Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Bulgaria and delivering a Council opinion on the 2018 Convergence Programme of Bulgaria
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: Bulgaria, budgetary equilibrium, economic policy, economic reform, educational reform, employment policy, fiscal policy, health care system, labour market, stability programme

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 402 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Bulgaria   and delivering a Council opinion on the 2018 Convergence Programme of Bulgaria  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of Bulgaria  

and delivering a Council opinion on the 2018 Convergence Programme of Bulgaria 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 9(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament4, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

(2) 

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On 22 November 2017, the Commission adopted the Annual Growth Survey, marking 
the start of the 2018 European Semester of economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  22  March 
2018.  On  22  November  2017,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission also adopted the Alert Mechanism Report, in which it identified Bulgaria 
as one of the Member States for which an in-depth review would be carried out.  
The  2018  country  report  for  Bulgaria5  was  published  on  7  March  2018.  It  assessed 
Bulgaria’s  progress  in  addressing  the  country-specific  recommendations  adopted  by 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2018) 402 final.  
P8_TA(2018)0077 and P8_TA(2018)0078. 

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(3) 

(4) 

(5) 

the Council on 11 July 2017, the follow-up given to the recommendations adopted in 
previous years and Bulgaria's progress towards its national Europe 2020 targets. It also 
included  an  in-depth  review  under  Article  5  of  Regulation  (EU)  No  1176/2011,  the 
results  of  which  were  also  published  on  7  March  20186.  The  Commission’s  analysis 
leads  it  to  conclude  that  Bulgaria  is  experiencing  macroeconomic  imbalances. 
Vulnerabilities  in  the  financial  sector  are  coupled  with  high  indebtedness  and  non-
performing  loans  in  the  corporate  sector,  in  a  context  of  incomplete  labour  market 
adjustment. 

On  19  April  2018,  Bulgaria  submitted  its  2018  National  Reform  Programme  and  its 
2018  Convergence  Programme.  To  take  account  of  their  interlinkages,  the  two 
programmes  have  been  assessed  at  the  same  time.  Bulgaria’s  National  Reform 
Programme includes commitments both for the short and medium term and covers the 
challenges identified in the 2018 country report. In particular, it announces measures 
to  strengthen  banking  and  non-banking  supervision,  to  improve  the  insolvency 
framework  and  to  reduce  remaining  weaknesses  identified  in  the  2016  stress  tests 
exercises.  There  are  also  measures  to  reinforce  tax  collection  and  tackle  the  shadow 
economy, to improve the targeting of active labour market policies, to increase social 
protection  and  to  address  various  challenges  in  the  healthcare  and  education  sectors. 
Overall,  the  effective  implementation  of  the  National  Reform  Programme  would 
underpin the correction of imbalances. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  for  the  2014-2020  period.  As 
foreseen in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament 
and  of  the  Council7,  where  it  is  necessary  to  support  the  implementation  of  relevant 
Council  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and propose amendments to its Partnership Agreement and relevant programmes. The 
Commission has provided further details on how it would make use of that provision 
in  guidelines  on  the  application  of  the  measures  linking  the  effectiveness  of  the 
European Structural and Investment Funds to sound economic governance8.  

Bulgaria  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact.  In  its 
2018  Convergence  Programme,  the  government,  starting  from  a  headline  surplus  of 
0.9 % of GDP in 2017, aims at a balanced budget in 2018 and a surplus of 0.3 % of 
GDP  in  2019,  0.5  %  in  2020  and  0.2  %  in  2021.  The  medium-term  budgetary 
objective  —  a  structural  deficit  of  1  %  of  GDP  —  is  planned  to  continue  to  be  met 
with a margin throughout the programme period. According to the 2018 Convergence 
Programme,  the  general  government  debt-to-GDP  ratio  is  expected  to  decline 
gradually  from  25.4  %  of  GDP  in  2017  to  19.4  %  in  2021.  The  macroeconomic 
scenario  underpinning  those  budgetary  projections  is  plausible.  Based  on  the 
Commission  2018  spring  forecast,  the  structural  balance  is  forecast  to  remain  in 
surplus  but  to  decrease  from  0.9  %  of  GDP  in  2017  to  0.6  %  of  GDP  in  2018  and 
remain  at  the  same  level  in  2019.  The  structural  balance  is  thus  forecast  to  remain 

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SWD(2018) 201 final. 
COM(2018) 120 final. 
Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 
laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social 
Fund, the  Cohesion Fund, the European Agricultural Fund for Rural Development and the European 
Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European  Regional 
Development  Fund,  the  European  Social  Fund,  the  Cohesion  Fund  and  the  European  Maritime  and 
Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320). 
COM(2014) 494 final. 

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(9) 

above the medium-term budgetary objective in both years. Overall, the Council is of 
the  opinion  that  Bulgaria  is  projected  to  comply  with  the  provisions  of  the  Stability 
and Growth Pact in 2018 and 2019. 

Increasing  the  efficiency  of  fiscal  policy  is  of  utmost  importance.  Tax  revenues  and 
tax compliance are improving but more as a result of a better economic outlook than of 
improved tax administration and collection. Efficiency of public spending in Bulgaria 
is very low. Reforms in the field of public finances management are important in this 
regard and the current  economic and fiscal conditions  are particularly favourable for 
such reforms. The economic performance of state owned enterprises is weak compared 
with other countries in the region and with the private sector and it is also a source of 
uncertainty  and  risk  for  public  finances  as  the  arrears  of  such  companies  represent 
contingent  liabilities.  Overall,  corporate  governance  of  state  owned  enterprises 
remains a challenge and does not fulfil international standards.  Additionally, reforms 
in this area are very important for the business environment.  

The  soundness  of  the  financial  sector  continued  to  improve  despite  remaining 
vulnerabilities. Corporate non-performing loans are still high, although they have been 
reduced.  Capital  buffers  are  comfortable  on  average,  thus  providing  space  for  a 
balance-sheet clean-up. There has been notable progress in improving financial sector 
supervision, but some important measures are still to be fully implemented. Mitigating 
remaining risks associated with related-party exposures and improving asset valuation 
are  key  to  further  strengthening  balance  sheets  and  boosting  the  resilience  of  banks 
and insurance companies.  

The  ineffectiveness  of  the  insolvency  framework  is  slowing  the  reduction  in  private 
sector indebtedness and the work-out of non performing loans. Procedures are lengthy 
and  the  recovery  rate  is  low.  Some  elements  of  a  functioning  framework  are  still 
lacking,  in  particular  rules  for  debt  discharge  and  for  granting  a  second  chance  to 
entrepreneurs  within  a  reasonable  timeframe  following  bankruptcy.  The  lack  of  data 
gathering and adequate monitoring tools prevents an assessment of the effectiveness of 
either older or new procedures, including for business restructuring.  

Levels of undeclared work remain high, which has considerable implications for fiscal 
revenue, labour conditions and the adequacy of income after retirement. Bulgaria has 
taken  a number of recent  measures seek  to improve the situation  These include  one-
day  contracts  in  agriculture,  improved  cooperation  between  fiscal  and  labour 
authorities  and  increased  efforts  to  raise  awareness  about  the  negative  consequences 
for employees. Their efficiency will depend on effective implementation. Accelerating 
the  transition  to  the  formal  economy  is  essential  for  achieving  inclusive  growth  and 
ensuring fair working conditions for all. 

(10)  The  labour  market  has  improved  but  challenges  persist.  Employment  reached  pre-
crisis levels and unemployment is below the EU average. However, the positive labour 
market  developments  are  not  equally  benefiting  the  whole  working-age  population. 
The long-term unemployed, inactive young people, Roma and people living in poorer 
regions  and  rural  areas  continue  to  face  significant  difficulties  in  entering  or  re-
entering employment The ageing and shrinking population, combined with an activity 
rate below the EU average, leads to labour and skills shortages, thus weakening long-
term prospects of the economy. A  reinforced focus on upskilling and training would 
therefore  be  warranted.  Labour  market  participation  and  employability  could  be 
fostered  through  a  mix  of  effective  outreach  measures,  active  labour  market  policies 
and social services. 

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(11) 

Inequality  of  income  and  access  to  services  (education,  healthcare  and  housing),  as 
well as the risk of poverty or social exclusion remain among the highest in the EU. In 
2016, two-fifths of the population was at risk of poverty or social exclusion while the 
income of the richest 20 % of households was almost eight times that of the poorest 
20 %. Spending on social protection is low, including on the general minimum income 
scheme, whose coverage and adequacy are limited, as well as its impact on reducing 
poverty  and  inequality.  An  objective  mechanism  to  revise  the  level  of  benefits  is 
lacking. In spite of recent improvements in the adequacy of social assistance benefits 
and minimum pensions, the social protection system does not provide sufficient levels 
of support to the most vulnerable or disadvantaged groups, such as Roma, children, the 
elderly,  persons  with  disabilities  and  people  living  in  rural  areas.  The  provision  of 
social  services  remains  weak  and  their  integration  with  labour  market  and  other 
services is incomplete.  

(12)  The  minimum  wage  is  set  without  a  clear  and  transparent  mechanism  and  the 
percentage of workers at the minimum wage has increased more than two fold over the 
last  six  years.  The  lack  of  such  a  mechanism  may  put  at  risk  the  achievement  of  a 
proper balance between the objectives of supporting employment and competitiveness, 
while safeguarding labour income. In addition, it creates uncertainty that can adversely 
impact the predictability of business conditions. The government has tabled proposals 
for a minimum wage setting mechanism addressing this shortcoming. However, there 
is no agreement between the social partners on this issue. Also, in its budget forecast, 
the  government  included  increases  of  minimum  wage  until  2020.  In  2018,  Bulgaria 
ratified  the  International  Labour  Organisation's  Minimum  Wage  Fixing  Convention. 
This could be a good basis for setting an objective mechanism. 

(13)  Limited  access  to  healthcare  caused  by  low  public  spending,  uneven  distribution  of 
limited  resources  and low health  insurance  coverage remains a significant  challenge. 
The  low  level  of  public  expenditure  needs  to  be  compensated  by  high  private 
spending, mainly in the form of out-of-pocket payments. The proportion of Bulgarians 
without  health  insurance  is  high  in  relation  to  the  majority  of  EU  Member  States. 
District-level differences in the distribution of doctors and the low number of nurses 
remain  problematic.  On  a  positive  note,  the  number  of  doctors  leaving  Bulgaria  has 
recently dropped. Measures like the National Health Strategy should be used to tackle 
these weaknesses.  

(14)  Despite recent measures to modernise the education system, educational outcomes are 
low  and  strongly  influenced  by  socio-economic  status.  Children  from  disadvantaged 
families,  particularly  Roma,  do  not  enjoy  equal  opportunities.  High  levels  of  early 
school leaving have negative consequences for future employability and labour market 
performance. Providing ethnically mixed kindergartens, schools and classes remains a 
challenge  for  the  provision  of  quality  inclusive  mainstream  education.  Curricular 
reform seeks to improve educational outcomes and digital skills. However, the level of 
digital  skills  is  still  among  the  lowest  in  the  EU  and  varies  between  different 
socioeconomic  groups.  Despite  recent  measures,  the  labour  market  relevance  of 
vocational  education  and  training  remains  insufficient.  Higher  education  reform  is 
underway, but addressing skills shortages is a challenge given the unbalanced profiles 
of graduates by sectors. Participation in adult learning is very low in spite of the need 
for upskilling. In a context of pronounced ageing among teachers, measures to address 
future shortages have started. Notwithstanding recent improvements, teacher education 
programmes require further strengthening. 

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(15)  Many of the measures included in the National Public Procurement Strategy have been 
put in place. However, the national authorities should put more efforts to ensure their 
effective implementation. According to business and non-governmental organisations, 
the  overall  public  procurement  landscape  has  already  begun  to  improve.  However, 
transparency and corruption are still a matter of concern. The increased use of direct 
awards  and  the  high  number  of  single  bids  could  significantly  hamper  the  system's 
transparency  and  effectiveness.  The  first  independent  evaluation  of  the  new  control 
functions  of  the  Public  Procurement  Agency  is  ongoing.    Regular  updates  would  be 
necessary  to  ensure  further  optimisation  of  the  Agency's  control  functions.  The 
remaining problems with the administrative capacity, including at the municipal level, 
call for further efforts on professionalization, standardisation and serious consideration 
of  the  possibilities  offered  by  central  purchasing  bodies.    Aggregation  of  demand 
could  also  improve  effectiveness  and  economy  in  the  health  procurement  system. 
Finding a solution for the prevention of delays related to important public projects still 
necessitates further reflection.  

(16)  Structural  shortcomings  and  high  fragmentation  in  the  research,  development  and 
innovation system limit its contribution to productivity and growth. Lower technology 
segments still dominate manufacturing and innovation is very low. The level of public 
as  well  as  business  spending  on  Research  &  Development  is  particularly  low.  The 
sluggish reforms hinder the move towards an innovation-oriented system. While there 
are many universities and research institutes, only a few of them are producing high-
quality  scientific  output.  Commercialization  of  research  remains  a  major  weakness. 
The  research  funding  system  lacks  competitive  calls,  international  evaluation,  and 
performance-based  funding  of  research  institutions.  Public-private  cooperation  in 
research and development is weak. The flagship ‘Sofia Tech Park’ still faces a number 
of  challenges,  including:  inefficient  governance,  unstable  management,  underutilised 
scientific  infrastructure  and  a  lack  of  long-term  financial  commitment  from  the 
government.  Structural  transformation,  combined  with  effective  governance  and  a 
stable level of public research and  innovation resources can maximise the impact on 
productivity  and  growth  and  support  the  transition  of  the  economy  to  higher  value 
added activities in line with the smart specialisation strategy. 

(17)  The  business  environment  needs  further  improvement.  While  a  number  of  reforms 
have  been  adopted,  their  practical  implementation  is  lagging  behind.  Businesses  are 
still  concerned  about  corruption,  institutional  shortcomings  and  insufficient  labour 
supply.  Progress  in  public  administration  reform  and  e-government  is  slow. 
Governance  in  the  public  sector  could  benefit  from  more  transparency,  clearer  rules 
and a long-term perspective. In addition, the role of social dialogue can further evolve, 
facilitated,  when  necessary,  by  public  authorities  Shortcomings  in  infrastructure  are 
reflected  in  the  low  effectiveness  and  performance  of  the  transport  sector.  The  rail 
passenger  market  has  been  suffering  from  a  lack  of  effective  competition.  Well-
targeted and effective measures to reduce air pollution have not been put in place.  

(18) 

In  2017,  Bulgaria  continued  its  efforts  to  reform  its  judiciary  and  address 
shortcomings in the fight against corruption and organised crime. New elections to the 
Supreme  Judicial  Council  confirmed  the  positive  impact  of  constitutional  and 
legislative reforms carried out in 2015 and 2016. Reforms of the criminal code have 
been adopted to improve the system of prosecution in high-level corruption cases and 
further reforms are under consideration. A law was adopted in early 2018 establishing 
a  new  unified  anti-corruption  authority  to  strengthen  prevention  and  deterrence  of 
high-level  corruption.  Under  the  Cooperation  and  Verification  Mechanism,  the 

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Commission continues to monitor the judicial reform and the fight against corruption 
and organised crime in Bulgaria. These areas are therefore not covered in the country-
specific  recommendations  for  Bulgaria,  but  are  relevant  for  the  development  of  a 
positive business environment in Bulgaria. 

In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Bulgaria's  economic  policy  and  published  it  in  the  2018 
country  report.  It  has  also  assessed  the  2018  Convergence  Programme  and  the  2018 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed  to  Bulgaria  in  previous  years.  It  has  taken  into  account  not  only  their 
relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  Bulgaria  but  also  their 
compliance with Union rules and guidance, given the need to strengthen the Union’s 
overall  economic  governance  by  providing  Union-level  input  into  future  national 
decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  2018  Convergence 
Programme and is of the opinion that Bulgaria is expected to comply with the Stability 
and Growth Pact. 

In the light of the Commission’s in-depth review and this assessment, the Council has 
examined  the  National  Reform  Programme  and  the  Convergence  Programme.  Its 
recommendations  under  Article  6  of  Regulation  (EU)  No  1176/2011  are  reflected  in 
recommendations 2 and 3 below. 

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HEREBY RECOMMENDS that Bulgaria take action in 2018 and 2019 to: 

1. 

2. 

3. 

Improve tax collection and the efficiency of public spending, including by stepping 
up enforcement of measures to reduce the extent of the informal economy. Upgrade 
the State owned enterprise corporate governance framework in line with international 
good practices. 

Take follow-up measures resulting from the financial sector reviews and implement 
the supervisory action plans in order to strengthen the oversight and stability of the 
sector. Ensure adequate valuation of assets, including bank collateral, by enhancing 
the appraisal and audit processes. Complete the reform of the insolvency framework 
and promote a functioning secondary market for non-performing loans. 

Increase the employability of disadvantaged groups by upskilling and strengthening 
activation  measures.  Improve  the  provision  of  quality  inclusive  mainstream 
education,  particularly  for  Roma  and  other  disadvantaged  groups.  In  line  with  the 
National  Health  Strategy  and  its  action  plan,  improve  access  to  health  services, 
including  by  reducing  out-of-pocket  payments  and  addressing  shortages  of  health 
professionals. Introduce a regular and transparent revision scheme for the minimum 
income and improve its coverage and adequacy. 

Done at Brussels, 

For the Council 
The President 

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