %)  are  believed  to  be 
widespread  practices 
in  public  procurement, 
affecting business decisions and competition. Only 
24 % of businesses think that someone engaging in 
corruption will be caught or reported to the police 
or  prosecutors  and  no  more  than  11 %  think  that 
person would be heavily fined or imprisoned by a 
court (EU averages: 43 % and 38 %, respectively). 
Only  13 %,  the  lowest  in  the  EU,  think  that  there 
are  enough  successful  prosecutions 
to  deter 
corruption.  The  attitudes  of  the  general  public  are 
similar  to  those  of  business.  According  to  the 
General  Eurobarometer  (European  Commission, 
2017g), 89 % consider corruption to be widespread 
(91 %  in  2013).  Police  and  customs  have  the 
highest  level  of  distrust  among  public  institutions 
(71 %  of  those  surveyed,  4  pp  higher  than  in 
2013),  well  above  the  courts  and  the  public 
prosecution service (56 % and 44 %, respectively). 
60 %  of  respondents  said  not  to  know  where  to 
report  corruption  cases  (EU  average:  49 %)  and 
86 %  of  those  having  experienced  or  witnessed 
corruption did not report it.  

4.4.6.  JUDICIAL SYSTEM 

Weaknesses 
in  the  judicial  system  persist, 
despite welcome progress. In 2017 there has been 
further  progress  in  reforming  the  judiciary.  While 
political uncertainty led to some delays early in the 
year,  the  process  regained  momentum  in  spring. 
After taking office in May, the government revived 
the  various  work  strands,  allowing  reforms  to 
move ahead smoothly, picking up the work of the 
previous government. Nevertheless, final outcomes 
have  yet  to  be  seen  in  many  areas,  particularly 
where  there  is  a  specific  need  for  legislative  or 
institutional  reforms.  Important  legislation  is  still 
under  consideration  and  broad  public  debate  and 
consultation  with  affected  stakeholders  is  taking 

single  most  problematic  factor  for  doing  business  in 
Bulgaria (World Economic Forum, 2017).  

46 

 
                                                                                   
4.5. SECTORAL POLICIES 

4.5.1.  TECHNOLOGY, RESEARCH AND 

INNOVATION 

in 

shortcomings 

the  research, 
Structural 
development  and  innovation  system  limit  its 
contribution  to  productivity  and  growth.  These 
shortcomings 
funding, 
institutional  fragmentation,  the  low  quality  of  the 
public 
public-private 
collaboration,  and  the  instability  of  science  and 
innovation policy strategies and measures.  

base,  weak 

insufficient 

include 

science 

segments 

technology  segments  still  dominate 
Lower 
manufacturing  and  innovation  is  very  low. 
Despite the growing value added in manufacturing, 
employment  in  the  sector  is  still  below  its  pre-
crisis  levels,  in  particular  because  the  fastest-
growing 
(high  and  medium-high 
technology)  are  less  job-intensive  than  the  less 
dynamic  ones  (see  Graphs  4.5.1). (38)  The  lower 
technology  segments  remain,  nonetheless,  the 
largest 
and 
employment  in  manufacturing.  Innovation  is  very 
modest,  with  an  overall  performance  level  below 
50% of the EU average, on par only with Romania 
(European Commission, 2017c). 

value-added 

contributors 

to 

Graph 4.5.1:  Employment and value added in 

manufacturing 2009-2015 

Source: European Commission 

whether 
it  can  be  achieved.  Business  R&D 
activities were just 0.57 % of GDP in 2016, despite 
a  substantial  improvement  since  2007  (0.13 %  of 
(those  with  250+ 
GDP).  Large  companies 
employees) account for about half of this spending, 
with intra-group funding being the main financing 
source (National Statistical Institute, 2017a).   

The level of public spending is particularly low. 
The Research Strategy 2017-2030 and the National 
Roadmap for Research Infrastructure, both adopted 
in 2017, commit to a gradual increase of the public 
budget  for  R&D  to  1%  of  GDP  by  2025  (from 
0.25%  in  2016).  Even 
is  not 
particularly  ambitious  when  compared  to  peer 
countries, 
the  strategies  could 
positively  impact  on  scientific  excellence  and 
innovation performance in the long term.  

implementing 

target 

the 

if 

of 

system 

research 

institutions. 

competitive 

system.  The 

Sluggish  reforms  hinder  the  move  towards  an 
research 
innovation-oriented 
funding 
calls, 
lacks 
international  evaluation,  and  performance-based 
funding 
The 
recommendations from the Policy Support Facility 
peer review (European Commission, 2015) address 
some of these shortcomings but implementation is 
not fully on track. The Smart Growth Council (39) 
was set up in 2015 to provide independent, robust 
and  coordinated  management  of  national  and  EU 
funding, but so far has not achieved this objective. 
The fragmentation of  the  research system  through 
34 higher education institutions plus the Bulgarian 
Academy  of  Science  (European  Commission 
(2017d)  is  a  major  obstacle  for  an  effective  and 
efficient 
performance. 
based 
Regulations  introducing  a  model  for  assessing 
research  results (40)  are  an  improvement  in  this 
area,  but 
lacks 
appropriate  and  transparent  criteria.  The  capacity 
to  attract  researchers  is  low.  There  are  practical 
examples of successful international collaboration, 
young  researchers  returning  to  Bulgaria,  and 
emerging teams in public research institutions with 

the  evaluation  system  still 

funding 

on 

in  R&D  restricts 

the 
Low  expenditure 
innovation  potential  of  the  economy.  The  2020 
R&D expenditure target (1.5 % of GDP) is one of 
the least ambitious in the EU but remains uncertain 

(38)  Labour productivity in high-technology manufacturing is in 
Bulgaria more than twice that in low-technology segments. 

(39)  The  Smart  Growth  Council  includes  members  of  relevant 
ministries, industry stakeholders and academics. Its role is 
to  coordinate  and  monitor  the  implementation  of  the 
Innovation  Strategy  for  Smart  Specialization  2014-2020 
and 
in  education,  science, 
to  define 
innovation, and ICT. 

the  priorities 

(40)  One of the recommendations of the expert panel under the 
(European 
2020  PSF  Specific  Support 

Horizon 
Commission, 2015). 

47 

02,0004,0006,0008,000010020030040050060009101112131415Mn EURs'000s personsEmployment - High-technologyEmployment - Medium high-technologyEmployment - Medium low-technologyEmployment - Low-technologyValue added - High-technology (rhs)Value added - Medium high-technology (rhs)Value added - Medium low-technology (rhs)Value added - Low-technology (rhs) 
 
 
                                                           
                                                           
4.5. Sectoral policies 

scientific  excellence,  recognition  and 
impact. 
However,  few  researchers  are  attracted  from 
abroad and 'brain drain' and ageing R&D staff are 
still the norm.  

Internet  users  (and  5.49%  of  all  individuals). 
(Eurostat, 2017). 

including 

level  of  public-private 

Cooperation between businesses and the public 
R&D sectors remains a challenge. Public-private 
cooperation in R&D is weak, as shown by the low 
and  declining 
co-
publications (41)  and  the  percentage  of  public 
research  financed  by  business (42).  The  flagship 
‘Sofia  Tech  Park’  still  faces  a  number  of 
inefficient  governance, 
challenges 
unstable  management,  underutilised  scientific 
infrastructure,  and  a  lack  of  long-term  financial 
commitment. Several other schemes for promoting 
innovation  financed  by  the  EU  Structural  Funds 
have  been  launched.  The  aim  is  to  facilitate 
knowledge  transfer  and  strengthen  the  industry-
academic  cooperation.  Implementation  of  ESIF-
funded  Centres  of  Competence  and  Centres  of 
Excellence  is  however  delayed,  threatening  the 
overall  effectiveness  of  EUR  500  million  ESIF 
investments in research and innovation. 

Uptake of digital technology is slow both in the 
public and private sectors. A growing ecosystem 
of  digital  and  tech  entrepreneurs  has  emerged  in 
recent  years,  but  investment  in  digitisation  of  the 
economy  is  still  lacking.  This  underinvestment, 
combined  with  a  shortage  of ICT  specialists,  may 
be  linked  to  the  slow  digitisation  process  and  the 
take-up  of  new  technologies.  The  number  of 
digitised enterprises in 2017 was among the lowest 
in the EU, at 12% (European Commission, 2017j). 
Projects  to  encourage  business  innovation  and 
digitisation  are  being  run  under  the  2014-2020 
Fund 
European 
programmes.  An  ongoing  call  under  the  same 
programmes  aims  to  support  the  development  of 
innovative  start-ups  in  the  tech  and  digital  fields. 
Bulgarian consumers are far from fully reaping the 
benefits of e-commerce. In 2017, the proportion of 
the population ordering goods or services over the 
internet in the previous 12 months was among the 
lowest in the EU at 17.7 % (EU average: 57.5 %). 
The  number  of  people  using  e-banking  is  also 
particularly  low,  accounting  for  8.65%  of  the 

Development 

Regional 

(41)  0.36% in 2015. 22th in the EU. 
(42)  0.015% of GDP in 2014, 22th in the EU. 

4.5.2.  ENERGY  

Energy is an important sector for the economy 
and  quality  of  life  but  investment  in  the  sector 
has been subdued. The sector accounts for 4 % of 
total value added and almost 1 % of employment. 
However, the share of energy-related investment in 
national GDP fell from 4.1 % in 2012 to 0.4 % in 
2015,  before  recovering  somewhat  to  2.6 %  in 
2016 (Eurostat (2018). As the sector is dominated 
by SOEs (over 60% of the output and close to 40% 
of  employment.  Bower,  2017),  these  figures  are 
economic 
the  SOEs, 
influenced  by 
performance, as well as governance decisions and 
management  shortcomings  (see  Section  4.1).  Low 
investment  and  poor  services  is  reflected  in  the 
dismal assessment by consumers of the markets for 
electricity and gas services. (43) 

their 

Steps  were  taken  to  reform  the  nuclear  sector. 
The  operating  licence  for  the  fifth  unit  of  the 
country’s  only  nuclear  power  plant  was  extended 
until  2027.  Together  with  the  planned  licence 
extension for the sixth snit (expected in 2018), this 
will  provide  a  reliable  and  competitive  baseload 
power  source.  Building  has  also  started  on  a 
national repository for low- and intermediate-level 
radioactive waste, in line with commitments when 
joining  the  EU (44).  The  repository  is  an  essential 
element  of  the  broader  strategy  for  securing  the 
stable operation of nuclear energy in Bulgaria. 

improved.  Measures  were  adopted 

The  security  of  supply  of  the  gas  system  has 
to 
been 
improve  the  resilience  of  the  system  and  mitigate 
supply risks related to reliance on a single supplier 
and  a  single  route.  They  include  reinforcement  of 

(43)  The  electricity  market  is  assessed  the  least  favourably  in 
the EU28 by consumers. The assessment of the gas market 
is slightly more favourably but still one of the worse in the 
EU28  and,  unlike 
the  electricity  market,  with  no 
improvement since 2015 (European Commission (2018c). 
(44)  In  July  2016,  Radioactive  Waste,  the  SOE  responsible  for 
the  decommissioning  of  reactors  1-4  at  the  Kozloduy 
nuclear  power  plant  and  the  national  radioactive  waste 
disposal  facility  signed  a  contract  for 
the  facility's 
construction. The first stage of construction is being funded 
with a €71.8 million grant from the Kozloduy International 
Decommissioning Support Fund, which is administered by 
the European Bank for Reconstruction and Development. 

48 

 
                                                           
                                                           
the internal grid and storage capacity, introduction 
of  a  new  entry-exit  tariff  model,  and  despite 
delays, progress on the gas interconnector Greece-
Bulgaria.  However,  there  are  bigger  delays  in  the 
preparatory  work  for  building  gas  interconnectors 
with  Turkey,  Serbia  and  the  Former  Yugoslav 
Republic of Macedonia.  

Security of supply of electricity is also expected 
to be reinforced. In September 2017, Central and 
South  Eastern  Europe  Connectivity  members (45) 
agreed  to  expand  the  regional  energy  cooperation 
for  the  gas  electricity  market,  energy  efficiency 
renewable  energy  development.  Priority 
and 
electricity  projects  will 
the 
transmission  capacity  between  Bulgaria,  Romania 
and  Greece.  In  parallel,  the  Bulgarian  and  the 
Romanian  system  operators  signed  an  agreement 
on  mutual  assistance  in  the  event  of  emergency 
requests  for  the  supply  of  electricity.  These 
supply  of 
strengthen 
measures  would 
electricity  in  Bulgaria  and  would  enable  domestic 
companies  to  participate  more  effectively  in  the 
regional electricity market. 

include  boosting 

the 

the  day-ahead  segment  of 

Reliable  reference  prices  for  wholesale  trading 
in electricity and gas are still not available. The 
availability  of  reference  prices  is  a  pre-condition 
for  participating  in  the regional  energy market.  In 
electricity,  despite  recent  positive  steps (46),  the 
liquidity  of 
the 
Independent  Bulgarian  Energy  Exchange  remains 
low,  raising  questions  about  price  discovery 
standards.  Measures  (S&P  Global  Platts,  2017) 
taken during the cold period in January 2017 also 
undermined the confidence of market operators in 
the functioning of the wholesale market. Important 
segments  have  yet  to  be  put  in  place,  such  as  the 

(45)  The  members  are  Austria,  Bulgaria,  Croatia,  Greece, 
Hungary, Italy, Romania, Slovakia, Slovenia and the EU. 
(46)  The Bulgarian Energy Holding (BEH) has sold its stake in 
the Independent Bulgarian Energy Exchange (IBEX) to the 
Bulgarian  Stock  Exchange.  This  operation  resolved  the 
outstanding  issues  related  to  possible  conflict  of  interest 
with other BEH companies. IBEX also set up an electronic 
trading  platform  for  a  centralised  market  for  bilateral 
contracts,  allowing  the  emergence  of  continuous  trading 
benchmarks  in  the  Bulgarian  power  market.  Steps  were 
also  made  in  preparation  of  the  intra-day  market  and  the 
future market coupling with neighbouring areas. 

4.5. Sectoral policies 

intraday  market.  In  gas,  the  work  on  setting  a 
reliable benchmark is less advanced (47). 

of 

abuse 

dominant  market 

The  overall  functioning  of  the  motor  fuel 
market  presents  another  challenge.  A  recent 
investigation by the Commission for Protection of 
Competition  found  no  evidence  of  price-fixing  or 
position. 
of 
Nonetheless, public authorities and a large variety 
of  stakeholders  along  the  value  chain  continue  to 
voice  serious  concerns  about  how  the  market 
works.  These  concerns  relate  to  the  lack  of 
transparency,  low  fuel  quality,  access  to  tax 
warehouses and unregulated trades at selling points 
the  National 
not  connected 
to  customs  and 
Revenue  Agency.  The  potential 
impact  of 
unregulated trades on tax and excise collection has 
been  estimated  in  the  range  of  several  percentage 
points of GDP (48). 

4.5.3.  CLIMATE ACTION 

Work  has  started  on  an  integrated  national 
energy and climate plan for 2021-2030. The new 
government  set  up  an  inter-ministerial  working 
group  in  2017  to  draft  the  plan.  It  will  involve 
government and non-government stakeholders and 
will  identify  sensitive  areas  which  will  require 
additional expertise.  

in 

than 

The  economy  remains  one  of  the  most  carbon- 
the  EU.  Despite 
and  energy-intensive 
substantial  drops  since  1990  (60  %  in  carbon 
intensity  and  39  %  in  energy-intensity),  Bulgaria 
still  emits  4.3  more  carbon 
the  EU 
average and  consumes  3  times  more  energy  per 
unit  of  GDP  (European  Commission,  2017i). 
to  have  stalled  since  2005. 
Progress  seems 
Targeted  measures, 
including  objective  and 
transparent assessment criteria, could maximise the 
impact  on  energy  saving,  carbon  emissions  and 
effectiveness  of  invested  public  resources  and 
unlock  a  huge  energy  saving  potential  in  the 
transport and residential sectors.  

(47)  In  October  2017,  Bulgartransgaz,  the  transmission  system 
operator,  opened  a  EUR  1.8  million  tender  for  a  detailed 
feasibility study on the proposed Balkan gas hub project 
(48)  A  2015  analysis  by  the  Ministry  of  Finance  suggests  that 
taxes  were  not  payed  for  roughly  30 %  of  the  gas  oil 
consumed, (Ministry of Finance, 2015). 

49 

 
                                                           
                                                           
4.5. Sectoral policies 

life 

Air  quality  continues  to  give  cause  for  serious 
concern.  Bulgaria  remains  among  the  Member 
States  with  the  most  pollution-related  deaths 
lost 
(EEA,  2017),  number  of  years  of 
associated with air pollution, and urban population 
exposure to micro-particles (see Graph 4.5.2). The 
health-related external costs from air pollution are 
estimated  to  be  above  EUR  3  billion  per  year, 
including  direct  economic  costs  related  to  2 
million  workdays  lost  each  year  due  to  sickness 
linked to air pollution, the costs for employers, the 
healthcare  system  and  those  resulting  from  crop 
losses ) European Commission, 2017e). 

Graph 4.5.2:  Air quality — PM10 concentrations in relation 

to the daily limit value in 2015 in the EU28 

Progress  with  railway  reform  has  been  slow. 
The profitability of the railway operator BDZ, net 
of  one-off  effects,  has  been  negative  since  2002. 
Its  debt-to-assets  ratio  stood  at  94  %  in  2016 
(Ministry of Finance, 2017a). Efforts to restructure 
BDZ  started  with  reform  of  its  governance  in 
2010,  including  the  disposal  of  a  non-core,  loss-
making  business,  but  progress  has  been  marginal. 
The  government  intends  to  use  the  proceeds 
(estimated  by  the  authorities  at  BGN  0.4  billion, 
EUR  0.2  billion)  from  retendering  the  35-year 
concession  for  Sofia  airport  to  restructure  BDZ. 
The  privatization  of  the  freight  services  company 
has  failed  despite 
intentions  of  several 
governments. 

the 

Various  other  factors  hinder  the  effectiveness 
and  performance  of  the  railway  sector.  These 
include  limited  own  revenue,  weak  management 
and  insufficient  resources  of  the  rail  regulatory 
poor 
body, 
infrastructure,  maintenance 
of 
improvements,  old  safety  and  signalling  systems, 
deficiency  of  lines  and  slots  for  freight  carriers, 
and bad condition of the vehicles. 

network  with 
and 

inefficient 

lack 

an 

For each Member State, based on the percentile of daily 
mean concentration values corresponding to the 36th 
highest daily mean. For each country, the lowest, highest 
and median 90.4 percentile values (in µg/m³) at the stations 
are given. The rectangles mark the 25th and 75th 
percentiles. At 25 % of the stations, levels are below the 
lower percentile; at 25 % of the stations, concentrations are 
above the upper percentile. The daily limit value set by EU 
legislation is marked by the red line.  
Source: European Environment Agency 

While the market for rail freight is fully open to 
competition (49), the passenger market has been 
suffering  from  a  lack  of  effective  competition. 
The share of railways in passenger transport is low 
(2.2  %,  against  an  EU  average  of  7.6  %  in  2015) 
and the number of rail passengers is declining (50). 
Increased  use  of  competitive  tendering  for  public 
service  contracts  would  encourage  the  much-
needed  entry  of  new  private  operators.  Train 
services  continue  to  be  perceived  as  one  of  the 
poorest 
(European 
Commission,  2017b)  and  consumer  satisfaction 
with the rail transport is the lowest in the EU. 

performing 

sectors 

4.5.4.  TRANSPORT 

Transport  is  a  fundamental  sector  of  and  for 
the  Bulgarian  economy.  The 
transport  and 
storage  sector  accounts  for  more  than  6  %  of  the 
gross  value  added  and  for  almost  7  %  of 
employment  (Eurostat,  2015,  2016).  Transport 
represents  a  sizeable  share  of  firms’  costs  and  of 
household  expenditure,  accounting  for  more  than 
15  %  of  the  latter’s  final  consumption.  Thus  an 
improved infrastructure and the provision of more 
efficient  transport  services  could  create  tangible 
benefits for the public and businesses. 

The road safety records call for immediate and 
effective measures. The number of road fatalities 
per  capita  is  the  highest  in  Europe  and  is  still 
increasing  (European  Commission,  2016b).  In 
2016, there were 99 deaths per million inhabitants, 
twice  the  EU  average. 60  %  of  all fatalities  come 
from car accidents. The very old vehicle fleet, the 

(49)  Bulgaria  is  among  the  top  three  Member  States  with  the 
highest  market  share  in  rail  freight.  The  state-owned 
railway operator share is less than 50%. 

(50)  The number of passengers fell by more than 15 %, after the 

cancelation of a large number of passenger services. 

50 

050100150EEFIIEUKSEHRLUNLFRDEATESPTDKBELVLTCZMTROSKHUITSLCYGRPLBGµg/m³ 
 
                                                           
4.5. Sectoral policies 

under-developed road network, the non-respect for 
road rules and drivers without proper qualification 
all  contribute  to  the  high  road  fatality  rates.  The 
quality of roads adds to this. Bulgaria ranks 24th in 
the EU for road quality (World Economic Forum, 
2017).  Improvements  are  expected  from  the  on-
going construction of a modern motorway network 
connecting the larger cities. 

51 

 
ANNEX A 

OVERVIEW TABLE 

Commitments 

2017 country-specific recommendations (CSRs) 

  CSR  1:  Further  improve  tax  collection  and  tax 
compliance,  including  through  a  comprehensive 
set  of  measures  beyond  2017.  Step  up 
enforcement  of  measures  to  reduce  the  extent  of 
the  informal  economy,  in  particular  undeclared 
work. 

Summary assessment (51)  

Bulgaria has made some progress in addressing 
CSR1  (this  overall  assessment  of  CSR  1  does 
not  include  an  assessment  of  compliance  with 
the Stability and Growth Pact). 

The assessment of compliance with the Stability 
and  Growth  Pact  will  be  made  in  spring  when 
final data for 2018 will be available. 

  Further 

improve 

tax 
compliance,  including  through  a  comprehensive 
set of measures beyond 2017.  

collection 

and 

tax 

tax 

the 

and 

  Some  progress  in  further  improving  tax 
compliance. 
collection 
Implementation  of 
tax  compliance 
strategy made somewhat more progress, and 
controls  and  measures  to  collect  tax  debt 
were intensified. Until the end of 2017, more 
than  60  %  of  the  measures  included  in  the 
Strategy  were  launched,  but  only  few  of 
them  were  completed.  The  authorities  have 
extended the strategy up to December 2018.  

  Step  up  enforcement  of  measures  to  reduce  the 
extent  of  the  informal  economy,  in  particular 

  Some  progress  in  stepping  up  enforcement 
of  measures  to  reduce  the  extent  of  the 
informal  economy.  Several  measures  were 

(51)  The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs): 

No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number of typical situations, to be interpreted on a case-by-case basis taking into account country-specific conditions. They include 
the following: 
 

no legal, administrative, or budgetary measures have been announced in the national reform programme, in any other 
official communication to the national Parliament/relevant parliamentary committees or the European Commission, 
publicly (e.g. in a press statement or on the government's website);  
no non-legislative acts have been presented by the governing or legislative body;   
the Member State has taken initial steps in addressing the CSR, such as commissioning a study or setting up a study 
group to analyse possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). 
However, it has not proposed any clearly-specified measure(s) to address the CSR. 

 
 

Limited progress: The Member State has: 
 
 

announced certain measures but these address the CSR only to a limited extent; and/or 
presented legislative acts in the governing or legislative body but these have not been adopted yet and substantial further, 
non-legislative work is needed before the CSR is implemented;  
presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 

 

Some progress: The Member State has adopted measures: 

 
 

that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the measures 
have been implemented. For instance, a measure or measures have been adopted by the national Parliament or by 
ministerial decision, but no implementing decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way towards addressing the CSR and most of them 

have been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

52 

 
 
 
 
 
 
 
                                                           
 
 
 
 
 
 
undeclared work. 

A. Overview Table 

to 

in 

taken to reduce undeclared work. Companies 
engaged  in  undeclared  work  will  not  be 
allowed 
public 
participate 
procurements,  following  the  recent  legal 
amendments.    In  spite  of  the  reduction  of 
undeclared  work 
in  certain  sectors  (in 
agriculture with  the  introduction of one day 
contracts),  the  share  of  undeclared  work 
continues to be high and continues to distort 
the  labour  market  and  impede  fair  working 
conditions.  Joint  inspections  between  fiscal 
and  labour  authorities  have  been  organised, 
promising future improvements in efficiency 
and scope. 

in 

reviews, 

particular 

  CSR 2: Take follow-up measures on the financial 
sector 
concerning 
reinsurance contracts, group-level oversight, hard-
related-party  exposures. 
to-value  assets  and 
Improve  banking  and  non-banking  supervision 
through  the  implementation  of  comprehensive 
action  plans,  in  close  cooperation  with  European 
bodies.  Facilitate  the  reduction  of  still  high 
corporate non-performing loans, by drawing on a 
including  by 
comprehensive 
accelerating 
insolvency 
reform  of 
framework  and  by  promoting  a  functioning 
secondary market for non- performing loans. 

set  of 

tools, 

the 

the 

  Take  follow-up  measures  on  the  financial  sector 
reviews,  in  particular  concerning  reinsurance 
contracts,  group-level  oversight,  hard-to-value 
assets and related-party exposures. 

 

. 

Bulgaria has made some progress in addressing 
CSR2. 

  Some  progress 

taking 

is  ongoing 

follow-up 
in 
measures  on  the  financial  sector  reviews. 
The  capital  buffers  of  two  banks  were 
strengthened in line with the findings of the 
asset  quality  review.  With  the  help  of 
external  advisers  work 
to 
strengthen their robustness. The larger of the 
two  banks  has  tried  to  raise  fresh  capital 
including  by  attracting  new  core  investors, 
but it has been unsuccessful by end-2017. In 
non-banking, 
took  some 
the  supervisor 
issuing 
follow-up  measures, 
recommendations  to  companies  with  capital 
needs  and  to  those  with  shortcomings  in 
governance. 

including 

 

Improve  banking  and  non-banking  supervision 
through  the  implementation  of  comprehensive 
action  plans,  in  close  cooperation  with  European 
bodies.  

  Some  progress  in  improving  banking  and 
non-banking  supervision.  Progress  has  been 
made  in  some  areas  to  strengthen  bank 
supervision, but less  so in others.  The  BNB 
amended several pieces of legislation with a 
view  to  strengthening  its  decision-making 

53 

 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

from 
by 

risk 
adopted 

framework  and  improving  the  supervisory 
process.  It  also  took  steps  to  improve  the 
related-party 
supervision  of 
Parliament. 
exposures, 
Legislative  changes  were  adopted 
to 
strengthen the financial independence of the 
FSC, 
the 
its  governance  structure  and 
judicial  framework.  The  FSC  adopted  an 
action  plan  aimed  at  addressing  the  most 
pressing issues identified by an independent 
assessment. 

  Facilitate the reduction of still high corporate non-
performing loans, by drawing on a comprehensive 
set  of  tools,  including  by  accelerating  the  reform 
of the insolvency framework and by promoting a 
functioning secondary market for non- performing 
loans. 

Increase 

  CSR  3:  Improve  the  targeting  of  active  labour 
market  policies  and  the  integration  between 
employment and social services for disadvantaged 
groups. 
the  provision  of  quality 
mainstream  education,  in  particular  for  Roma. 
Increase health insurance coverage, reduce out-of-
pocket  payments  and  address  shortages  of 
healthcare  professionals.  In  consultation  with 
social partners, establish a transparent mechanism 
for  setting  the  minimum  wage.  Improve  the 
coverage and adequacy of the minimum income.  

 

Improve  the  targeting  of  active  labour  market 
policies  and  the  integration  between  employment 
and social services for disadvantaged groups.  

  Some  progress  in  facilitating  the  reduction 
of still high corporate non-performing loans. 
The  reduction  in  NPLs  accelerated,  but 
limited  progress  was  made  in  promoting  a 
functioning  secondary  market  for  NPLs. 
IMF and anecdotal evidence suggest that one 
reason could be the inconsistent valuation of 
collateral.  The  reform  of  the  insolvency 
framework slowly continues. 

Bulgaria has made limited progress addressing 
CSR3. 

Some  progress  in  improving  the  targeting  of 
active labour market policies and the integration 
between  employment  and  social  services  for 
disadvantaged  groups.  While  the  network  of 
centres has been expanded and new services are 
being introduced (family case managers, mobile 
services),  the  integration  of  employment  and 
social services still lacks important components. 
The  municipalities,  the  main  social  service 
providers,  are  not  included  in  the  integrated 
approach,  and  considerable 
is 
required  to  expand  the  network  of  centres  and 
harmonize  administrative  processes,  including 
data collection and sharing. Measures have been 
taken  for  targeting  long-term  unemployed  and 
young  people,  but  Youth  Guarantee  coverage 

investment 

54 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

remains  low,  especially  for  the  inactive  NEET 
group. The NEET rate and inactivity among the 
NEET  group  remain  very  high.  Job  integration 
agreement  for  the  long-term  unemployed  was 
introduced  with 
the 
Employment Promotion Act in October 2017. 

the  amendment  of 

 

Increase  the  provision  of  quality  mainstream 
education, in particular for Roma.  

 

Increase health insurance coverage, reduce out-of-
pocket  payments  and  address  shortages  of 
healthcare professionals.  

55 

  Limited  progress 

in 

increasing 

to  address 

the 
provision  of  quality  mainstream  education, 
in  particular  for  Roma.  While  Bulgaria 
started implementing measures for inclusive 
education  reform  and  for  Roma  inclusion, 
the 
these  are  not  enough 
magnitude of the challenges and results have 
yet  to  be  seen.  Measures  include  language 
courses, working with parents and curricular 
training  for  those  whose  mother  tongue  is 
not  Bulgarian.  The  multidisciplinary  teams 
to tackle out-of-school children are a step in 
the right direction, but educational measures 
to  keep  students  in  school  and  integrated 
social measures targeting the family are still 
limited.  The  impact  of  the  united  schools 
and  of  the  new  school  structure  (lower 
secondary  education  ending  at  grade  7 
instead of 8) on early school leaving have to 
be  seen.  Enforcing  the  ban  on  segregated 
classes  remains  a  challenge.  Remuneration 
increased  and  system  of 
levels  were 
school 
financing 
these 
institutions 
measures, 
of 
disadvantaged  students  into  low-performing 
facto  segregated 
schools, 
schools and Roma classes, are major barriers 
in providing quality mainstream education in 
Bulgaria. 

re-designed.  Despite 
concentration 

including  de 

pre-school 

and 

the 

of 

  Limited  progress 

increasing  health 
in 
insurance  coverage,  reducing  out-of-pocket 
payments  and  addressing  shortages  of 
healthcare  professionals.  Despite  numerous 
requests,  the  Bulgarian  authorities  did  not 
provide 
the  number  of 
inhabitants  without  health  insurance  and 
thus  with  limited  access  to  health  care 
services.  The  results  of  implementing  new 
rules  of  pharmaceutical  pricing  are  not 

information  on 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

known.  The  higher  2018  budget  for  the 
National Health  Insurance  Fund  is meant  to 
lower  out-of-pocket  payments.  In  recent 
the  number  of  medical  students 
years 
increased  and  number  of  professionals 
leaving 
the  country  dropped.  General 
practitioners  are  offered  better  salaries  for 
working  in  remote  areas  but  the  results  of 
this measure are not known. The number of 
places  available  for  nursing  studies  was 
raised  but  not  all  of  them  were  taken  since 
nursing is seen as an unattractive profession 
in  Bulgaria.  Overall  the  authorities  report 
more  on  their  plans  than  in  the  results  of 
action taken. 

  Limited  progress 

establishing 

for  setting 

a 
in 
transparent  mechanism 
the 
minimum wage. The government has tabled 
proposals  for  a  minimum  wage  setting 
mechanism  to  address  this  shortcoming; 
however, there is no agreement between the 
social  partners  on  this  issue.  There  is  an 
agreement,  on  basing  the  future  mechanism 
is 
the  ILO  convention  131,  which 
on 
expected  to  be  ratified  by  Parliament  in 
2018. In its budget forecast, the government 
included  increases  of  minimum  wage  until 
2020. 

  Some  progress  in  improving  the  coverage 
and adequacy of the minimum income. After 
being  frozen  for  9  years,  the  guaranteed 
minimum  income  (GMI),  which  determines 
the  level  of  social  benefits,  is  seeing  an 
increase in 2018 of BGN 10 (to BGN 75 or 
EUR  38),  but  its  adequacy  remains  among 
the  EU.  An  objective 
the 
mechanism  for  regular  benefit  updates  is 
lacking.  The  minimum  income  remains  too 
low  to  have  an  impact  on  the  number  of 
people  living  in  poverty  or  on  income 
inequality. Moreover, take-up is limited. 

lowest 

in 

 

In  consultation  with  social  partners,  establish  a 
transparent  mechanism  for  setting  the  minimum 
wage.  

 

Improve  the  coverage  and  adequacy  of  the 
minimum income. 

  CSR  4:  Ensure  efficient  implementation  of  the 
2014-2020 National Public Procurement Strategy. 

Bulgaria  has  made  some  progress  addressing 
CSR 4. 

  Some  progress 

in  ensuring  efficient 
implementation  of  the  2014-2020  National 
Public  Procurement  Strategy.  Most  of  the 
measures  in  the  strategy  have  been  put  in 
place.  Some  still  need  further  work,  for 

56 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

example e-procurement platforms are still to 
be  introduced.  Attention  is  also  needed  to 
ensure the correct functioning of the Central 
Purchasing  Bodies  for  the  health  sector  and 
for 
Efficient 
municipalities. 
the 
implementation  of 
the  National  Public 
Procurement  Strategy  entails  not  only 
adopting the relevant measures but applying 
them and assessing their impact. 

Europe 2020 (national targets and progress) 

Employment rate target: 76 % 

67.7 % in 2016. 

Early school leaving target: 11 % 

13.8 % in 2016. 

Tertiary education target: 36 % 

33.8 % in 2016. 

At  risk  of  poverty  target  in  numbers  of  persons: 
Decrease by 260 000 (baseline 2008: 1 632 000) 

1 639 000 in 2016. 

Greenhouse gas (GHG) emissions target: 

+20 %  in  2020  compared  to  2005  (in  non-ETS 
sectors)  

According  to  the  latest  national  projections 
submitted  to  the  Commission  and  taking  into 
account existing measures, Bulgaria is expected 
to achieve its target. 

In  2020  Bulgaria’s  non-ETS  emissions  are 
expected to be 1.7 % less than in 2005, which is 
an  overachievement  of  the  2020  target  by  a 
margin of 21.7 percentage points.  

increase 

The 
in  non-ETS  greenhouse  gas 
emissions between 2005 and 2016 was +12.8%, 
which  is  an  overachievement  of  the  2016 
interim target by 12.6 percentage points.  

Non-ETS interim target for 2016: +25.4% 

2020 Renewable energy share target:  

16 % in Gross Final Energy Consumption 

57 

is  on 

track.  The  2015 

Bulgaria 
level  of 
renewable energy was 18.2%. The upward trend 
is back, after a fall to 18% in 2014, from 19% in 
legal 
2013.  That 

fall  was  attributed 

to 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A. Overview Table 

uncertainty created by a change in legislation. 

The 2015 RES share of 18.2% is well above the 
2020  target  of  16%  of  gross  final  energy 
consumption (52). 

The RES share of transport increased by almost 
by 0.8 pp. from 2014, to 6.5% in 2015. This is 
in line with the average growth rate required by 
Bulgaria  to  achieve  the  binding  10 %  RES 
target in transport. 

Energy efficiency indicative national target: 

Indicative national target not yet achieved.  

16.9 Mtoe in primary energy consumption (PEC) 

8.6 Mtoe in final energy consumption (FEC) 

In  2016  PEC  stood  at  17.6  Mtoe,  down  from 
17.9 Mtoe in 2015. 

In  2016  FEC  stood  at  9.66  Mtoe,  up  from  9.5 
Mtoe in 2015. 

R&D target: 1.5 % of GDP 

0.78 % (2016) 

in 

2016, 

despite 

No  progress  towards  the  target:  R&D  intensity 
decreased from 0.96 % of GDP in 2015 to 0.78 
% in 2016, and is one of the lowest in the EU. 
Business  R&D  activities  were  just  0.57%  of 
GDP 
substantial 
improvement over a decade ago (0.13% of GDP 
in  2007).  Large  companies  account  for  more 
than  2/3  of  this  spending  with  intra-group 
funding being their main sources of investment. 
In  2016  R&D 
in  Bulgaria  was 
intensity 
composed  of  0.21  %  public  R&D  intensity, 
0.57% business R&D intensity. 

a 

(52)  Renewable energy shares for 2015 are approximations and not official data, reflecting the available data (4.10.2016). See the 
renewable  energy, 
in 

technical  assistance 

realisation  of 

report  on 

the  2016 

Öko-Institut  Report:  Study  on 
http://ec.europa.eu/energy/en/studies 

58 

 
 
 
                                                           
ANNEX B  

MACROECONOMIC IMBALANCE PROCEDURE SCOREBOARD 

Table B.1: 

The MIP scoreboard for Bulgaria (AMR 2018) (1), (2), (3) 

Flags:b:Break in series. p:Provisional.   

(1) ) This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. 
Please note that figures reported in this table may therefore differ from more recent data elsewhere in this document. 
(2) Unemployment rate: i = Eurostat back-calculation to include 2011 Population Census results.  
(3) Figures highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism 
Report. 
Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective 
Exchange Rate), and International Monetary Fund data, WEO (for world exports series) 

59 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%-3.2 -0.7 0.3 0.2 0.4 1.8 Net international investment position% of GDP-35%-82.8 -77.9 -73.3 -75.2 -61.2 -47.0 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)1.9 -4.0 -0.9 -2.8 -4.2 -4.7 Export market share - % of world exports5 year % change-6%11.3 -0.6 0.3 5.9 12.2 8.2 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)17.7 12.2p15.6p18.0p14.9p9.5pHouse price index (2015=100), deflated 1 year % change6%-8.7p-5.3p0.4p1.5p1.6bp7.1pPrivate sector credit flow, consolidated% of GDP14%1.4 3.0 7.2 -1.1 -0.3 4.0 Private sector debt, consolidated% of GDP133%124.2 125.0 131.9 123.6 110.5 104.9 General government gross debt% of GDP60%15.2 16.7 17.0 27.0 26.0 29.0 Unemployment rate3 year average10%9.5i11.3i12.2 12.2 11.2 9.4 Total financial sector liabilities, non-consolidated1 year % change16.5%5.4 10.2 4.3 5.6 6.2 11.1 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp-1.9b-0.1 1.7b3.1b2.2 0.3 Long-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp3.4b3.8 2.7 0.6 -1.2 -2.9 Youth unemployment rate - % of active population aged 15-243 year change in pp2 pp13.1 13.0 6.5 -1.2 -6.5 -11.2 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
 
ANNEX C 

STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2017. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2017. 
(3) As per ECB definition of gross non-performing debt instruments 
(4) Quarterly values are not annualised 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

60 

201220132014201520162017Total assets of the banking sector (% of GDP)(1)108.2112.9110.8107.3105.7104.1Share of assets of the five largest banks (% of total assets)50.449.955.057.658.0-Foreign ownership of banking system (% of total assets)(2)73.671.576.176.376.576.1Financial soundness indicators:2)              - non-performing loans (% of total loans)(3)19.818.614.413.011.210.6              - capital adequacy ratio (%)16.617.021.521.621.522.2              - return on equity (%)(4)4.74.47.28.011.35.9Bank loans to the private sector (year-on-year % change)(1)3.51.12.2-0.23.47.1Lending for house purchase (year-on-year % change)(1)1.0-0.8-1.7-0.52.76.8Loan to deposit ratio(1)102.494.186.077.573.673.7Central Bank liquidity as % of liabilities0.00.00.00.00.00.0Private debt (% of GDP)125.0131.9123.6110.5104.9-Gross external debt (% of GDP)(2) - public8.38.114.112.314.112.7    - private66.165.965.454.048.045.1Long-term interest rate spread versus Bund (basis points)*300.3190.3218.4199.6218.2133.6Credit default swap spreads for sovereign securities (5-year)*227.7102.1119.4153.8139.0102.7 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

† The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States 
performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. 
(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 (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2018.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap..     
Source: Eurostat 

61 

201220132014201520162017 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)12.512.512.913.413.8:Gender employment gap (pps)5.65.76.16.67.37.7Income inequality, measured as quintile share ratio (S80/S20)6.16.66.87.17.9:At-risk-of-poverty or social exclusion rate1 (AROPE)49.348.040.141.340.4:Young people neither in employment nor in education and training (% of population aged 15-24)21.521.620.219.318.2:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)63.063.565.167.167.771.1Unemployment rate2 (15-74 years)12.313.011.49.27.66.3Gross disposable income of households in real terms per capita3 (Index 2008=100) ::108.5118.1131.3:Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction418.121.320.122.517.9:Children aged less than 3 years in formal childcare8.011.011.28.912.5:Self-reported unmet need for medical care8.38.95.64.72.8:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::31.026.029.0 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science.      
(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure). 
Source: Eurostat, OECD 

62 

Labour market indicators201220132014201520162017 5Activity rate (15-64)67.168.469.069.368.7:Employment in current job by durationFrom 0 to 11 months11.211.510.69.99.6:From 12 to 23 months7.57.88.27.27.2:From 24 to 59 months20.219.419.317.918.2:60 months or over61.061.161.965.065.0:Employment growth* (% change from previous year)-2.5-0.40.40.40.51.0Employment rate of women(% of female population aged 20-64)60.260.762.063.864.067.2Employment rate of men (% of male population aged 20-64)65.866.468.170.471.374.9Employment rate of older workers* (% of population aged 55-64)45.747.450.053.054.558.0Part-time employment* (% of total employment, aged 15-64)2.22.52.52.22.02.2Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)4.45.65.34.44.14.6Transition rate from temporary to permanent employment(3-year average)38.734.731.528.9::Long-term unemployment rate1 (% of labour force)6.87.46.95.64.53.5Youth unemployment rate (% active population aged 15-24)28.128.423.821.617.213.5Gender gap in part-time employment0.51.00.60.60.40.4Gender pay gap2 (in undadjusted form)15.114.114.215.4::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)1.72.02.12.02.2:Underachievement in education343.8::42.1::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)26.929.430.932.133.8:Variation in performance explained by students' socio-economic status422.3::16.4:: 
 
 
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

*  Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to 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. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months. 
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Source: Eurostat, OECD 

63 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare4.24.45.04.6::Disability1.31.41.41.3::Old age and survivors8.08.68.98.7::Family/children1.71.81.91.9::Unemployment0.60.50.50.5::Housing0.00.00.00.0::Social exclusion n.e.c.0.30.30.30.3::Total16.117.017.917.3::of which: means-tested benefits0.70.70.80.7::General government expenditure by function (% of GDP, COFOG)Social protection12.413.513.413.312.7:Health4.44.55.55.55.0:Education3.33.74.14.03.4:Out-of-pocket expenditure on healthcare (% of total health expenditure):47.245.847.7::Children at risk of poverty or social exclusion (% of people aged 0-17)*52.351.545.243.745.6:At-risk-of-poverty  rate1 (% of total population)21.221.021.822.022.9:In-work at-risk-of-poverty rate (% of persons employed)7.47.29.27.711.4:Severe material deprivation rate2  (% of total population)44.143.033.134.231.9:Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan13.66.511.816.014.2:Tenant, rent at market price12.613.918.116.914.1:Proportion of people living in low work intensity households4 (% of people aged 0-59)12.513.012.111.611.9:Poverty thresholds, expressed in national currency at constant prices*25532549287529412811:Healthy life years (at the age of 65)Females9.59.99.69.5::Males8.78.78.78.7::Aggregate replacement ratio for pensions5 (at the age of 65)0.40.40.40.40.5:Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::36.544.048.252.3GINI coefficient before taxes and transfers*47.047.749.750.253.0:GINI coefficient after taxes and transfers*33.635.435.437.038.3: 
 
 
 
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

(1) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.    
(2) Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing 
over the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if 
received most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the 
application is still pending or don't know.    
(3) Percentage population aged 15-64 having completed tertiary education.    
(4) Percentage population aged 20-24 having attained at least upper secondary education.    
(5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm    
(6) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).  
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

64 

Performance Indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in Industry5.517.613.064.950.692.284.94Labour productivity in Construction0.989.130.265.05-2.430.35-2.88Labour productivity in Market Services8.553.910.212.061.073.632.66Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in Industry6.68-2.422.581.536.150.664.24ULC in Construction4.02-2.033.332.0912.324.572.57ULC in Market Services0.794.759.942.515.673.334.87Business Environment2010201120122013201420152016Time needed to enforce contracts(1) (days)564.0564.0564.0564.0564.0564.0564.0Time needed to start a business(1) (days)25.025.025.025.025.025.023.0Outcome of applications by SMEs for bank loans(2)na0.59na0.860.970.540.49Research and innovation2010201120122013201420152016R&D intensity0.560.530.600.630.790.960.78General government expenditure on education as % of GDP3.603.403.303.704.104.003.40Persons with tertiary education and/or employed in science and technology as % of total employment28282931323333Population having completed tertiary education(3)20202122242424Young people with upper secondary level education(4)86878686868585Trade balance of high technology products as % of GDPnana-3.50na-2.56-2.38naProduct and service markets and competition200320082013OECD product market regulation (PMR)(5), overallnana1.57OECD PMR5, retailnana0.20OECD PMR5, professional servicesnananaOECD PMR5, network industries(6)nana2.45 
 
 
 
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 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 material 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   
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP 
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change) 
Real unit energy cost: real energy costs as % of total value added for the economy 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)  
Real unit energy costs for manufacturing industry excluding refining : real costs as % of value added for  manufacturing 
sectors 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP 
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT. 
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste 
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP 
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions 
(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency. 
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2010 EUR) 
Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport sector 
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels 
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk. 
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels 
* European Commission and European Environment Agency 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

65 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.490.470.430.450.450.42Carbon intensity kg / €1.681.551.411.441.49-Resource intensity (reciprocal of resource productivity)kg / €3.443.323.183.473.723.43Waste intensity kg / €-4.14-4.51--Energy balance of trade % GDP-6.3-6.9-6.2-5.6-3.8-2.4Weighting of energy in HICP%11.9413.6715.0114.0513.0610.72Difference between energy price change and inflation %-0.46.5-2.9-1.36.2-0.7Real unit of energy cost% of value added35.237.335.836.4--Ratio of environmental taxes to labour taxesratio0.320.310.300.270.29-Environmental taxes% GDP2.72.72.82.72.92.8Sectoral Industry energy intensity kgoe / € 0.380.360.350.350.350.32Real unit energy cost for manufacturing industry excl. refining% of value added61.057.865.465.8--Share of energy-intensive industries in the economy% GDP11.6211.7912.1611.6912.7713.50Electricity prices for medium-sized industrial users€ / kWh0.070.070.080.080.070.09Gas prices for medium-sized industrial users€ / kWh0.030.040.040.030.030.02Public R&D for energy % GDP0.000.000.000.000.000.00Public R&D for environmental protection% GDP0.010.010.000.000.000.00Municipal waste recycling rate%26.225.028.523.129.431.8Share of GHG emissions covered by ETS*%63.860.759.560.060.857.2Transport energy intensitykgoe / €1.511.681.441.491.501.51Transport carbon intensitykg / €4.204.613.854.074.14-Security of energy supplyEnergy import dependency%36.036.137.734.535.437.2Aggregated supplier concentration indexHHI71.977.265.558.868.3-Diversification of energy mixHHI0.290.270.250.260.260.24 
 
 
 
 
REFERENCES 

Amalipe 
http://amalipe.com/index.php?nav=news&id=3105&lang=2 

(2017), 

How 

free 

is 

pre-school 

education? 

Arpaia and Kiss (2015), Benchmarks for the assessment of wage developments: Spring 2015. Analytical 
Web Note 2/2015. DG Employment and Social Affairs, European Commission. 

Bertelsmann  Stiftung  (2017),  Sustainable  Governance  Indicators  2017: 
network.org/2017/ 

  http://www.sgi-

BIA, Bulgarian  Industrial  Association  (2017),  Dynamics  of  the  shadow  economy  (in  Bulgarian), 
https://www.bia-bg.com/analyses/view/23485/ 

BNB, Bulgarian  National  Bank  (2016),  Report  on  the  AQR  and  Stress  Test  of  the  Bulgarian  Banking 
System  http://www.bnb.bg/bnbweb/groups/public/documents/bnb_download/bs_aqr_results_a1_en.pdf 

BNB, Bulgarian  National  Bank 
http://www.bnb.bg/Statistics/StExternalSector/StDirectInvestments/StDIBulgaria/index.htm . 

(2017),  Foreign  Direct 

Investment 

in  Bulgaria 

(data), 

BNB, Bulgarian  National  Bank 
http://www.bnb.bg/BankSupervision/BSCreditInstitution/BSCIFinansReports/BSCIFRBankingSystem/B
S_201709_EN . 

Supervision  Reports  Data 

(2017a),  Financial 

(2017), 

Bower  (2017)  State-owned  enterprises  in  Emerging  Europe:  the  good,  the  bad  and  the  ugly,  IMF 
Working Paper, WP/17/221. 

Bulgarian  Commission  for  Protection  against  Discrimination  (2017),  National  sociological  study  on 
identification of the groups at high risk of discrimination, (in Bulgarian) 

CASE  (2017),  Study  and  Reports  on  the  VAT  Gap  in  the  EU-28  Member  States:  2017  Final  Report, 
TAXUD/2015/CC/131, 
https://ec.europa.eu/taxation_customs/sites/taxation/files/study_and_reports_on_the_vat_gap_2017.pdf 

Cepparulo,  Mourre  and  Schmitt-Nilson  (2018),  How  and  how  much:  public  spending  through  the  lens, 
(forthcoming). 

ECB,  European  Central  Bank  (2017),  Survey  on  the  access  to  finance  of  enterprises  (SAFE): 
https://www.ecb.europa.eu/stats/ecb_surveys/safe/html/index.en.html 

ECB, European  Central  Bank 
https://www.bankingsupervision.europa.eu/ecb/pub/pdf/guidance_on_npl.en.pdf. 

(2017a),  Guidance 

to  banks  on  non-performing 

loans: 

ECS,  European  Company  Survey (2013):      https://www.eurofound.europa.eu/data/european-company-
survey  

EEA, European  Environment  Agency 
https://www.eea.europa.eu/highlights/improving-air-quality-in-european. 

(2017),  Air  quality 

in  Europe  –  2017 

report: 

EIB, 
http://www.eib.org/attachments/efs/eibis_2017_bulgaria_en.pdf  

Investment 

European 

Bank 

(2017), 

Investment 

survey, 

ESPN, European Social Policy Network (2017), ESPN Thematic report on access to social protection of 
Bulgaria: 
people 

self-employed 

non-standard 

contracts, 

working 

on 

or 

as 

66 

 
 
 
 
References 

http://ec.europa.eu/social/keyDocuments.jsp?pager.offset=0&langId=en&mode=advancedSubmit&year=
0&country=0&type=0&advSearchKey=ESPNsensw. 

Eurofound 
https://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_document/ef1634en.pdf 

Sixth  European  Working  Conditions 

–  Overview 

(2017), 

Survey 

report: 

European Commission (2015),  Peer Review of the Bulgarian Research and Innovation system, Horizon 
2020  Policy  Support  Facility:  https://rio.jrc.ec.europa.eu/en/library/horizon-2020-policy-support-facility-
peer-review-bulgarian-research-and-innovation-system. 

European  Commission  (2015b),  Challenges  to  Member  States'  Investment  Environments,  SWD(2015) 
400 
https://ec.europa.eu/futurium/en/system/files/ged/32-_swd_-
barriers_to_investment_in_ms.pdf  

final: 

European  Commission  (2016),  Report  on  Public  Finances  in  EMU  2016,  Institutional  Papers  45: 
https://ec.europa.eu/info/publications/economy-finance/report-public-finances-emu-2016-0_en 

European Commission (2016a), Refining the methodology for NIIP benchmarks, LIME Working Group, 
November. 

European  Commission  (2016b),  EU  Transport  Scoreboard  2016:  https://ec.europa.eu/transport/facts-
fundings/news/2016-10-27-transport-scoreboard-2016-eu-work-strengthen-internal-market_en. 

European 
http://ec.europa.eu/newsroom/document.cfm?doc_id=47090  

Commission 

Broadband 

(2016c), 

Coverage 

in 

Europe 

2016; 

European  Commission 
https://ec.europa.eu/info/sites/info/files/2017-european-semester-country-report-bulgaria-en_3.pdf 

(2017),  Country  Report  Bulgaria  2017,  SWD(2017)  68 

final/3: 

European  Commission  (2017a)  European  Digital  Progress  Report:    https://ec.europa.eu/digital-single-
market/en/news/europes-digital-progress-report-2017  

European Commission (2017b), Report on progress in Bulgaria under the Co-operation and Verification 
Mechanism,  COM  (2017)  750  final: 
  https://ec.europa.eu/info/sites/info/files/comm-2017-
750_en_0.pdf. 

European 
http://ec.europa.eu/growth/industry/innovation/facts-figures/scoreboards_en 

Commission 

Innovation 

European 

(2017c), 

Scoreboard 

2017, 

June: 

European  Commission  (2017d),  Horizon  2020  PSF  Specific  Support  to  Bulgaria  Expert  Panel, 
conclusions:              https://rio.jrc.ec.europa.eu/en/policy-support-facility/specific-support-bulgaria 

European Commission (2017e), The EU Environmental Implementation Review: Common challenges and 
how 
final: 
http://ec.europa.eu/environment/eir/pdf/comm_en.pdf 

COM(2017) 

combine 

results, 

deliver 

efforts 

better 

63 

to 

to 

European 
https://data.europa.eu/euodp/data/dataset/S2176_88_2_470_ENG 

Commission 

(2017f), 

Special 

Eurobarometer 

470 

on 

Corruption: 

88: 
European 
http://ec.europa.eu/commfrontoffice/publicopinion/index.cfm/Survey/getSurveyDetail/instruments/STAN
DARD/surveyKy/2143 

Eurobarometer 

Commission 

Standard 

(2017g), 

67 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
References 

European  Commission  (2017h),  Empirical  current  account  benchmarks:  modelling  the  impact  of 
demographic variables, LIME Working Group, 24 April 2017.  

European  Commission 
https://ec.europa.eu/commission/sites/beta-political/files/energy-union-factsheet-bulgaria_en.pdf 

(2017i),  Energy  Union  Factsheet  Bulgaria,  SWD(2017)  386 

final: 

European Commission (2017j), Digital Scoreboard 2017: Strengthening the European Digital Economy 
and Society:              https://ec.europa.eu/digital-single-market/digital-scoreboard 

European  Commission  (2017k),  Labour  Market  and  Wage  Developments 
https://publications.europa.eu/en/publication-detail/-/publication/2df2eaca-b3b0-11e7-837e-
01aa75ed71a1/language-en 

in  Europe  2017: 

European  Commission 
https://ec.europa.eu/info/sites/info/files/economy-finance/com-2017-771-en.pdf 

2018  European 

(2017l), 

Semester:  Alert  Mechanism  Report 

European Commission (2017m), Benchmarks for the assessment of private debt, Note for the Economic 
Policy Committee", available upon request  

European  Commission 
http://ec.europa.eu/internal_market/scoreboard and https://opentender.eu/ 

(2018a)  EU  Single  Market  Scoreboard  2017, 

forthcoming, 

see: 

European Commission (2018b), 2018 EU Justice Scoreboard, forthcoming. 

European Commission (2018c), Consumer Markets Scoreboard, forthcoming 

Eurostat (2015), National Accounts, 2015 data for NACE H: "Transport and Storage". 

Eurostat (2016), Labour Force Survey, 2016 data for NACE H: "Transport and Storage". 

Eurostat  (2017),  Eurostat  Community  Survey  on  ICT  usage  in  enterprises  [isoc_es_eseln2]  and  in 
households and by individuals [isoc_ec_ibuy], December. 

Eurostat (2017a), Baseline projections: demographic balances and indicators [proj_15ndbims], February 

Eurostat (2018), Gross capital formation by industry (up to NACE A*64) [nama_10_a64_p5] and GDP 
and main components (output, expenditure and income) [nama_10_gdp], January 

FRA,  2016  Second  European  Union  Minorities  and  Discrimination  Survey  ,EU-MIDIS  II:  Roma  – 
Selected findings:          http://fra.europa.eu/en/publication/2016/eumidis-ii-roma-selected-findings 

GEM,  Global  Entrepreneurship  Monitor (2017),  GEM  National  report  on  entrepreneurship  in  Bulgaria 
2016/17:                http://gemorg.bg/wp-content/uploads/2017/10/GEM-Annual-Report-ENG-2017-final-
WEB.pdf. 

ILO, International 
http://www.ilo.org/global/topics/wages/minimum-wages/beneficiaries/WCMS_436492/lang--
en/index.htm) . 

Organisation 

Economy 

Informal 

(2018), 

Labour 

Workers: 

IMF, International  Monetary  Fund  (2017),  Bulgaria.  Financial  Sector  Assessment  Program.  Technical 
Note  –  NPL  reduction  strategy:      http://www.imf.org/en/Publications/CR/Issues/2017/07/11/Bulgaria-
Financial-Sector-Assessment-Program-Technical-Note-NonPerforming-Loans-Reduction-45059 . 

68 

 
 
References 

Industry  Watch  (2017),  Analysis  of  economic  effects  of  one-day  labour  contracts,  (in  Bulgarian): 
http://www.iwatchbulgaria.com/икономически-ефекти-от-еднодневните/  

Manpower  (2017),  2016/2017:Talent  shortage  survey,  http://www.manpowergroup.com/talent-shortage-
2016 

McGowan, Andrews and Millot (2017), The Walking Dead? Zombie Firms and Productivity Performance 
in OECD Countries, Working papers n°1372, OECD. 

Ministry of Finance (2015) Analysis of changes in article 118 of the Law on VAT (in Bulgarian) 

Ministry  of  Finance  (2017),  Convergence  Programme  of  the  Republic  of  Bulgaria  2017-2020: 
https://ec.europa.eu/info/sites/info/files/2017-european-semester-national-reform-programme-bulgaria-
en.pdf 

Ministry of Finance (2017a), Interim Consolidated Report of the Main Economic Indicators of Holding 
BDZ EAD January -September 2017:         http://www.minfin.bg/bg/1217 

National  Statistical  Institute  (2013),  Employment  and  Unemployment  –  Annual  Data  2012: 
http://www.nsi.bg/en/content/8985/публикация/employment-and-unemployment-annual-data-2012 

National  Statistical  Institute  (2017),  Employment  and  Unemployment  –  Annual  Data  2016: 
http://www.nsi.bg/sites/default/files/files/publications/ZB_2016.pdf 

National Statistical Institute (2017a), Business Enterprise R&D expenditure (BERD) by size class – 2016 
(preliminary data, October)  
enterprise-rd-expenditure-berd-size-class  

   http://www.nsi.bg/en/content/6759/business-

OECD (2015), OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition: 
http://www.oecd-ilibrary.org/governance/oecd-guidelines-on-corporate-governance-of-state-owned-
enterprises-2015_9789264244160-en 

OECD/European Observatory on Health Systems and Policies (2017), Bulgaria: Country Health Profile 
2017, State of Health in the EU, OECD Publishing:    http://dx.doi.org/10.1787/9789264283305-en. 

PWC (2017), Paying Taxes 2017, PWC:       https://www.pwc.com/gx/en/paying-taxes/pdf/pwc-paying-
taxes-2017.pdf. 

S&P  Global  Platts  (2017),  EU  Electricity  Markets  in  January  and  February  2017-  Understanding  the 
Impact of the Cold Spell and the Special Measures Introduced in Select Member States and  Concerned 
Energy 
ENERGY,  December: 
https://ec.europa.eu/energy/sites/ener/files/documents/platts_report_final_version_rrr.pdf 

Contracting 

Community 

to  DG 

Parties, 

Report 

Schneider (2016), Estimating the Size of the Shadow Economies of Highly Developed Countries: Selected 
New Results, CESifo DICE Report 4/2016:        
group.info/DocDL/dice-report-2016-4-schneider-december.pdf  

 http://www.cesifo-

Vandenbussche (2014), Quality in Exports, Economic Papers, DG ECFIN. 

Williams  and  Horodnic  (2017),  Under-declaring  work,  falsely  declaring  work:  under-declared 
employment in the European Union:      https://works.bepress.com/colin_williams/80/ .  

69 

 
 
 
 
 
References 

World Bank (2017), Doing Business 2018:     http://www.doingbusiness.org/reports/global-reports/doing-
business-2018 

World  Bank  (2018),  Portraits  of  Labour  Market  Exclusion  2.0,  Country  Policy  Paper  for  Bulgaria, 
forthcoming 

Economic 

World 
(2017), 
http://www3.weforum.org/docs/GCR2017-
2018/05FullReport/TheGlobalCompetitivenessReport2017%E2%80%932018.pdf. 

The  Global  Competitiveness 

Forum 

Report 

2017-2018: 

70