COMMISSION STAFF WORKING DOCUMENT Country Report Bulgaria 2019 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 EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 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: 2019-02-27
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, 27.2.2019  SWD(2019) 1001 final  COMMISSION STAFF WORKING DOCUMENT Country Report Bulgaria 2019     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 EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2019 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(2019) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Overall findings regarding imbalances, risks and adjustment issues 

4.  Reform priorities 

4.1.  Public finances and taxation 

4.2.  Financial sector 

4.3.  Labour market, education and social policies 

4.4.   Competitiveness reforms and investment 

Annex A: Overview Table 

Annex B: Commission Debt Sustainability Analysis and fiscal risks 

Annex C: Standard Tables 

4 

8 

15 

20 

24 

24 

27 

34 

46 

60 

69 

70 

Annex D: Investment Guidance on Cohesion Policy Funding 2021-2027 for Bulgaria 

76 

References 

LIST OF TABLES 

Table 1.1: 

Financial soundness indicators, all banks in Bulgaria 

Table 1.2: 

Key economic and financial indicators - Bulgaria 

Table 2.1: 

Assessment of 2018 CSR implementation 

Table 3.1: 

MIP assessment matrix 

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 

82 

12 

14 

17 

22 

70 

71 

72 

73 

74 

75 

 
 
 
 
LIST OF GRAPHS 

Graph 1.1: 

Real GDP growth by demand components 

Graph 1.2: 

Potential growth breakdown 

Graph 1.3: 

Regional disparities 

Graph 1.4: 

Current account developments 

Graph 1.5: 

Net international investment position 

Graph 1.6: 

Labour market indicators 

Graph 1.7: 

Level of income inequality 

Graph 1.8: 

Non-performing Loans, share of total loans and advances— total, households and 

NFCs (1) 

Graph 1.9: 

Domestic credit growth - Households and NFCs 

Graph 1.10:  Overvaluation gap with respect to price/income, price/rent and fundamental model 

valuation gaps (1) 

Graph 2.1:  Overall multiannual implementation of 2011- 2018 country-specific recommendations 

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

Graph 4.1.1:  Degree of progressivity of labour income taxation in EU Member States, 2017 

Graph 4.1.2:  Size of liabilities of State-owned enterprises by policy area (ministry) 

Graph 4.2.1:  Fundamental-based and prudential benchmarks and NFC debt 

Graph 4.2.2:  Breakdown of y-o-y changes in debt-to-GDP ratios of NFCs (1) 

Graph 4.3.1:  Population pyramid 

Graph 4.3.2:  Labour shortage index (1) 

Graph 4.3.3: 

Inactivity rates and shares of the inactive people 

Graph 4.3.4:  Expenditure and participation in activation measures, 2017 and January-August 2018 

Graph 4.3.5:  At-risk-of-poverty or social exclusion rate and its components (AROP, SMD, LWI) 

Graph 4.3.6:  At-risk-of-poverty or social exclusion by NUTS2, 2017 

Graph 4.3.7:  Early leavers from education and training by regions, 2017 

Graph 4.4.1:  Nominal unit labour costs 

Graph 4.4.2:  Breakdown of rate of change of Unit Labour Costs 

Graph 4.4.3:  Real effective exchange rate, Unit Labour Costs deflator (IC-37) 

Graph 4.4.4:  BGN-denominated export price evolution 

Graph 4.4.5: 

Investment by sector 

Graph 4.4.6:  Gross fixed capital formation 

Graph 4.4.7:  World Bank Doing Business 2019 score 

Graph 4.4.8:  Regional disparities 

8 

8 

9 

9 

10 

10 

11 

12 

12 

13 

15 

24 

26 

31 

32 

34 

36 

37 

37 

38 

39 

42 

46 

46 

46 

47 

48 

48 

49 

56 

2 

 
 
 
LIST OF BOXES 

Box 2.1: EU funds and programmes contribute to addressing structural challenges and to fostering 

growth and competitiveness 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 

18 

35 

50 

3 

 
 
 
EXECUTIVE SUMMARY 

Bulgaria’s  strong  growth  momentum  and  the 
soundness  of  government  finances  offer  an 
opportunity  to  tackle  its  remaining  structural 
challenges and raise growth potential. Levels of 
poverty,  social  exclusion  and  income  inequality 
are  still  among  the  highest  in  the  EU.  As  the 
population  ages  and  skilled  workers  become 
progressively  scarcer,  adequately  addressing  these 
challenges  and  accelerating  economic  growth  will 
increasingly  depend  on  Bulgaria’s  capacity  to 
implement  structural 
in 
improving  people's  skills,  in  infrastructure  and  in 
support 
research 
productivity  and  help  Bulgaria  catch  up  with  the 
rest of the EU. This would also help to bolster the 
resilience  and  competitiveness  of  Bulgaria's  open 
increasing 
economy, 
international  risks.  Building  on  past  progress,  the 
authorities  have  made  further  efforts  to  tackle  the 
identified  macroeconomic 
by 
strengthening  financial  supervision  and  taking 
steps to address financial sector vulnerabilities (1). 

innovation  would 

imbalances 

Investment 

especially 

reforms. 

given 

and 

the 

Economic  growth  remains  robust  and  the 
labour  market  continues  to  perform  well.  Real 
Gross  Domestic  Product  (GDP)  (adjusted  for 
inflation) grew by an estimated 3.2 % in 2018 and 
is expected to increase by 3.6 % in 2019 and 2020, 
driven  by  domestic  demand.  Real  wage  growth 
will continue to support consumer spending, while 
investment is increasingly spurred by EU funding. 
The unemployment rate (5.2 % in Q4-2018) stands 
Long-term 
below 
unemployment 
youth 
unemployment has fallen below the EU average. 

level. 
decreased 

pre-crisis 

and 

has 

its 

Despite  its  relatively  good  overall  economic 
performance,  Bulgaria  has  been  slow  to  catch 
up  with  the  rest  of  the  EU.  GDP  per  head,  at 

(1)  This  report  assesses  Bulgaria’s  economy  in  light  of  the 
European Commission’s Annual Growth Survey published 
on 21 November 2018. 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  —  delivering  high-quality  investment, 
efforts  on  productivity  growth, 
focusing 
reforms 
inclusiveness  and 
institutional  quality  and  ensuring 
macroeconomic  stability  and  sound public  finance.  At  the 
same 
the  Alert 
the  Commission  published 
Mechanism  Report  (AMR)  that  initiated  the  eighth  round 
of  the  macroeconomic  imbalance  procedure.  The  AMR 
found that Bulgaria warranted an in-depth review, which is 
presented in this report. 

time, 

50 %  of  the  EU  average  in  2017,  has  grown  only 
slightly  faster  than  the  EU  average  since  2011. 
Potential GDP growth has strengthened over recent 
years.  This  has  been  driven  mainly  by 
improvements  in  total  factor  productivity(2)  while 
the  contributions  of  capital  and  labour  have  been 
modest. The growth potential may be hampered by 
negative  demographic  trends  and  the  increasing 
scarcity  of  skilled  workers,  as  well  as  by 
increasing  regional  disparities.  Labour  shortages 
and  planned  government  wage 
increases  are 
expected to drive wage growth above productivity 
growth until 2020, potentially leading to  losses in 
Bulgaria's cost-competitiveness. 

Budgetary  developments  remain  positive.  The 
government  achieved  a  budget  surplus  equivalent 
to  1.1 %  of  GDP  in  2017  due  to  improved  tax 
collection and higher-than-projected nominal (non-
inflation-adjusted)  growth.  On  the  spending  side, 
public  investment  started  to  recover  and  public 
sector  wages  increased.  The  supportive  overall 
economic  situation  and  a  generally  prudent 
approach  to  government  finances  are  expected  to 
lead to sustained budget surpluses until 2020. 

in 

the 

social 

Investment 
cohesion, 
skills, 
infrastructure,  and  research  and  innovation  is 
needed to support competitiveness, productivity 
and  the  process  of  catching  up  with  the  rest  of 
the EU. Insufficient investment is holding back the 
modernisation  of 
economy.  Bulgaria's 
considerable  labour  and  skills  shortages  warrant 
investments  in  training  and  reskilling;  addressing 
the lack of digital skills; improving the quality and 
inclusiveness  of  education  and  aligning  it  to  the 
needs  of  the  labour  market;  and  improving  the 
services. 
capacity 
Investments 
transport,  energy  and  water 
infrastructure  will  improve  the  conditions  for 
attracting  foreign  direct 
investment  and  will 
strengthen  companies’  competitiveness.  More 
investment in research and development (R&D) is 
needed  to  boost  productivity  gains,  as  well  as 
links  between  businesses  and 
strengthened 
integrated 
institutions  and  a  better 
research 
research and innovation system. Key priorities for 
support  by  the  European  Regional  Development 
Fund,  the  European  Social  Fund  Plus  and  the 

employment 

public 

of 

in 

(2)  A  measure  of  productivity  accounting  for  effects  in  total 
output  not  caused  by  traditionally  measured  inputs  of 
labour and capital.  

4 

 
 
                                                           
                                                           
Executive summary 

greenhouse gas emissions and increasing the share 
of  renewable  energy.  It  has  taken  measures  to 
improve energy efficiency but energy consumption 
remained  above  the  indicative  national  targets. 
Bulgaria has made progress on employment, early 
school leaving and tertiary education rates, but has 
yet to meet its targets. The situation has worsened 
reduction.  There  was  no 
regarding  poverty 
progress towards the R&D intensity target.  

Bulgaria  faces  challenges  on  a  number  of 
indicators  of  the  Social  Scoreboard  supporting 
the  European  Pillar  of  Social  Rights.  Bulgaria 
still has one of the highest shares of people living 
at  risk  of  poverty  or  social  exclusion,  as  well  as 
high  levels  of  income  inequality.  Social  transfers 
have  a  low  impact  on  poverty  reduction.  Major 
challenges  for  the  education  and  training  system 
remain, 
inclusive 
including  providing  quality 
education  and  tackling  early  school  leaving.  The 
population's  level  of  digital  skills  remains  very 
low.  Despite  improvements  in  the  labour  market, 
the 
the  Roma  and  people  with 
disabilities  still  face  significant  difficulties  in 
finding work.  

low-skilled, 

findings  of 

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

in-depth 

the 

The  banking  sector  has  been  strengthened 
overall,  but  some  vulnerabilities  remain.  Banks 
have addressed the  recommendations arising  from 
the 2016 asset quality review, with one exception. 
New  initiatives  in  2018  included  new  rules  for 
large exposures and the identification of connected 
clients;  improved  policies  in  several  banks  for 
making  provisions  for  potential  loan  losses:  an 
increase  in  the  counter-cyclical  capital  buffer 
rate(3); and macro-prudential(4) tools for borrower-
based measures. Measures to be completed include 
implementing 
addressing 
regulatory 
the 
framework for resolving banks in an orderly way. 

initiatives  and 

strengthening 

valuation 

issues, 

The  reform  of  non-bank  supervision  has 
continued.  Follow-up  measures  to  the  insurance 
and pension funds reviews are being implemented. 

(3)  A  variable  capital  requirement  that  aims  to  make  credit 
growth less cyclical and the banking system more resilient. 
(4)  Macroprudential  regulation  aims  to  mitigate  risks  to  the 

financial system as a whole (or ‘systemic risk’). 

Cohesion  Fund  over  2021-2027  are  identified  in 
Annex  D,  building  on  the  analysis  of  investment 
needs and challenges outlined in this report. 

Overall,  Bulgaria  has  made  some  progress  in 
addressing 
country-specific 
the 
recommendations. 

2018 

There has been substantial progress in:  

 

taking  measures  to  follow  up  on  the  financial 
sector reviews; 

There has been some progress in:  

 

 

improving  tax  collection  and  public  spending, 
including  by  stepping  up  enforcement  of 
measures  to  reduce  the  extent  of  the  informal 
economy;  
implementing  supervisory  action  plans  in  the 
adequate 
financial 
valuation of assets, including collateral held by 
banks;  
  making 

more 
employable  by  strengthening  measures  to  get 
them into work or training and improving their 
skills;  

disadvantaged 

ensuring 

groups 

sector 

and 

  providing  quality  and  inclusive  mainstream 
education  (however,  measures  to  address  the 
situation  of  Roma  and  other 
particular 
disadvantaged groups are lagging behind). 

There has been limited progress in: 

  upgrading the governance framework for state-
owned  enterprises  in  line  with  international 
good practices; 

  completing 

the  reform  of 

the 
framework  and  promoting  a 
secondary market for non-performing loans;  

insolvency 
functioning 

 

 

improving  access  to  health  services,  reducing 
'out-of-pocket' 
addressing 
and 
shortages of health professionals; 

payments 

introducing  a  transparent  scheme  to  revise  the 
minimum  income  and  improving  its  coverage 
and adequacy. 

Regarding  progress  towards  its  national  targets 
under  the  Europe  2020  strategy,  Bulgaria  is 
target  for  reducing 
its 
expected 

to  achieve 

5 

 
 
                                                           
process, 

Remaining  steps  include  fully  implementing  an 
action  plan  to  establish  a  proper  risk-based, 
forward-looking 
and 
supervisory 
adequately  following  up  on  outstanding  issues 
highlighted  by 
the  non-bank  financial  sector 
reviews,  including  valuation  practices  and  group-
level  supervision.  Concerns  that  have  recently 
emerged in the car insurance sector also remain to 
be  addressed.  These  include  the  rudimentary 
pricing model and the effectiveness of the National 
Bureau of Bulgarian Motor Insurers, as well as the 
lack 
for 
compensations set by judges. 

harmonised  methodology 

of 

a 

The  private  sector  is  reducing  its  debt,  but  the 
level remains high. The high debt of non-financial 
corporations  continues  to  present  a  challenge, 
although  it  has  been  decreasing  over  the  last  few 
years, partially due to robust nominal GDP growth. 
While slowing the reduction in private sector debt, 
the  recent  increase  in  lending  activity  could 
support  higher  investment  and  growth.  Levels  of 
non-performing  loans  have  been  falling,  in  part 
due  to  a  recovery  in  credit  flows  and  a  more 
dynamic  secondary  market,  but  still  remain  well 
above 
the 
the  EU  average.  Deficiencies 
insolvency framework are slowing the reduction in 
private  sector  debt  and  the  work-out  of  non-
performing loans. 

in 

The labour market has improved, supported by 
economic  growth.  The  employment  rate  reached 
71.3 %  in  2017,  the  highest  since  Bulgaria  joined 
the  EU  in  2007.  Despite  low  take-up,  better-
targeted  policies  to  help  people  into  work  or 
training  are  starting  to  yield  results,  supported  by 
economic  growth.  Nonetheless,  some  groups  (the 
low- skilled, young people, the Roma, people with 
disabilities)  continue 
face  challenges.  A 
to 
shrinking working-age population as well as skills 
shortages  and  skills  gaps  continue  to  be  of 
concern. 

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

The  social  protection  system  is  insufficient  to 
tackle the significant social issues. Wide income 
inequalities and the high number of people at risk 
of  poverty  point  to  the  need  for  ‘active  inclusion’ 
policies  designed  to  enable  every  citizen  to  work 
and  participate  fully  in  society.  These  challenges 

Executive summary 

also  point  to  the  need  for  targeted  support  to 
vulnerable groups, as well as better availability and 
quality of integrated social and healthcare services 
and  housing.  The  adequacy  and  coverage  of  the 
minimum  income  remain  limited  and  there  is  no 
objective mechanism for regularly updating it. The 
impact  of  taxes  and  benefits  on  reducing  poverty 
and  inequality  is  significantly  lower  than  the  EU 
average.  This  reflects  the  low  level  of  social 
spending, the uneven availability of social services 
across  the  territory  and  the  limited  redistributive 
effects of the taxation system. 

challenges 

investment 

significant 

in  education.  This 

The education system is being modernised at all 
levels  but 
remain. 
Persistently high rates of early school leaving and 
low  educational  outcomes  highlight  the  need  for 
significant 
is 
particularly  relevant  for  addressing  the  challenges 
of  quality  and  equality  of  opportunity  in  early 
childhood  education  and  care,  school  education 
and  vocational  education  and  training.  Despite 
ongoing  efforts,  higher  education  is  insufficiently 
aligned with the needs of the jobs market. The rate 
of  participation  in  adult  learning  is  one  of  the 
lowest in the  EU. Inclusion of Roma in education 
and  the  high  impact  of  socio-economic  status  on 
educational outcomes remain problematic. 

Many  Bulgarians  still  face  significant  obstacles 
in  accessing  healthcare.  Public  expenditure  on 
healthcare  remains  very  low,  with  formal  and 
informal  out-of-pocket  payments(5)  covering 
almost  half  of  healthcare  costs  —  one  of  the 
highest  shares  in  the  EU.  The  strategy  for  long-
term care is under way, but implementation of the 
National  Health  Strategy 
is 
considerably delayed. 

action 

plan 

Public  administration  reform  continues  to  be 
slow  and  is  yielding  insufficient  improvements 
while  the  business  environment  remains  weak. 
Institutional  shortcomings,  regulatory  uncertainty 
and corruption remain among the main obstacles to 
investment.  There  has  been  little  progress  in  the 
provision  of  public  services  and  the  perception  of 
their  quality  remains  low.  Notwithstanding  the 
generally  good  progress  in  programming  and 
implementing EU funding, administrative capacity 
and 
challenge.  The 
remains 
implementation  of  public  policy,  as  well  as 

design 

a 

5 On-the-spot payments to healthcare providers.  

6 

 
 
                                                           
Executive summary 

at 

capacity-building 
levels  of  public 
all 
administration,  would  benefit  from  strengthening. 
The  practical  benefits  of  the  ongoing  reforms  to 
limited;  aggregated 
public  procurement  are 
purchases  have  advanced  only  at  the  central  level 
and the uptake of electronic procurement has been 
delayed. On a positive note, the provision of digital 
improved 
public  services  for  businesses  has 
significantly and the introduction of e-government 
is advancing. 

adopted 

reform  of 

In  2018,  Bulgaria 

fight  against  corruption  remains  a 
The 
a 
challenge. 
comprehensive 
its  anti-corruption 
legislation  and  established  a  new  unified  anti-
corruption agency, but results have yet to be seen. 
towards 
Significant  progress  has  been  made 
reinforcing the independence of the judiciary. Still, 
a  number  of  challenges  remain,  in  particular  to 
strengthen  the  accountability  of  the  prosecution 
service  and public trust in it,  and to rebalance the 
workload  among  courts.  In  recent  years,  Bulgaria 
has been addressing deficiencies  in its anti-money 
laundering  framework,  but  a  number  of  concerns 
remain.  These  include  the  effective  transposition 
of the  European  Union’s legal framework and the 
use  of  financial  information  in  the  investigation 
and  prosecution  of  financial  crime  and  high-level 
corruption. 

State-owned  enterprises  suffer 
from  weak 
corporate  governance.  The  situation  of  state-
owned  enterprises  reflects  to  some  extent  their 
management 
as 
restructuring challenges. A reform of the corporate 
governance  framework  is  being  prepared,  which 
would help to address current weaknesses. 

supervision, 

as  well 

and 

7 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

The  economy  continued  to  grow  robustly.  Real 
GDP grew an estimated  3.2 % in 2018, driven by 
domestic  demand.  Rising  real  wages  increased 
households' 
income  and  confidence,  spurring 
private  consumption.  Both  public  and,  to  a  lesser 
extent,  private  investment  contributed  to  the  GDP 
growth. Public consumption growth also increased, 
mainly  reflecting  higher  spending  on  wages  and 
intermediate  consumption.  The  growth  of  exports 
slowed  down  due  to  one-off  events  and  a  decline 
in  exports  to  Turkey,  while  the  strong  domestic 
supported  high  imports  growth.  Overall,  foreign 
trade  had  a  significant  negative  contribution  to 
growth. Robust growth led to a positive output gap 
in  2018,  which  is  projected  to  further  expand  in 
2019 and 2020, to 0.6 % and 1.0 %, respectively. 

Graph 1.1: 

Real GDP growth by demand components 

Potential  growth  has  benefited  mostly  from 
gains in total factor productivity. Potential GDP 
growth  has  strengthened  in  recent  years,  reaching 
above 3 % in 2017 (see Graph  1.2). It  was driven 
by  total  factor  productivity,  which  has  constantly 
increased  since  2014.  The  contribution  of  capital 
accumulation has shrunk over the last 10 years and 
reached  its  lowest  level  in  2016-2017,  which 
coincided with the beginning of a new EU funding 
period (see Graph 1.2). Labour supply has made a 
relatively  small  contribution  to  potential  growth 
and  is  expected  to  contribute  even  less  in  the 
medium to long term due to adverse demographics 
and the increasing scarcity of skilled workforce.  

Graph 1.2: 

Potential growth breakdown 

2018-20: Winter forecast 2019 for real GDP growth, otherwise 
Autumn forecast 2018 
Source: European Commission 

Regional disparities 

Convergence  with  the  EU  has  been  slow.  GDP 
per  head  has  grown  faster  than  the  EU  average 
since 2011, but it has reached only 50 % of the EU 
average  in  2017.  Regional  disparities  are  growing 
and hampering the competitiveness of the country. 
Output  and  incomes  across  Bulgaria  are  very 
uneven,  as  shown  by  a  coefficient  of  variation  of 
49 % in the  2016 GDP per capita. Moreover, five 
of  Bulgaria's  six  planning  regions  are  among  the 
20 poorest in the EU. Although it accounts for just 
18.8 %  of 
the  Sofia  region 
generates nearly half of the country’s GDP (Graph 
1.3). As a percentage of GDP, investment is below 
regional 
the  EU  average,  with 
discrepancies. Sofia attracts more than half of non-
financial  foreign  direct  investment.  Other  major 

the  population, 

significant 

2018-20: Winter forecast 2019 for real GDP growth, otherwise 
Autumn forecast 2018 
Source: European Commission 

Wage  growth  and  EU-funded  investment  are 
expected to continue to drive economic growth. 
Bulgaria’s  growth  momentum 
is  expected  to 
remain  strong,  mainly  driven  by  solid  domestic 
demand.  Real  wage  growth  will  continue  to 
stimulate  private  consumption.  High  demand, 
increased  capacity  utilisation  and  EU  funding  are 
set  to  boost  investment,  while  imports  should 
outpace  exports,  leading  to  a  further  reduction  in 
the  current  account  surplus.  Overall,  real  GDP 
growth  is  expected  to  strengthen  to  3.6 %  %  in 
2019 as well as in 2020 (see Graph 1.1). 

8 

-15-10-5051015-15-10-5051015030405060708091011121314151617181920Rate of change y-o-y %ppsInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growth (rhs)forecast-4-20246-4-202460708091011121314151617181920Rate of change y-o-y %ppsLabour (hours)Capital accumulationProductivity (TFP)Potential growth (rhs)Real growth (rhs)forecast 
 
 
 
 
 
1. Economic situation and outlook 

recipients  of  foreign  direct  investment  are  the 
larger urban centres, particularly in the south of the 
country,  boosting  the  economic  performance  of 
these  regions  (NSI,  2018a).  Labour  productivity 
has  been  increasing  steadily  since  2008  (ECB, 
2018b) but is still well below the EU average. It is 
particularly  low  (below  40 %  of  the  EU  average) 
in  the  three  northern  planning  regions  and  in  one 
region in the south. 

Graph 1.3: 

Regional disparities 

investment  is  increasing  as  more  projects  co-
financed  by  the  EU  get  underway  and  some 
national investment initiatives, e.g. in the transport 
sector, are being put into effect. Public investment 
is  estimated  to  have  increased  by  57.8 %  in  2018 
and is expected to grow by around 20 % and 10 % 
in 2019 and 2020, respectively. Private investment, 
whose  contribution  to  growth  has  been  negative 
for  several  years,  has  also  improved  and  is 
expected  to  continue  increasing  by  around  4 % 
annually.  

External position 

The current  account balance is  positive  though 
decreasing.  It  is  estimated  at  around  3.6 %  of 
GDP  in  2018,  significantly  lower  than  its  2017 
peak  of  6.5  %  of  GDP  (see  Graph  1.4).  This  is 
mainly  the  result of a slowdown in export growth 
due to the  strong base effect,  some  one-off events 
and  a  decline  in  exports  to  Turkey.  At  the  same 
time,  strong  domestic  demand  spurred  imports 
resulting  in  a  negative  contribution  of  net  exports 
to GDP growth. This negative contribution is also 
set  to  decrease  in  2019.  Current  account  balance 
remains  well  above  the  deficit  of  1.1%  that  the 
structure  of  the  economy  could  warrant  (current 
account norm) (7).  

Graph 1.4:  Current account developments 

Yellow areas represent the range of disparities across regions 
(1) Difference in index points 
(2) Percentage of GDP 
(3) Gross value added per person employed 
Source: European Commission 

The  southern  regions  provide  better  conditions 
for  doing  business.  There  are  considerable 
regional  differences  in  economic  output,  socio-
economic  indicators  as  well  as  in  unemployment 
and  employment  rates (6).  This  likely  reflects  a 
concentration 
better 
infrastructure.  The  growing  capital  attracts  skilled 
people  to  high  value  added  sectors,  while  in  the 
rest  of  the  country  gains  in  employment  are 
concentrated in lower  value added sectors, also in 
the  context of outward  migration (see  section 4.3. 
and 4.4).  

investment 

and 

of 

Investment  

Investment is set to grow, mainly as a result of a 
public  investment  recovery.  As  of  2018,  total 
investment  seemed  to  be  slowly  recovering  from 
its  downward  trend  of  the  previous  years.  Public 

Source: European Commission, 2018 data are estimates 
based on quarterly data 

The  net 
investment  position 
(NIIP)  continued  to  improve.  In  2018,  the  NIIP 

international 

(6)  Respectively, from 2.8 % in Sofia to 11.3 % in the North-
West,  and  from  74.6  %  in  Sofia  to  57.9  %  in  the  North-
West (NSI, 2018b). 

(7)  For details on this methodology see  Coutinho, L., Turrini, 
A,  Zeugner,  S.,  “Methodologies  for  the  Assessment  of 
Current  Account  Benchmarks”,  European  Commission 
Discussion Paper 086/September 2018.  

9 

20406080100120140GDP in PPSper head,2016GDP perhead  change(1), 2010-16Investmentrate (2),2010-15Populationgrowth, 2010-16Productivity(3), 2016Index, EU 28=100EU28Non-capital regionsCapital regionMS average-40-30-20-1001020070809101112131415161718% of GDPCapital accountSecondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+KA) 
 
 
                                                           
 
                                                           
-35.5 % 

of  GDP.  The 

improved a further 6.3 pp compared to end-2017 to 
reach 
structural 
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  (mainly  pension 
funds, but also banks). The less negative NIIP has 
also benefited  from strengthening  nominal  growth 
and 
surpluses, 
combined  with  a  capital  account  surplus  (see 
Graph 1.5). The NIIP, however, remains above the 
prudential  level  of  35.2 %  of  GDP  indicating  that 
further  improvement  could  lead  to  safer  levels  of 
international debt (8) . 

continuous 

account 

current 

Graph 1.5:  Net international investment position 

1. Economic situation and outlook 

down  inflation  growth,  while  an  increase  in  core 
inflation  due  to  a  rise  in  real  disposable  income 
and  household  consumption  will  act 
the 
opposite direction. 

in 

Labour market, poverty and social exclusion 

strong 

Labour  market  conditions  continue  to  improve 
growth.  The 
economic 
alongside 
unemployment 
fifth 
the 
for 
rate  decreased 
consecutive  year  (see  Graph  1.6)  and  is  now  well 
below the EU average (5.3 % v 6.5 % in Q3-2018), 
while  the  employment  rate  reached  a  higher  level 
than before the crisis (71.3 % in 2017 vs. 70.7 % in 
2008).  Despite 
these  positive  developments, 
adverse demographic trends and intensifying skills 
shortages pose an increasingly serious challenge to 
future growth.  

Graph 1.6: 

Labour market indicators 

Source: European Commission 

Inflation 

Inflation,  mainly  driven  by  oil  prices, 
is 
expected to moderate in 2019 and 2020. Annual 
HICP inflation was 2.6 % in 2018. Price pressures 
increased  due  to  a  steep  rise  in  oil  prices,  second 
round  effects  on  food  prices  and  increases  in 
unprocessed food prices following a weak summer 
harvest. Administered prices also rose significantly 
over  the  same  period.  In  the  coming  years, 
inflation is expected to decrease somewhat, to 2.0 
%  in  2019  and  1.8  %  in  2020.  The  strong  base 
effects  from  energy  prices  are  expected  to  push 

(8)  The country-specific prudential threshold denotes the NIIP 
level beyond which an external crisis becomes likely. The 
NIIP  level  explained by  fundamentals  represents  the  NIIP 
that would result if a country had run its current account in 
line  with  fundamentals  since  1995.  For  details  regarding 
the  estimation  of  NIIP  benchmarks  see  Turrini,  A,  and 
Zeugner,  S.  (2018),  “Benchmarks  for  net  international 
investment  positions”,  European  Commission  Discussion 
Paper, forthcoming. 

Source: European Commission 

A tightening labour  market is exerting upward 
pressure  on  wages.  Nominal  compensation  per 
employee  grew  by  10.5 %  in  2017  and  are 
estimated  to  have  further  increased  by  8 %  in 
2018.  This  is  faster  than  developments  in  labour 
productivity,  prices  and  the  unemployment  rate 
would  predict.  Wage  discrepancies  across  regions 
and  sectors  are  relatively  high,  depending  on 
where labour shortages are more acute. Moreover, 
the  shortage  of  professionals  in  key  public  policy 
domains,  such  as  education  and  healthcare,  is 
limiting the delivery of services. 

Some population groups are not fully integrated 
into  the  labour  market.  Despite  the  overall 
challenges 
positive  developments, 

structural 

10 

-150-100-50050100000102030405060708091011121314151617% of GDPReserve assetsNet portfolio investment, equity and investment fund shares/unitsNet portfolio investment, debt securitiesOther investment (net)Net direct investmentNet financial derivatives and employee stock optionsNet Int'l investment position (NIIP)Marketable debt (NIIP minus FDI and shares)051015202545505560657075800102030405060708091011121314151617% of labour force% of populationUnemployment rate 15-74 (rhs)Activity rate 20-64Employment rate 20-64 
 
                                                           
 
1. Economic situation and outlook 

between rural and urban areas and among regions. 
Moreover, the low quality of the services hampers 
the social inclusion of the most vulnerable groups. 
The  family  income  in  densely  populated  areas  is 
141 % of the average equalised disposable income 
for the country, while Roma families with children 
living in thinly populated areas are at only 36 % of 
the average income. 

Graph 1.7: 

Level of income inequality 

Source: European Commission 

Financial sector 

Economic  growth  helped  the  banking  sector  to 
further  strengthen  its  capital  and  liquidity 
ratios. In September 2018 commercial banks’ total 
assets  were  8.5 %  up  on  the  previous  year. 
Funding  appears  relatively  comfortable,  driven 
mostly  by  a  significant  increase  in  deposits (11), 
while  the  loan-to-deposit  ratio  declined  to  72.7 % 
in  June  2018.  Both  households  and  non-financial 
corporations continued to place deposits mainly in 
sustained 
domestic 
confidence effect. Profitability remained relatively 
high  in  the  first  half  of  2018,  while  capital 
positions  were  broadly  stable.  The  total  capital 
ratio  marginally  decreased  from  22.2 %  in  June 
2017 to 20.8 % in June 2018 (ECB, 2018c). 

signalling 

currency, 

a 

(11)  As compared to one year earlier, household deposits grew 
by 7.8 % in September 2018, while those of non-financial 
corporations grew by 11.8 % (BNB, 2018a). 

the 

inactivity 

long-term 

persist.  In  2017, 
jobless  still 
represented  55 %  of  the  unemployed,  while  the 
rate of young people not in employment, education 
or training remains above the EU average (15.3 % 
v 10.9 %). There are also significant discrepancies 
between 
rates 
and 
depending on education levels and across regions. 
Those  living  in  rural  areas  and  small  cities,  the 
low-skilled  and  the  Roma  have  lower  levels  of 
activity  and  employment.  While  the  targeting  of 
active  labour  market  policies  has  improved,  the 
level  of  resources  allocated  to  training  is  still 
in 
insufficient  and 
activation measures remains very low. 

the  share  of  participants 

employment 

The rate of people living in poverty is still very 
high and income inequality is growing. Despite a 
slight  decrease,  the  rate  of  poverty  or  social 
exclusion in 2017 was 38.9 %, well above the EU 
average  of  22.5 % (9)  (see  Graph  1.7).  Income 
inequality  has  increased  continuously  in  recent 
years, driven by a steady rise in earnings at the top 
end (10) as well as a gradual erosion of the income 
share  of  the  poorest  households.  In  2017,  the 
income of the richest 20 % of population was over 
eight  times  higher  than  that  of  the  poorest  20 %. 
Market outcomes were only slightly more unequal 
than in other EU countries, but the impact of taxes 
and benefits on reducing poverty and inequality is 
significantly  lower  in  Bulgaria.  This  reflects  the 
low 
the  uneven 
availability  of  social  services  and  the  limited 
redistributive effects of the taxation system. 

level  of  social  spending, 

Inequality  of  opportunities  remains  a  key 
challenge.  Children’s  educational  outcomes  and 
poverty  are  highly  correlated  with  the  socio-
economic background of their parents. The poverty 
rate for children of parents with low qualifications 
is 77.5 % compared to 3.1 % for parents with high 
qualifications.  This  divide  is  also  reflected  in  the 
self-reported  unmet  need  for  medical  care,  which 
was 6.3 % for the poorest households compared to 
0.9  %  for  the  richest  ones.  Access  to  social 
services  is  characterised  by  large  discrepancies 

(9)  Income data from the European Union Statistics on Income 
and  Living  Conditions  refer  to  the  previous  year  for  all 
Member States except from Ireland and UK. 

(10)  S80/S50, which measures the share of income of the richest 
20 % compared to the middle income population, increased 
from 2.3 in 2012 to 2.9 in 2017. S50/S20, which measures 
the  share  of  the  middle  income  compared  to  the  poorest 
20 %, increased from 2.7 to 2.8 over the same time period. 

11 

051015202530354045010203040506070SKSICZFIBENLDKATSEHUMTDEPLFRHREU28CYLUEEITROELPTESLVLTBG% of total populationGIni IndexGini coefficient of equivalised disposable income (after social transfers)Gini coefficient of equivalised disposable income before social transfers(pensions included in social transfers)At-risk-of-poverty-or-social-exclusion rate (rhs) 
                                                           
 
                                                           
1. Economic situation and outlook 

Table 1.1: 

Financial soundness indicators, all banks in Bulgaria 

Source: European Central Bank, Consolidated Banking Data; European Commission calculations; annualised data 

corporations grew by 7.6 % year-on-year, and that 
for households by 8.8 % (ECB, 2018d) (see Graph 
1.9). Housing loans also accelerated. They grew by 
11.6 %  year-on-year,  driven  by  the  improved 
economic environment and increases in household 
income. 

Graph 1.9:  Domestic credit growth - Households and 

NFCs 

Despite  improvements,  non-performing  loans 
by non-financial corporations remain high. The 
overall  ratio  of  non-performing  loans  declined  to 
9.2 % in June 2018 from 12.1 % a year earlier (see 
loans  by  non-
Graph  1.8).  Non-performing 
financial  corporations  also  decreased  but  still 
topped  15.4 %  of  total  loans  and  advances  (v 
19.9 % a year earlier). These levels are well above 
the EU averages in June 2018 of 3.4 % overall and 
6.7 % for non-financial corporations. Progress with 
restructuring has been slow. In Q1-2018 the share 
of  forborne 
loans,  most  of  which  are  non-
performing,  decreased  only  slightly,  to  5.6 %  of 
total loans.  

Graph 1.8:  Non-performing Loans, share of total loans and 

advances— total, households and NFCs (1) 

Based on index of notional stocks 
Source: European Central Bank 

House prices continued to grow strongly. House 
prices,  which  have  been  increasing  since  summer 
2016,  grew  by  7.5 %  year-on-year  in  Q2-2018. 
Regional  differences  remain  substantial.  The 
largest 
increases  were  recorded  for  existing 
housing  in  Plovdiv,  up  14.5 %,  while  prices  in 
Sofia rose 8.3 %. The recovery in real estate prices 
appears  to  be  supported  by  rising  real  wages, 
higher consumer confidence and low bank interest 
rates.  Furthermore,  supply  is  not  yet  catching  up 
with demand, although the continued improvement 

(1) Data from 2014 onwards based on FINREP sample, data 
prior to 2014 recalculated based on full sample 
Source: European Central Bank 

Credit continued to expand at an elevated pace. 
to  non-financial 
In  September  2018,  credit 

12 

051015202512Q212Q312Q413Q113Q213Q313Q414Q114Q214Q314Q415Q115Q215Q315Q416Q116Q216Q316Q417Q117Q217Q317Q418Q118Q2NPLNPL NFCsNPL Households% of total loans and advances-3-1135791113Feb-13May-13Aug-13Nov-13Feb-14May-14Aug-14Nov-14Feb-15May-15Aug-15Nov-15Feb-16May-16Aug-16Nov-16Feb-17May-17Aug-17Nov-17Feb-18May-18Aug-18Nov-18Rate of change y-o-y (%) Total privateNon-financial corporationsHouseholdsMortgage credit(%)20102011201220132014201520162017Non-performing loans----16.014.512.810.2   o/w foreign entities-----15.812.79.5   o/w NFC & HH sectors-----23.420.516.4   o/w NFC sector----20.723.121.117.3   o/w HH sector----17.416.913.911.4Coverage ratio42.044.449.453.048.950.151.350.6Return on equity6.44.74.74.47.28.011.310.2Return on assets0.80.60.60.60.91.01.51.3Capital adequacy ratio17.417.616.617.021.521.621.521.8CET 1 ratio----19.119.519.820.2Tier 1 ratio15.215.715.116.019.619.920.320.6Loan to deposit ratio----82.773.472.472.6 
 
 
 
 
 
1. Economic situation and outlook 

in  the  construction  confidence  indicator  is  a 
positive  signal. The growth of residential building 
investment  is  increasing  but  its  share  of  GDP  is 
still below the EU average. 

the  favourable  macroeconomic  environment  and 
improvements  in  tax  collection.  This  is  especially 
the case for indirect taxes such as value-added tax 
and excise duties (see also section 4). 

that  Bulgaria 

Despite  the  strong  increase  in  house  prices, 
there is no indication of overvaluation. Although 
recovering, the price-to-income ratio is still below 
the  long-term  average  (Graph  1.10),  while  the 
price-to-rent ratio is back to the long-term average. 
The  resulting  aggregate  valuation  gap  estimates 
shows 
from 
undervalued  house  prices.  Strong  price  increases 
are  occurring  from  below-equilibrium  levels  and 
the  undervaluation  is  a  legacy  of  the  previous 
house price boom and bust cycle. Nonetheless, the 
recent  strong  increase  suggests  that  the  pace  of 
recovery  should  be  closely  monitored,  especially 
for those regions that have seen the highest growth 
rates recently. 

recovering 

is 

from 

taxes  and 

to 
Medium-term  budget  projections  point 
sustained  surpluses  and 
low  debt.  Public 
expenditure on wages and investment is forecast to 
increase further in 2019 and 2020. These increases, 
however, are expected to be partly offset by higher 
revenue 
transfers.  Further 
improvements  in  tax  collection,  if  realised,  could 
add  to  the  available  fiscal  space.  The  overall 
positive  fiscal  and  macroeconomic  outlook  is 
contributing  to  a  fast  reduction  in  public  debt, 
which is forecast at below 20 % of GDP by 2020. 
In  addition,  according  to  the  Commission  Debt 
Sustainability Analysis and the fiscal sustainability 
gap indicators, Bulgaria faces low risk in the short, 
medium and long term(12).  

Graph 1.10:  Overvaluation gap with respect to 

price/income, price/rent and fundamental 
model valuation gaps (1) 

(12)  See Annex B for details.  

(1) Overvaluation gap estimated as an average of the 
price/income, price/rent and fundamental model valuation 
gaps. Long-term values are computed over 1995-2016. 
Source: European Commission 

Public finances 

Budgetary developments remained positive. The 
general  government  budget  recorded  a  surplus  of 
0.8 %  of  GDP  in  2018.  On  the  expenditure  side, 
public  investment  started  to  recover,  despite  the 
slower  than  expected  progress  with  implementing 
EU-funded  projects.  Public  sector  wage  increases 
were another  major contributor to the expenditure 
rises. On the revenue side, taxes and social security 
contribution revenues increased as a result of both 

13 

-60-40-2002040608002030405060708091011121314151617% deviation of current priceModel-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. 
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation 
Source: Eurostat and ECB as of 31-1-2019, where available; European Commission for forecast figures (Winter forecast 2019 for 
real GDP and HICP, Autumn forecast 2018 otherwise)  

14 

2004-072008-122013-1520162017201820192020Real GDP (y-o-y)6.91.11.93.93.83.23.63.6Potential growth (y-o-y)6.01.92.32.83.23.43.43.2Private consumption (y-o-y)9.51.01.53.64.5...Public consumption (y-o-y)2.4-0.40.72.23.7...Gross fixed capital formation (y-o-y)16.5-4.32.1-6.63.2...Exports of goods and services (y-o-y)15.02.96.18.15.8...Imports of goods and services (y-o-y) 19.7-1.15.04.57.5...Contribution to GDP growth:Domestic demand (y-o-y)10.8-0.61.51.23.9...Inventories (y-o-y)0.7-0.7-0.20.40.6...Net exports (y-o-y)-4.62.20.62.3-0.8...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1.8-1.00.00.40.50.40.40.2Capital accumulation (y-o-y)2.11.81.00.60.91.01.21.2Total factor productivity (y-o-y)2.11.11.41.81.81.91.91.8Output gap1.70.4-1.5-0.50.10.30.61.0Unemployment rate9.59.311.27.66.26.05.85.7GDP deflator (y-o-y)7.54.10.62.23.42.62.42.2Harmonised index of consumer prices (HICP, y-o-y)6.84.6-0.8-1.31.22.62.01.8Nominal compensation per employee (y-o-y)8.69.86.75.810.58.07.66.3Labour productivity (real, person employed, y-o-y)3.82.71.83.42.0...Unit labour costs (ULC, whole economy, y-o-y)4.56.94.82.38.44.84.02.8Real unit labour costs (y-o-y)-2.72.64.10.14.82.21.60.6Real effective exchange rate (ULC, y-o-y)2.84.64.40.99.25.01.60.1Real effective exchange rate (HICP, y-o-y)3.41.6-1.4-0.30.73.7-0.8-1.1Savings rate of households (net saving as percentage of net disposable income)-11.9-2.6-1.1-1.8-0.8...Private credit flow, consolidated (% of GDP)26.69.22.04.16.2...Private sector debt, consolidated (% of GDP)86.1129.4122.1104.8100.1...of which household debt, consolidated (% of GDP)16.225.022.720.920.4...of which non-financial corporate debt, consolidated (% of GDP)69.9104.499.483.979.6...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)3.314.715.311.29.0...Corporations, net lending (+) or net borrowing (-) (% of GDP)-8.1-0.66.29.47.43.12.42.5Corporations, gross operating surplus (% of GDP)27.128.729.730.331.326.326.426.9Households, net lending (+) or net borrowing (-) (% of GDP)-7.8-2.8-0.2-2.2-1.53.12.83.3Deflated house price index (y-o-y)24.8-6.81.27.16.2...Residential investment (% of GDP)3.93.41.62.72.9...Current account balance (% of GDP), balance of payments-23.9-6.50.82.66.53.63.13.3Trade balance (% of GDP), balance of payments-18.7-6.7-0.14.33.9...Terms of trade of goods and services (y-o-y)2.81.20.73.40.20.20.50.5Capital account balance (% of GDP)-1.81.12.22.21.0...Net international investment position (% of GDP)-51.5-88.8-69.6-49.2-41.8...NIIP excluding non-defaultable instruments (% of GDP) (1)..13.029.333.1...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)..58.454.648.1...Export performance vs. advanced countries (% change over 5 years)59.325.710.95.114.0...Export market share, goods and services (y-o-y)..1.68.45.0...Net FDI flows (% of GDP)-25.9-6.1-2.8-1.3-2.1...General government balance (% of GDP)1.4-1.6-2.50.21.10.80.60.6Structural budget balance (% of GDP)..-0.90.31.10.70.40.3General government gross debt (% of GDP)25.014.823.529.625.623.321.319.5Tax-to-GDP ratio (%) (3)30.927.228.629.029.530.030.230.2Tax rate for a single person earning the average wage (%)20.521.521.6.....Tax rate for a single person earning 50% of the average wage (%)12.121.521.6.....forecast 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

75 % 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Bulgaria  have 
recorded  at  least  ‘some  progress”.  (13)  25 %  of 
these  country-specific  recommendations  recorded 
'limited' or 'no progress' (see Graph 2.1). Measures 
have  been  taken  in  several  policy  areas  subject  to 
country-specific  recommendations,  but  further 
efforts  are  needed  for  implementation  of  the 
reforms to have more tangible results. 

Graph 2.1:  Overall multiannual implementation of 2011- 

2018 country-specific recommendations 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 country-specific 
recommendations assessment categories 
(3) The multiannual country-specific recommendations 
assessment looks at implementation from the first year of 
adoption up until the 2019 Country Report. 
Source: European Commission 

Labour market conditions continue to improve. 
Policy  efforts  and  measures  implemented  since 
2012  to  help  disadvantaged  groups  access  the 
labour  market  are  bearing  fruit.  Despite  this, 
labour  shortages  appear 
to  have  reached  an 
historical  peak  in  2018,  intensified  by  emigration 
and adverse demographic trends. 

Challenges remain in healthcare and education, 
in  combating  poverty  and  in  promoting  social 
inclusion.  There  has  been  limited  progress  in 
improving  access 
in 
reducing  out-of-pocket  payments,  as  well  as  in 

to  health  services  and 

(13) For the assessment of other reforms implemented in the past 

see, in particular, Section 4. 

addressing  the  shortages  of  health  professionals. 
There are also outstanding issues with introducing 
a  transparent  revision  scheme  for  the  minimum 
income and improving its coverage and adequacy. 
There  has  been  some  progress  in  the  area  of 
education  but  major  challenges  related  to  quality 
and equity remain at all levels. The inclusion of the 
Roma and the impact of socio-economic status on 
educational outcomes remain problematic.  

some 

delay, 

albeit  with 

Some progress has been made in dealing with a 
number of fiscal structural  challenges. Bulgaria 
addressed, 
the 
recommendation 
to  adopt  a  comprehensive 
strategy  to  improve  tax  collection  and  reduce  the 
extent  of  the  informal  economy.  It  officially 
expired  in  December  2018  but  the  challenge 
remains, so a number of measures and initiatives to 
improve  tax  collection  and  combat  undeclared 
work are continuing. To improve the efficiency of 
public  spending, 
launched  a 
spending review project with the World Bank. The 
government also put in place a project to improve 
the  corporate  governance  framework  for  state-
owned enterprises. 

the  authorities 

and 

action 

Policy 

Some  progress  was  achieved  over  2015-2018  in 
strengthening  banks  and  other  financial  sector 
undertakings  and  improving  financial  sector 
supervision. 
positive 
macroeconomic  developments  helped  strengthen 
balance  sheets  and  reduce  macro-financial  risks 
sector.  The 
stemming 
supervisory  action  plans  have  mostly  been 
implemented,  with  some  measures  still  underway. 
The  consolidation  of  recent  progress  will  depend 
the 
on 
supervision  and  governance  of  banks  and  other 
financial corporations.  

implementing 

financial 

reforms 

from 

fully 

the 

the 

to 

There  has  been  some  progress  in  tackling  the 
deficiencies  of  the  insolvency  framework  since 
2014.  A  procedure  for  business  restructuring 
entered into force on 1 July 2017 but measures are 
needed to ensure it fulfils its purpose. The reforms 
came  to a standstill in 2018, with no further steps 
taken even though some elements of a functioning 
insolvency  framework  are  still  lacking.  More 
positively, in 2018 Bulgaria requested assistance to 
help  advance  the  insolvency  reform.  This  project 
will  produce  a  roadmap  addressing  the  identified 
gaps.  

15 

0%25%57%9%9%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
                                                           
2. Progress with country-specific recommendations 

and 

public 

spending, 

collection 

Bulgaria has made some progress in addressing 
the  2018  country-specific  recommendations(14). 
There  has  been  substantial  progress  in  taking 
follow-up  measures  resulting  from  the  financial 
sector  reviews.  There  has  been  some  progress  in 
tax 
in 
implementing  supervisory  action  plans  in  the 
financial sector and ensuring adequate valuation of 
assets, 
of 
disadvantaged  groups  and  providing  quality 
inclusive  mainstream  education.  There  has  been 
limited  progress  with  the  governance  of  State-
framework, 
owned 
secondary  market 
loans, 
reforms in the healthcare sector and with minimum 
income 
setting 
mechanism.  

for  non-performing 

employability 

enterprises, 

insolvency 

increasing 

coverage, 

adequacy 

and 

in 

(14)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
country-specific  recommendation 
the 
Overview Table in the Annex. 

is  presented 

in 

16 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of 2018 CSR implementation 

(1) This overall assessment of CSR1 does not include an assessment of compliance with the Stability and Growth Pact. 
Source: European Commission 

17 

Bulgaria Overall assessment of progress with 2018 CSRs: Some progress  CSR 1: Improve the efficiency of tax collection and 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.  Some progress   Some progress in improving the efficiency of tax collection   Some progress in  improving the efficiency of public spending   Some progress in stepping up enforcement of measures to reduce the extent of the informal economy  Limited progress in upgrading  the State-owned enterprise corporate governance framework in line with international good practices   CSR 2: 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. (MIP relevant)  Some progress   Substantial progress in taking follow-up measures on the financial sector reviews  Some progress in implementing the supervisory action plans   Some progress in ensuring adequate valuation of assets  Limited progress in completing the reform of the insolvency framework   Limited progress in promoting a functioning secondary market for non-performing loans  CSR 3: 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. Limited progress   Some progress in increasing the employability of disadvantaged groups by upskilling and strengthening activation measures  Some progress in provision of quality inclusive mainstream education, however measures to address the particular situation of Roma and other disadvantaged groups are lagging behind   Limited progress in improving access to health services and reducing out of pocket payments as well as in addressing shortages of health professionals   Limited progress in introducing a transparent revision scheme for the minimum income and in improving its coverage and adequacy    
 
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes contribute to addressing structural challenges 
and to fostering growth and competitiveness in Bulgaria 

EU funding provides a significant contribution to Bulgaria’s public investment. The financial allocation 
from  European  Structural  and  Investment  Funds  to  help  Bulgaria  tackle  reform  challenges  amounts  to 
EUR 11.7 billion in the 2014-2020 multiannual financial framework, potentially representing around 2.8% of 
GDP annually. EUR 9.87 billion of this total is from the EU and EUR 1.85 billion from national co-financing. 
By  the  end  of  2018,  around  EUR 7.27  billion  (74%  of  the  total  allocation)  had  already  been  allocated  to 
specific  projects.  In  addition,  over  EUR 400  million  had  been  allocated  to  specific  projects  on  strategic 
transport networks through a dedicated EU funding instrument, the Connecting Europe Facility. Furthermore, 
numerous  Bulgarian  research  institutions,  innovative  firms  and  individual  researchers  benefited  from  other 
EU funding instruments, notably Horizon 2020 which provided around EUR 65 million. 

EU  funding  has  helped  to  address  various  challenges  identified  in  the  2018  country-specific 
recommendations. By the end of 2018, European Structural and Investment Funds  had a significant social 
impact. Investments in emergency care are giving access to faster and more modern medical aid to citizens 
across Bulgaria, including those in remote regions. Vulnerable children and those with special needs, once in 
state-owned  institutions,  have  been  reintegrated  into  society  through  the  establishment  of  new  family-type 
centres. Integrated support to vulnerable groups has been strengthened to cover the whole country’s territory 
with  the  support  of  the  European  Social  Fund.  In  addition,  European  Structural  and  Investment  Funds 
contributed to actions to improve competitiveness and the business environment; to promote job creation; to 
improve  the  employability  of  vulnerable  groups,  including  through  skills  acquisition;  and  to  strengthen  the 
labour  market  relevance  of  education  and  training.  Thousands  of  small  and  medium-sized  enterprises  and 
start-ups  in  priority  sectors  such  as  information  and  communication  technology,  e-health  and  engineering 
benefited  from  grants,  loans  and  equity  investments.  In  environmental  services,  millions  of  people  were 
linked  to  more  efficient  waste-management  systems  and  hundreds  of  thousands  gained  access  to  modern 
water  treatment  and  supply  services,  all  amounting  to  a  cleaner  and  healthier  environment  for  citizens.  In 
transport, new road and rail sections of the Trans-European Transport Network are being developed alongside 
the expansion of the Sofia Metro and projects for improving navigability and safety along the Danube River 
and in the Black Sea. 

EU  funding  is  helping  to  mobilise  private  investment.  European  Regional  Development  Fund  grants  for 
enterprises alone have mobilised additional private capital of about EUR 113 million. In addition, 5.2 % of 
the European Regional Development Fund and the Cohesion Fund are earmarked for delivery  via financial 
instruments  in  areas  like  research,  development  and  innovation,  small  and  medium-sized  enterprises  and 
entrepreneurship,  energy  efficiency,  urban  development  and  environmental  management.  These  resources 
will raise a further EUR 247 million of public and private investment. 

In addition, the Commission can provide tailor-made technical support upon a Member State's request 
via  the  Structural  Reform  Support  Programme  to  help  Member  States  implement  growth-sustaining 
reforms to address challenges identified in the European Semester process or other national reforms. 
Bulgaria, for example, is receiving support to develop a digital tool designed to help small and medium-sized 
enterprises comply with legislation and to enhance its capacity to prepare sound Private Partnership Projects. 
The  Commission  is  also  assisting  Bulgaria's  tax  authorities  in  their  efforts  to  improve  the  control  of  e-
commerce.  In  addition,  in  2018,  work  has  started  to  help  prepare  a  review  of  the  insolvency  framework, 
improve  the  governance  of  state-owned  enterprises  and  improve  the  administrative  capacity  of  the 
Inspectorate of the Supreme Judicial Council. 

The volume of operations approved by the European Investment Bank, backed by the European Fund 
for  Strategic  Investments,  totals  EUR 438  million.  This  is  set  to  trigger  a  total  of  EUR 2.2  billion  in 
additional private and public investments (February 2019). Bulgaria ranks second on the overall volume of 
approved operations as a share of GDP. Six projects involving Bulgaria have so far been approved under the 
infrastructure and innovation window of the Fund. They amount to EUR 302 million in total financing, which 

18 

 
2. Progress with country-specific recommendations 

should,  in  turn,  generate  EUR 769  million  in  investments.  Under  the  small  and  medium-sized  enterprises 
component,  13  agreements  with  intermediary  banks  have  been  approved  for  a  total  of  EUR 136  million, 
which should mobilise around EUR 1.5 billion of total investment. An estimated  9 606 small and medium-
sized  enterprises  and  mid-cap  companies  are  expected  to  benefit  from  this  support.  ‘Biovet’  is  a  notable 
example  of  such  projects  in  Bulgaria.  Biovet  is  a  global  animal  health  company  with  several  production 
facilities.  The  European  Investment  Bank  is  providing  a  EUR 100  million  loan  to  finance  a  boost  in 
production  levels  and  research  and  development.  The  European  Fund  for  Strategic  Investments  project 
includes setting up two new facilities, in Peshtera and in Razgrad. 

EU actions strengthen national, regional and local authorities and civil society. Over EUR 690 million 
from the European Structural and Investment Funds have been allocated to strengthen the capacity of public 
administration at different levels by prompting close cooperation with stakeholders.  

More information at: https://cohesiondata.ec.europa.eu/countries/BG  

19 

 
3.  OVERALL FINDINGS REGARDING IMBALANCES, RISKS AND 

ADJUSTMENT ISSUES 

to  assess 

for  Bulgaria 

in-depth  review 

The  2019  Alert  Mechanism  Report  concluded 
should  be 
that  a  new 
undertaken 
the 
persistence  or  unwinding  of  the  imbalances 
(European Commission, 2018k). In spring 2018, 
Bulgaria  was  identified  as  having  macroeconomic 
imbalances  (European  Commission,  2018l).  They 
related  in  particular  to  vulnerabilities  in  the 
financial  sector  coupled  with  high  indebtedness 
and  non-performing  loans  in  the  corporate  sector, 
labour  market 
in  a  context  of 
adjustment.  This  chapter  summarises  the  findings 
of 
the 
the  analyses  carried  out  as  part  of 
macroeconomic  imbalances  procedure  in-depth 
review that is contained in this report(15).  

incomplete 

3.1. 

IMBALANCES AND THEIR GRAVITY 

The  banking  sector  has  been  addressing  the 
shortcomings  identified  in  2016.  Following  the 
asset  quality  review  and  stress  tests  conducted  in 
2016,  banking  supervision  resources,  governance 
legislation  have  been 
tools  and  supervisory 
strengthened.  Banks'  capital  and  liquidity  buffers 
have  increased,  provisioning  policies  have  been 
enhanced  and  credit-granting  practices  have 
improved.  Pending  concerns  include  addressing 
valuation  issues,  completing  the  strengthening  of 
banking  supervision  and  enhancing  the  resolution 
framework. 

The  non-banking  financial  sector 
is  being 
reformed  but  new  challenges  have  emerged. 
Following reviews of the sector concluded in 2017, 
the solvency and liquidity of insurance companies 
have  improved.  The  reviews  have  been  followed 
by  legal  and  administrative  changes  strengthening 
the  supervisor  and  developing  a 
risk-based 
forward-looking supervision system. Some actions 
are still pending and new elements are of concern. 
The latter include the sustainability and liquidity of 
the  motor  vehicle  insurance  segment  and  trust  in 
and the stability of the Green Card system,  which 
supports compensation-payments in case of cross-
border  road  traffic  accidents.  Other  concerns  are 
the  systematic  appealing  of  the  decisions  by  the 
the 
Financial  Supervision  Commission  and 

(15)  Analyses relevant for the in-depth review can be found in 

section 4.2 on the financial sector.  

unpredictability  of  court  decisions.  Group-level 
supervision remains a challenge. 

The levels of non-performing loans and private 
sector  debt  have  been  decreasing  but  remain 
high.  Despite  the  reduction  of  non-performing 
portfolios  and  de-risking  of  balance  sheets,  non-
performing  loans  remain  well  above  the  EU 
average.  In  June  2018,  non-performing  loans  by 
non-financial  corporations  were  15.4 %,  well 
below  the  level  registered  a  year  earlier  (19.9 %) 
but  more  than  twice  the  EU  average  (6.7 %). 
Private sector debt has also decreased, from 132 % 
of GDP in 2013 to 100 % of GDP in 2017. This is 
mainly  due  to  non-financial  corporations,  as  the 
households’  debt  ratio  remains  among  the  lowest 
in  the  EU.  The  corporate  debt  burden  could  hurt 
investment and growth over the medium term. 

Strong  economic  growth  has  led  to  a  solid 
labour  market  recovery.  The  activity  rate 
continued to increase, helping to compensate for a 
shrinking  working  age  population.  As  a  result, 
employment  rates  are  above  pre-crisis  levels. 
Despite  improvements,  some  groups  are  still  not 
fully  integrated  into  the  labour  market,  including 
those with low education, the Roma, the young and 
people with disabilities. 

3.2. 

EVOLUTION, PROSPECTS AND POLICY 
RESPONSES 

The  overall  robustness  of  the  banking  sector 
has  further  improved,  with  some  important 
actions  ongoing.  Strong  economic  growth, 
alongside  the  banks’  response  to  the  regulator’s 
recommendations, has helped to strengthen capital 
and liquidity ratios. Some actions are still ongoing, 
including those to strengthen corporate governance 
and  risk  management.  New  initiatives  in  2018 
included  new  rules  for  large  exposures  and  the 
identification  of  connected  clients, 
improved 
provisioning policies in several banks, an increase 
in  the  counter-cyclical  capital  buffer  rate  and 
macroprudential 
borrower-based 
measures.  Revision  of  supervisory  review  and 
assessment  manual  of  Banking  Supervision 
Department has already been finalised and adopted 
by  decision  №  279  on  14  November  2018  by  the 
Governing  Council  of  Bulgarian  National  Bank. 

tools 

for 

20 

 
 
                                                           
3. Overall findings regarding imbalances, risks and adjustment issues 

the 

Completing 
insolvency  reform  would 
further  help  to  reduce  corporate  indebtedness. 
In  October  2018,  Bulgaria  asked  for  assistance  to 
continue  the  reform  of  the  insolvency  framework. 
Some  missing  elements  reduce  the  efficiency  and 
effectiveness of the framework. At the same time, 
the absence of adequate  monitoring tools  prevents 
a proper analysis of current and new procedures. 

Improvements  in  the  labour  market  have  been 
supported by active labour market policies and 
economic  growth.  Unemployment  decreased  for 
the  fifth  consecutive  year,  to  5.3  %  in  Q3-2018, 
while  long-term  and  youth  unemployment  have 
also dropped. The latter more than halved between 
2013  and  2017,  from  28.4  %  to  12.9  %.  The 
employment  rate  reached  71.3  %  in  2017,  the 
highest  since  EU  accession.  However,  Bulgaria 
continues  to  face  adverse  demographics.  Despite 
the  slow  take  up,  better  targeted  active  labour 
market  policies  are  starting  to  make  a  positive 
impact, alongside economic growth. 

3.3.  OVERALL ASSESSMENT 

Positive  macroeconomic  developments  and 
policy action resulted in a further unwinding of 
imbalances.  Important  steps  were  taken  towards 
reducing potential  macro-financial  risks  stemming 
from 
the  banking  and  non-banking  sectors. 
Together  with  strong  economic  growth,  they 
helped making the Bulgarian financial sector more 
robust.  Deleveraging  continued  in  the  private 
sector,  also  benefitting  from  the  strong  growth 
momentum, even if non-performing loans and debt 
levels 
remain 
for  non-financial  corporations 
relatively high.  

Remaining  fragilities  in  the  financial  sector 
combined  with  still  relatively  high  corporate 
debt  suggest  that  vulnerabilities  still  exist. 
Measures to address vulnerabilities in the financial 
sector  are  ongoing.  Full 
implementation  and 
monitoring of the recent reforms to the supervision 
and  governance  of  banks  and  other  financial 
corporations  will  be  crucial  to  complement  and 
insolvency 
consolidate 
recent 
framework  reform 
important 
elements  which  would  improve  the  efficiency  of 
procedures  and  proceedings.  New  risks  in  the 
motor  vehicle 
to  be 
addressed.  Overall,  imbalances  have  abated  but 

efforts.  The 
is  still  missing 

insurance  market  need 

Measures  to  be  completed  include  addressing 
regulatory 
valuation 
initiatives  and 
resolution 
framework for banks. 

implementing 
the 

strengthening 

issues, 

the 

reviews  of 

The  impact  of  on-going  reforms  to  non-bank 
supervision  rests  on  their  full  implementation. 
the 
to 
Follow-up  measures 
insurance  and  pension  funds  sectors  are  being 
implemented.  Remaining  steps  include  the  full 
implementation  of  an  action  plan  to  establish  a 
proper  risk-based  forward-looking  supervisory 
process  and  the  adequate  follow-up  to  remaining 
issues highlighted by the non-bank financial sector 
reviews.  While  the  authorities  have  introduced 
relevant  legal  and  regulatory  provisions,  their 
concrete implementation will be crucial.  

New  challenges  for  the  non-banking  financial 
sector  emerged  in  2018.  Supervision  of  the  car-
is  being  strengthened  and 
insurance  sector 
premiums  substantially  increased,  but  the  sector's 
sustainability 
requires  continued  monitoring. 
Furthermore,  risks  stemming  from  some  of  the 
undertakings'  business  models  and  strategies  may 
have  implications  beyond  the  motor  third-party 
liability.  Additionally,  challenges  have  recently 
emerged,  including  uncertainty  over  the  extent  of 
motor  third-party  liability  claims,  following  a 
ruling  by  the  Supreme  Court.  Another  emerging 
challenge  concerns  increased  doubts  over  the 
liquidity  of  the  ‘Green  Card  Bureau’,  which  have 
the 
been 
announcement  that  the  International  Council  of 
Bureaux  had  initiated  formal  monitoring.  The 
financial stability of the Green Card system would 
benefit if its liquidity and governance issues  were 
addressed promptly. 

in  December  2018  by 

triggered 

is 

to 

scope 

loans  mostly  reflect 

There 
further  reduce  non-
performing  loans  and  debt  levels  in  the  non-
financial  corporate  sector.  High  levels  of  debt 
and  non-performing 
the 
situation  of  non-financial  corporations.  Both  have 
been decreasing thanks to robust economic growth 
and  a  more  dynamic  secondary  market.  The 
authorities  have  announced  their  intention  to 
comply  with  the  European  Banking  Authority 
guidelines  for  non-performing  loans,  which  are  to 
be  applied  as  of  30  June  2019.  Improvements  to 
the legal framework for the valuation of collateral 
would  help  accelerate  the  reduction  of  non-
performing loans. 

21 

 
3. Overall findings regarding imbalances, risks and adjustment issues 

some fragilities in the financial sector and the still 
high corporate debt require further monitoring. 

Table 3.1: 

MIP assessment matrix 

(Continued on the next page) 

22 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) Financial sector The banking sector strengthened its capital and liquidity ratios, supported by strong economic growth. In June 2018, the overall capital ratio was 20.8 % and the loan-to-deposit ratio 72.7 %. Total assets were in September 2018 8.8 % up on one year earlier. The overall ratio of non-performing loans is still well above the EU average despite a further decline to 9.2% in June 2018. Non-performing loans by non-financial corporations dropped substantially but at 15.4% of total loans and advances remain very high. Credit continued to expand. It increased 7.5% for non-financial corporations and 8.8% for households, your-on-year, by September 2018. Shortcomings identified during asset quality reviews and stress tests in 2016 are being addressed, but important actions are still to be handled. Pending concerns include addressing valuation issues, completing the strengthening of banking supervision, enhancing the resolution framework and ensuring moderate non-performing loans ratios across the economic cycle. The pension funds and insurance sectors continue to present significant vulnerabilities, which increases the need for a strong risk-based forward-looking supervision. In particular, the motor third party liability line of business faces a number of challenges, including poor pricing policies, uncertainty around compensations and threats to the financial stability of the 'Green Card' system. Group-level and cross-border supervision and resolution remains a challenge. Additionally, the pension funds and insurance companies review completed in early-2017 highlighted the importance of identifying related parties and the difficulty of valuing investments in illiquid markets and instruments. Banking supervision has improved in terms of resources, governance and tools. The resolution framework is also being strengthened. The banking sector capital and liquidity buffers have increased, provisioning policies were enhanced, and credit-granting practices have improved. An increase in the counter-cyclical capital buffer rate and macroprudential tools for borrower-specific requirements can further contribute to a reduction of systemic credit risk.  After the 2016 AQR and stress tests, the central bank has addressed follow-up recommendations and asked two banks to boost their capital buffers, but concerns remain regarding risks from large and related-party exposures and the need to improve corporate governance and risk management in some banks.  In July 2018 Bulgaria applied for close cooperation with the ECB, as a part of the commitments made ahead of the intended application to join the ERM II. In this context, the European Central Bank will undertake a comprehensive assessment of six Bulgarian banks (comprising an asset quality review and a stress test). The Bulgarian National Bank is supporting this process. Non-banking supervision is being reformed. The impact of the changes will depend on full implementation of adopted measures, including the action plan to establish a proper risk-based forward-looking supervisory process and legal and regulatory provisions to improve supervisory practices over valuation methods for the insurance and pension funds sectors, related-parties transactions for the pension funds sector, and group-level supervision for the insurance sector. Balance sheet de-risking has improved. Banking supervision is being aligned with good international practices, benefiting from feedback from a Financial Sector Assessment Program review by the International Monetary Fund. This included legislation for supervising related-party exposures and the revision of the supervisory review and assessment manual. The plan to reform banking supervision needs to be finalised. The full impact of the measures (adopted or announced) will depend on their complete implementation. The recommendations of the 2017 insurance balance sheet review have been addressed. The legislation for the non-banking regulator has been amended and new internal rules have been adopted. The Social Insurance Code has been amended, including a broader definition of related parties. The Financial Supervision Commission adopted guidelines/methodical instructions for valuation of assets (non-liquid assets) and liabilities in the non-banking sector and is developing a risk-based system of supervision in accordance with the Solvency II Directive.   
 
 
 
 
 
3. Overall findings regarding imbalances, risks and adjustment issues 

Table (continued) 

Source: European Commission 

23 

 Corporate debt and deleveraging  The accumulation of private sector debt in the pre-crisis years resulted in significant deleveraging needs. Non-performing loans ratios have been decreasing but remain among the highest in the EU, in particular for non-financial corporations. This may constrain credit demand and supply, weighing on investment and limiting the growth potential of the economy. 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 in comparison to EU averages.  High private debt (100 % of GDP), mostly held by non-financial corporations (four fifths of the total), is decreasing but remains well above fundamentals. The share of non-performing loans by non-financial corporations is also well above the EU average (15,4 % end-June 2018, compared to 6.7 % in the EU, despite a gradual decrease (19.9 % one year earlier) due to robust nominal GDP growth and a more active secondary market. The latter remains, nonetheless, limited in size and scope.  Credit flows are increasing (in September 2018, loans to non-financial corporations grew by 7.5 % y-o-y), which could support higher private investment and stronger potential growth. Further policy steps are needed to improve the insolvency framework, including implementing newly adopted legislation and improving institutions and practices. A new pre-insolvency restructuring procedure in force since July 2017 had so far a weak take-up.  The authorities have announced their intention to comply with the European Banking Authority guidelines for non-performing loans, which are to be applied as of 30 June 2019.  The authorities have adopted amendments to the Law on Credit Institutions implementing a legislative framework for borrower-based macro-prudential measures. The authorities committed to identify shortcomings and obstacles in the insolvency framework and address weaknesses identified. Conclusions from IDR analysis  Positive macroeconomic developments and policy action towards reducing potential macro-financial risks stemming from the banking and non-banking sectors resulted in a further unwinding of imbalances. However, remaining fragilities in the financial sector combined with still relatively high corporate debt suggests that vulnerabilities still exist. New challenges emerged in 2018 require decisive action, namely to ensure the financial stability of the 'Green Card' system and to ensure that risks from some motor-vehicle insurance undertakings' business models are reduced.  The deleveraging process in the private sector continued, also benefitting from the strong growth momentum, but debt levels and non-performing loans for non-financial corporations remain relatively high. The insolvency framework reform is still missing important elements which would improve the efficiency of procedures and proceedings.    Overall, imbalances have abated but some fragilities in the financial sector and still high corporate debt require further monitoring.   
 
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

4.1.1.  TAX POLICY  

The tax system is relatively growth-friendly, but 
has  a  limited  redistributive  effect.  The  overall 
tax burden in Bulgaria (29.5 % of GDP in 2017) is 
one  of  the  lowest  in  the  EU.  The  tax  structure 
mainly  relies  on  consumption  taxes,  like  Value 
Added  Tax  and  excise  duties,  and  generates 
relatively  high  revenue  from  environmental  taxes 
(2.7 % of GDP). This characteristic tends to result 
in  a  relatively  growth-friendly 
tax  structure. 
However, the Bulgarian tax and benefit system has 
little  power  to  reduce  inequalities  and  to  promote 
policies to reduce poverty, which is the highest in 
the EU (see Section 4.3.). This is partly a result of 
inefficiencies  in  the  social  benefit  system  and  in 
the  design  of  labour  taxation,  which  is  the  least 
progressive  in  the  EU;  the  difference  between  the 
relative  tax  burdens  for  low-  and  high-income 
earners is the lowest in the EU (Graph 4.1.1). 

Graph 4.1.1:  Degree of progressivity of labour income 

taxation in EU Member States, 2017 

services.  The  personal  and  corporate  income  tax 
rates  are  both  flat  at  10 %  and  are  among  the 
lowest  in  the  EU.  Nevertheless,  Bulgaria  has 
consistently  ranked  low  on  paying  taxes  in  the 
World  Bank’s  ‘Doing  Business’  index,  especially 
on  compliance  requirements  for  labour  taxes  and 
social  security  contributions.  In  2018,  Bulgaria 
dropped from the 90th to 92nd place (World Bank, 
2018). 

restaurants, 

The  shadow  economy  remains  a  challenge. 
Estimates  indicate  it  is  bigger  than  in  many  other 
EU  countries  (European  Commission,  2018a). 
Undeclared  work  is  one  of  the  most  prominent 
signs  of  the  problem  in  many  industries,  such  as 
trade, 
tourism,  construction  and 
agriculture. It is estimated to account for about one 
fifth  of  labour  and  of  gross  value  added  in  the 
private  sector  (European  Commission,  2018n), 
while  the  number  of  people  declaring  that  they 
worked  without  a  contract  increased  from  55 900 
in  2016  to  62 700  in  2017  (NSI,  2018c).  Other 
widespread practices are bogus part-time work and 
under-reporting  of  wages.  Illicit  trade  is  another 
shadow  economy. 
significant 
According  to  a  recent  study  (CSD,  2018),  illicit 
trade  in  tobacco  products  and  VAT  fraud  have 
shrunk, but the black market in fuel has expanded 
to BGN 600-700 million (EUR 300-350 million).  

form  of 

the 

(1) The indicator is based on tax wedge data for a variety of 
family compositions. The tax wedge is defined as the sum of 
personal income taxes and employee and employer social 
security contributions net of family allowances, expressed as 
a percentage of total labour costs (the sum of the gross 
wage and social security contributions paid by the 
employer). 
Source: European Commission based on OECD data 

Despite  the  relatively  simple  tax  structure,  tax 
compliance costs remain high. Bulgaria applies a 
standard  Value  Added  Tax  rate  (20 %),  which  is 
close  to  the  EU  average,  and  one  reduced  rate 
(9 %) on a relatively limited range of products and  

A  number  of  measures  have  been  taken  to 
tackle  the  shadow  economy  and  improve  tax 
collection. To  combat  undeclared  work,  measures 
such  as  one-day  flexible  contracts  in  agriculture 
and  the  exclusion  from  public  procurement  of 
companies  convicted  for  undeclared  work  (in  the 
last  3  years)  were  taken.  The  General  Labour 
Inspectorate  has  agreed  with  the  trade  unions  a 
joint  initiative  against  undeclared  work,  while  the 
National  Revenue  Agency  applies  a  number  of 
measures  to  improve  compliance  in  high-risk 
sectors,  including  undeclared  work.  To  increase 
voluntary  compliance  the  Agency  has  launched 
information  campaigns  and  implemented  projects 
to  increase  electronic  services  to  taxpayers.  Other 
particularly  successful  measures  were  checks  of 
the  cash  declared  by  companies  and 
the 
introduction  of  tax  controls  on  the  movement  of 

24 

-100102030405060%Tax wedge 50% AWTax wedge 167% AWDifference 
 
 
 
4.1. Public finances and taxation 

initiative 

this  area  was 

manual for future reviews by the government. The 
government  has  not  yet  announced  follow-up 
measures or additional spending reviews.  Another 
the 
in 
government 
introduction of a new set of performance indicators 
per policy area in the medium-term fiscal strategy. 
The  main  innovation  is  that  the  ad  hoc  indicators 
used  until  now  were  updated  and  finalised.  They 
will  serve  as  a  basis  to  assess  the  impact  of 
spending  in  the  different  policy  areas  over  time 
and to inform the budget evaluation and planning. 

4.1.3.  FISCAL FRAMEWORK 

The  Bulgarian  Fiscal  Council  has  made  some 
progress in rolling out its activities. Based on its 
broad  mandate,  the  Council  has  established  a 
system  for  releasing  its  mandatory  monitoring 
reports  on  the  annual  and  medium-term  fiscal 
plans  as  well  as  on  budgetary  execution  and 
compliance with all the numerical rules laid down 
in  the  Public  Finance  Act.  With  the  recent 
strengthening  of 
analytical 
underpinning of its reports is expected to improve. 
Moreover, to bring the domestic fiscal  framework 
into 
the  budgetary 
frameworks  directive (17),  the  Fiscal  Council's 
mandate  was  extended  to  encompass  the  regular 
and  comprehensive  ex  post  evaluations  of  the 
government’s macroeconomic and fiscal forecast. 

compliance  with 

staff, 

full 

the 

its 

4.1.4.  STATE-OWNED ENTERPRISES 

the  control  of 

State-owned  enterprises  form  an  important 
part  of  the  economy.  In  Bulgaria  there  are  more 
than  900  State-owned  enterprises  of  all  sizes  at 
national  and  local  level.  Of  these,  about  220 
companies,  under 
the  central 
government, represent more than 90 % of the asset 
value  and  more  than  70 %  of  total  employment. 
According  to  Ministry  of  Finance  data  for  2017, 
these  220  State-owned  enterprises  contribute  5 % 
of 
turnover 
corresponds to about 13.5 % of GDP. The presence 
of  State-owned  enterprises  is  more  prominent  in 
the energy, transport, water and mining sectors. 

employment 

their 

total 

and 

(17)  Council  Directive  2011/85/EU  of  8  November  2011  on 
requirements  for  budgetary  frameworks  of  the  Member 
States. 

tax 

tackling 

high-risk goods. Many of the above measures were 
included  in  the  ‘Single  National  Strategy  for 
improving 
shadow 
collection, 
economy  and  reducing  compliance  costs’.  The 
strategy  and  its  latest  action  plan  were  in  effect 
until  the  end  of  2018.  The  authorities  intend  to 
the  most  effective  measures  and 
maintain 
inter-institutional  cooperation 
mechanisms  of 
introduced with the strategy.  

The  measures  to  improve  tax  compliance  have 
yielded some positive results. This is particularly 
the  case  for  consumption  taxes  such  as  VAT  and 
excise  duties,  and  for  corporate  income  tax.  VAT 
revenue  collection  increased  as  of  2015,  and 
especially  in  2016  and  2017  they  rose  to  above 
their  tax  base.  The  Value  Added  Tax  gap (16) 
decreased  from  20.6%  in  2015  to  13.6%  in  2016 
remaining, however, slightly above the EU average 
of  12.3%  (CASE,  2018).  Revenues  from  other 
taxes,  especially  excise  duties, 
consumption 
developed  in  a  similar  way.  On  income  taxes,  the 
progress is mixed. Collection of corporate income 
tax  has  been  improving  almost  every  year  since 
2012. However, for labour taxes the results are less 
positive  as 
the 
they 
compensation  of  employees, 
indicating  some 
deterioration  in  compliance.  This  is  yet  another 
sign of the challenges related to undeclared work.  

increased  slower 

than 

4.1.2.  PUBLIC EXPENDITURE 

improve 

The government has taken steps to improve the 
effectiveness of public expenditure. Even though 
their needs are still high, expenditure in areas such 
as  social  protection,  health  and  education  is 
relatively  low.  At  the  same  time,  effectiveness 
could 
in  areas  with  relatively  high 
spending  such  as  infrastructure  (see  European 
Commission,  2018a).  In  2018,  some  policy 
initiatives  to  improve  efficiency  were  completed. 
A spending review by the World Bank covering a 
number  of  public 
institutions  (ministries  and 
municipalities)  was  one  of  them.  The  Bank 
two  pilot  studies,  on  policing  and 
finished 
firefighting  and  waste  water  and  delivered  a 

(16)  The  VAT  gap  is  a  difference  between  the  estimated  VAT 
revenues  (VAT  Total  Tax  Liability)  and  the  amount  of 
VAT  actually  collected.  It  estimates  revenue  loss  due  to 
fraud  and  evasion,  tax  avoidance,  bankruptcies,  financial 
insolvencies and miscalculations. 

25 

 
                                                           
 
                                                           
4.1. Public finances and taxation 

restructuring  plan  to  improve  the  operational 
performance in any of the sector's four companies 
(BDZ  freight  transport,  BDZ  passenger  transport, 
BDZ holding and National Railways Infrastructure 
Company).  BDZ  Holding  seems  to  count  on  a 
subsidy  from  the  proceeds  of  Sofia’s  airport 
concession, which has not been contracted yet(19). 

The  financial  situation  of  the  energy  State-
owned  enterprises  has  somewhat  improved  but 
investment  in  the  sector  remains  a  challenge. 
The  Bulgarian  Energy  Holding,  NPP  Kozloduy 
and the Mines in the Maritsa Basin (Mini Maritsa 
Iztok)  have  significantly  improved  their  financial 
results  (from  Q3-2017  to  Q3-2018),  but  the 
financial situation of National Electrical Company 
and especially Thermal Power Plant Maritsa East 2 
has  deteriorated.  Both  companies  registered  net 
losses  over 
to 
increased operational costs fuelled by rising prices 
of  emission  allowances.  Low  profitability  and 
resource efficiency combined with weak corporate 
governance  are  hurting  investment,  which  in  turn 
might  hamper  the  stability  and  reliability  of  the 
system.  Investment  in  energy  decreased  from 
4.1 % of GDP in 2012 to 0.7 % in 2017. 

last  year,  mainly 

linked 

the 

and 

restructuring 

A  reform  of 
the  corporate  governance 
framework  is  being  prepared.  The  economic 
results of Bulgarian State-owned enterprises partly 
reflect  challenges  related  to  their  management, 
supervision 
(European 
Commission,  2018a).  The  government  has 
recognised  these  challenges  and  has  taken  the 
initiative  to  (i)  review  and  assess  the  legal, 
regulatory  and  operational  framework  for  State-
owned  enterprises  and  (ii)  revise  and  align 
Bulgaria's  legislation  with  the  Organisation  for 
Economic Co-operation and Development (OECD) 
guidelines  on  corporate  governance  of  State-
owned  enterprises.  The  initiative  is  part  of  the 
government's action plan to prepare for applying to 
participate  in  the  Exchange  Rate  Mechanism.  A 
technical  assistance  project  with  the  European 
Commission  and  the  OECD  was  launched  in 
August 2018. The adoption of the new framework 
is expected by July 2019. 

(19)  Holding BDZ - Main volume and economic indicators  for 

Q2 2018, http://www.minfin.bg/bg/1281 

enterprises' 

profitability 

State-owned 
is 
relatively  weak  in  all  sectors  of  the  economy. 
Their return on equity is systematically lower than 
in private companies and the difference in Bulgaria 
is higher than in most regional peers. This applies 
to all sectors except mining (see Bower, 2017). In 
sectors 
transport,  water  and  other 
energy, 
sector 
private 
(including 
outperforms the State-owned enterprises by a wide 
margin. Part of this difference could be  explained 
by the  objectives of  those enterprises  and the role 
they  often  play 
including 
providing non-commercial goods and services.  

the  economy, 

agriculture), 

the 

in 

Graph 4.1.2:  Size of liabilities of State-owned enterprises by 

policy area (ministry) 

Source: European Commission based on Bulgarian Ministry 
of Finance data 

(EUR 9  billion) 

The  economic  situation  of  some  State-owned 
enterprises can entail fiscal risks in the absence 
of restructuring plans. Fiscal risks are elevated in 
systematically loss-making companies and in those 
which  are  prohibited  by  law  from  becoming 
insolvent  —  meaning  that  the  state  must  always 
bail  them  out  if  they  fail.  About  half  of  the  BGN 
18  billion 
in  State-owned 
enterprises'  liabilities  come  from  companies  that 
made losses in more than 3 of the last 5 years. For 
example,  the  loss-making  railway  sector,  with 
liabilities  of  more  than  BGN 3  billion  (3 %  of 
GDP)  in  2017  and  2018,  received  BGN 197 
million  of  reimbursable  financial  contribution  to 
BDZ  Holding  for  repayment  of  debts.  In  2017,  a 
state  aid  of  BGN  223.4  million  in  the  form  of  a 
cancellation  of  debts  in  favour  of  BDZ  Holding 
was  authorised(18).  So  far  there  is  no  clear 

(18) Decision of the European Commission of 16.06.2017 on the 

state aid SA.31250 – 2011/C (ex 2011/N). 

26 

051015201314151617Jun-18Bn BGNsEnergyTransport and ITCEconomyHealthRegional developmentFinanceAgriculture, food, forestryYouth and sportsDefenceEducation and scienceOther 
 
                                                           
                                                           
4.2.  FINANCIAL SECTOR 

Bulgaria has started preparing for membership 
of the Exchange Rate Mechanism (ERM II). In 
July  2018,  Bulgaria  announced  its  intention  to 
apply  for  ERM  II  membership  and  the  Banking 
Union  in  July  2019.  At  the  same  time,  Bulgaria 
announced  a  set  of  commitments  to  improve  the 
economy’s resilience in areas of high relevance for 
a smooth transition to participation in ERM II. The 
commitments cover both the banking sector (close 
Supervisory 
cooperation  with 
Single 
the 
the  macro-
Mechanism  and  development  of 
prudential 
the  non-banking 
financial  sector.  They  also  include  measures  to 
strengthen  institutional  quality  and  governance, 
namely 
insolvency  framework,  combating 
money  laundering,  and  governance  of  the  State 
Owned Enterprises (Ministry of Finance, 2018a).  

framework)  and 

the 

4.2.1.  Banking sector 

review  conducted  by 

Most  recommendations  from  the  2016  asset 
quality  review  have  been  addressed,  but  a  few 
important points remain to be tackled. The asset 
the  Bulgarian 
quality 
National  Bank  in  2016  (European  Commission 
2017a, 2018a) has led to several follow-up actions. 
These  include  a  strengthening  of  capital  buffers, 
provisioning policies, credit-granting practices and 
corporate  governance; 
the  reduction  of  non-
performing  portfolios;  and  de-risking  of  balance 
sheets,  e.g.  by  selling-off  repossessed  collateral. 
As  regards  actions  outstanding,  one  of  the  two 
banks  found  in  need  of  replenishing  its  capital 
buffers  has  finally  achieved  the  required  levels 
organically, but has  not  yet raised fresh capital as 
initially recommended with an agreed deadline by 
April  2017.  Attracting  new  bona  fide  investors 
could  further  strengthen  credibility  and  improve 
governance (see also IMF, 2017). Following up on 
legislative  initiatives  on  related-party  exposures 
and  sustained  supervisory  efforts  to  limit  loans  to 
related  parties  and  penalise 
infringements  of 
collateral  provisions  are  also  crucial  to  support 
sound business practices. 

Bank  supervision  has  been  strengthening 
despite  some  delays  in  making  the  changes 
operational.  Institutional  decision-making  has 
the 
been  strengthened  by  an  amendment  of 
transferring 
Bulgarian  National  Bank  Law 
competences 
payment 
over 
supervision  from  the  Deputy  Governors  in  charge 

banking 

and 

actions 

the  Bulgarian  National  Bank  Governing 
to 
Council.  Furthermore,  delayed 
for 
improving banking supervision from the 2015 plan 
are being completed. In addition, new information 
and communications technology tools are available 
to  the  banking  supervision  department.  They 
include  an  upgraded  data  warehouse  for  banking 
risk 
supervision,  automated  update  of  key 
indicators  and  regularly  updated  data  point  model 
to verify the  quality of data  reported by banks. In 
November  2018  the  Bulgarian  National  Bank 
adopted  a 
review  and 
assessment manual. 

supervisory 

revised 

Several  other  important  regulatory  initiatives 
are being implemented. Amendments to the Law 
on  Credit  Institutions  adopted  in  December  2017 
strengthened  the  definition  of  bank  related-party 
exposures (Article 45). A decision of the Bulgarian 
National  Bank  adopted  in  April  2018  implements 
the  European  Banking  Authority  guidelines  on 
large  exposures  and  identification  of  connected 
clients  as  of  the  beginning  of  2019  and 
it 
introduced  a  reporting  template  for  related-party 
lending.  The  adoption  of  Ordinance  37  of  the 
Bulgarian National Bank in July 2018 defined the 
scope of banks’ internal rules and procedures, rules 
for 
reporting 
exposures 
the  supervisor.  Banks  were 
requirements 
requested  to  implement  their  internal  rules  and 
procedures  within a six-month period; therefore it 
is too early for an  assessment of the effectiveness 
of these measures. 

calculating 
to 

and 

The  new  International  Financial  Reporting 
Standard  (IFRS  9)  is  improving  provisioning 
policies.  IFRS  9  was  phased  in  by  around  half  of 
Bulgaria's banks as of the beginning of 2018. The 
supervisor expects this to result in increased loan-
loss  provisions  in  some  banks,  something  which 
could  be  verified  once  the  remaining  banks  have 
phased in IFRS 9 (European Commission, 2018b). 
At the same time, the implementation of IFRS 9 is 
coinciding  with  a  cyclical  upturn.  This  poses  a 
challenge  for  banks  to  correctly  estimate  risk 
economic 
during 
developments,  namely  from  the  reduced  capacity 
of borrowers to service their debt. 

unfavourable 

future 

Issues  with  the  valuation  of  collateral  limit  the 
incentive to dispose of non-performing loans. A 
range  of  hard-to-value  assets  still  exist,  notably 
related  to  immovable  property.  Examples  include 

27 

 
 
4.2. Financial sector 

Terrorism,  or  Moneyval(21)  (Moneyval,  2013). 
Bulgaria  has  since  made  substantial  progress  to 
address  the  identified  deficiencies.  ,  In  December 
that  deficiencies 
2017,  Moneyval  concluded 
remained,  despite  the  positive  steps  taken,  in 
particular  regarding  some  aspects  of  criminalising 
terrorist  financing,  as  well  as  confiscation  and 
provisional  measures  (Moneyval,  2017).  In  July 
2018,  however,  Bulgaria  was  removed  from  the 
follow-up  process  of  Moneyval,  having  passed 
legislation  to  further  address  the  deficiencies 
previously identified (Moneyval, 2018).  

the  4th  Anti-money 
The 
transposition  of 
to  be 
still  needs 
Laundering  Directive 
completed.  Bulgaria 
transposition 
notified 
measures for Directive EU/2015/849 in April 2018 
(the  4th  Anti-money 
and  December  2018 
Laundering  Directive),  and  is  working  towards  a 
fully conform transposition. Additionally, an inter-
institutional  working  group  is  assessing  residual 
gaps  and  preparing 
the  early  adoption  of 
transposition  measures  for  the  5th  Anti-money 
Laundering  Directive.  However,  Bulgaria  has  still 
its  National  Risk 
not  finalised  and  notified 
Assessment,  which  is  a  cornerstone  to  devising 
adequate  national  policies 
to  combat  money 
laundering  and  terrorist  financing.  The  risk  of 
corruption  needs  to  be  better  addressed  as  it  is  a 
predicate  offence  to  money  laundering(22).  In 
particular, authorities need to show a stable record 
of  effectively  investigating  and  prosecuting  high-
involving 
level  corruption  cases, 
politicians.  

including 

in 

in 

the  banking  sector, 
real  estate  collateral 
receivables  and  real  estate  holdings 
the 
insurance  sector,  as  well  as  stocks,  bonds,  real 
estate  and  other  financial  instruments  in  the 
pension  funds  sector.  In  addition,  the  uneven 
quality of auditing affects the valuation of illiquid 
instruments  traded on stock exchanges,  as  well as 
non-traded  assets,  including  receivables,  minority 
equity stakes and subsidiaries.  

to 

the 

strict 

financial 

adherence 

New  macro-prudential  tools  would  further 
support 
stability.  The  Bulgarian 
National Bank set the level of the counter-cyclical 
capital buffer rate at 0.5 % as of October 2019. It 
will also be applied in Q1-2020. This level is more 
prudent  than  implied  by  economic  developments 
applicable 
under 
methodology(20)  and  constitutes  an 
important 
signal  to  the  market.  In  addition,  the  authorities 
have  adopted  amendments  to  the  Law  on  Credit 
Institutions  implementing  a  legislative  framework 
for  borrower-based  macro-prudential  measures. 
The  Bulgarian National Bank may activate part or 
all  of 
thereby 
responding  in  a  flexible  and  proportionate  way  to 
potential  risks  to  financial  stability.  An  impact 
assessment  will  permit  to  verify  the  effect  and 
appropriateness  of  the  new  tools  before  their 
activation.  These  tools  would  complement  the 
existing  capital-based  measures  in  limiting  the 
accumulation of risks in the banking sector.  

these  macro-prudential 

tools, 

4.2.2.  COMBATING MONEY LAUNDERING 

Bulgaria has been addressing deficiencies of its 
anti-money  laundering  framework.  In  2013, 
Bulgaria  was  placed  in  regular  follow-up  in  the 
context  of  the  4th  round  evaluation  process  of  the 
Committee  of  Experts  on  the  Evaluation  of  Anti-
Money Laundering Measures and the Financing of 

Potential financial crimes are not appropriately 
investigated(23).  Two  thirds  of  the  suspicious 
transaction reports sent by  financial  institutions to 
the  Financial 
involve 
domestic  politically  exposed  persons  but  those 
cases  have not been given the appropriate  follow-

Intelligence  Unit(24) 

(20)  The primary objective of the counter-cyclical capital buffer 
is  to  protect  the  banking  sector  from  periods  of  excess 
aggregate credit growth, which have often been associated 
with  the  build-up  of  system-wide  risk.  In  line  with 
Ordinance 8 of the Bulgarian National Bank, the setting of 
the  counter-cyclical  capital  buffer  rate  will  take  into 
account  the  deviation  of  the  credit-to-GDP  ratio  from  the 
long-term  trend  as  a  reference  indicator.  According  to  the 
Bulgarian  National  Bank,  the  value  of  the  reference 
indicator  at  the  end  of  Q2-2018  was  negative  (-42.7 pp.), 
which would have corresponded to maintaining the capital 
buffer at zero. 

international  standards 

(21)  Permanent  monitoring  body  of  the  Council  of  Europe 
in 

assessing  compliance  with 
countering money laundering and financing of terrorism.  
(22)  The  European  Commission  supported  the  authorities  in 
analysing  the  structural  and  functional  model  of  the 
Bulgaria’s Prosecutors Office. The Executive Summary of 
the 
is 
http://www.mjs.bg/Files/Executive%20Summary%20Final
%20Report%20BG%2015122016.pdf 

available 

study 

(23)  See previous footnote for details 
(24)  A central, national unit that is responsible for receiving and 
analysing  information  from  private  entities  on  financial 
transactions  which  are  considered  to  be  linked  to  money 
laundering and terrorist financing. 

at:   

28 

 
                                                           
                                                           
4.2. Financial sector 

related  parties 

Legislative  changes  aimed  at  improving  non-
bank  financial  supervision  have  been  adopted. 
Firstly,  in  the  area  of  pension  funds,  amendments 
to the Social Insurance Code, which were adopted 
by Parliament in November 2017 and entered into 
include  a  broader 
force  in  November  2018, 
line  with 
in 
definition  of 
legislative 
standards.  Secondly, 
international 
amendments  introduced  in  2017  strengthened  the 
Financial Supervision Commission by providing it 
with sufficient funding and staff and expanding its 
supervisory  capacity 
(European  Commission, 
risk-based  supervisory 
2018a).  The  adopted 
framework, once tested and assessed to be fit, will 
support the improved supervisory capacity. 

(see 

Insurance 

The  non-bank  supervisor  faces  new  challenges 
in 2018. The head of insurance supervision in the 
Financial  Supervision  Commission  resigned  in 
August  2018,  in  the  aftermath  of  the  failure  of 
below).  Despite 
Olympic 
announced  plans  to  designate  a  successor,  no 
formal  steps  have  been 
taken  so  far.  The 
announced  change  in  the  Financial  Supervision 
Commission  chair  in  March  2019  could  generate 
further uncertainty. It is important in both cases to 
ensure  the  timely  appointment  of  professionals 
who duly fulfil fit-and-proper requirements. 

Concerns  over 
legal  proceedings  are  still 
present.  The  frequent  appeals  by  non-banking 
financial  companies  against  the  decisions  of  the 
remain  a 
Financial  Supervision  Commission 
challenge.  The  undertakings  regularly  succeed  in 
having  the  regulator’s  decisions  overturned.  The 
unpredictability  of  the  courts’  decisions  may 
suggest  the  need  to  expand  technical  expertise 
among judges and other judicial practitioners. 

Insurance and pension funds 

to 

of 

all 

the 

Financial 
recommendations 

Insurance  companies’  solvency  has  improved 
since  the  completion  of  the  sector’s  reviews. 
Supervision 
According 
Commission, 
the 
independent  balance  sheet  reviews  of  insurance 
companies  and  pension 
fully 
implemented  by  April  2017.  At  the  end  of  2017, 
all  but  one  insurer  satisfied  solvency  capital 
requirements  without  the  application  of  long-term 
guarantee  and  transitional  measures.  However, 
some insurers’ solvency ratios are close to 100 %, 
which  could  indicate  potential  weaknesses  that 

funds  were 

up  by  law  enforcement.  No  significant  progress 
has  been  made  so  far  in  examining  obstacles  that 
prevent the investigation of such cases and turning 
them  into  evidence  for  prosecution.  The  use  of 
financial  investigation  and  financial  profiling  is 
limited, which prevents effective asset recovery in 
organised crime and corruption cases.  

There  are  risks  linked  to  the  Citizenship  by 
investment scheme. The  scheme does not require 
that  an  individual  needs  to  spend  a  significant 
amount  of  time  in  Bulgaria  to  obtain  Bulgarian 
citizenship.  As  such,  the  new  citizen  may  not 
become a tax resident and his income would not be 
taxable  in  Bulgaria.  This  creates  potential  for 
misuse,  as  personal 
identification  documents 
issued by Bulgaria can be used to hide assets held 
abroad  from  reporting.  On  30  January  2019  the 
Council 
draft 
amendments to the Bulgarian Citizenship Act that 
aims  at  repealing  the  Citizenship  by  investment 
scheme  as  well  as  shortening  the  deadlines  and 
clarifying 
the  criteria  for  granting  Bulgarian 
citizenship.  The  applicants  for  citizenship  due  to 
origin  shall  be  required  to  have  knowledge  of 
Bulgarian as well as occupation and income in the 
country. 

for  Development 

debated 

4.2.3.  NON-BANKING 

Supervision 

Non-bank  supervision  is  being  reformed.  The 
Financial  Supervision  Commission  adopted  an 
action  plan  for  reforming  non-bank  financial 
supervision  in  September  2017,  in  cooperation 
with  the  European  Insurance  and  Occupational 
Pensions  Authority.  The  action  plan  draws  upon 
the  shortcomings  identified  during  independent 
pension funds’ assets review and insurance balance 
sheet  review  as  well  as  the  findings  of  the 
Financial  Sector  Assessment  performed  by  the 
World Bank, all published in 2017(25). The full and 
timely implementation of the  action plan, still on-
going,  will  contribute  to  an  adequate  supervision 
of the non-banking financial sector. 

(25)  The Financial Sector Assessment was conducted jointly by 
the  International  Monetary  Fund  (banking)  and the  World 
Bank (non-banking). 

29 

 
                                                           
4.2. Financial sector 

should  be  closely  monitored.  In  2017, 
the 
Financial  Supervision  Commission  withdrew  the 
licences  of  two  insurers  for  a  number  of  reasons, 
including  their  failure  to  comply  with  capital 
requirements.  Both  companies  have  appealed  this 
sanction.  The  decision  is  still  pending  before  the 
administrative higher court. 

Bulgarian  motor 
liability  market. 
third-party 
However, the exchange of supervisory information 
between  the  two  national  supervisors  did  not 
appear  optimal.  Further,  it  is  unclear  which 
guarantee  fund,  if  any,  will  cover  Olympic’s 
liabilities in Bulgaria. 

to 

the 

Some issues related to valuation require further 
monitoring.  According 
Financial 
Supervision  Commission,  auditors  have  not 
identified  any  particular  problem  with  the  clean-
cut reinsurance contracts. However, concerns over 
their supervisory treatment remain to be addressed 
(26).  The  issue  of  hard-to-value  assets,  including 
non-traded  assets  and  traded  securities  with  low 
liquidity and low  free float, has been identified in 
the  reviews  of  both  the  banking  and  non-bank 
financial  sectors  but  has  not  yet  been  fully 
addressed.  Amendments  to  secondary  legislation 
are in place, aiming to improve the valuation rules 
and  their  application.  For  this  application  to  be 
fully  effective,  however,  they  would  also  benefit 
from  changes  to  the  rules  governing  the  work  of 
valuation practitioners. 

is  no 

longer  applicable  due 

Group-level supervision remains a challenge for 
adequate risk-based insurance supervision. The 
group-level  assessment  of  two  insurance  groups 
In  one  case  group 
was  never  completed. 
supervision 
to 
restructuring.  In  the  other  case,  the  Supreme 
Administrative  Court  revoked  the  decision  of  the 
authority to identify it as a group. The authorities’ 
approach  following  the  court’s  decision  will  have 
to  consider  the  requirements  under  the  transposed 
Solvency  II  Directive  stipulating  that  group-level 
supervision  is  to  be  applied  at  the  ultimate  parent 
level. 

The failure of Olympic Insurance illustrates the 
difficulties  with  cross-border  supervisory  and 
resolution  arrangements.  Bulgaria’s  branch  of 
Olympic,  a  non-life  insurer  based  in  Cyprus, 
the 
represented  a 

large  share  of 

relatively 

(26)  The  valuation  of  the  coverage  provided  to  insurers  by 
clean-cut reinsurance contracts had been overestimated for 
certain  insurers,  as  the  supervisor  has  allowed  a  less 
conservative  approach  than  the  one  clarified  by  the 
European  Insurance  and  Occupational  Pensions  Authority 
in the Questions & Answers. The supervisor is expected to 
adequately  implement  the  more  conservative  approach, 
based on the insurers’ reporting in 2018. 

Motor vehicles insurance  

proper 

Supervision of the car insurance sector is being 
strengthened.  In  November  2017,  the  authorities 
started  to  automatically  match  information  from 
car  registration  databases  with  motor  third-party 
liability  contracts  in  order  to  combat  fraud.  The 
Financial  Supervision  Commission  has  also  taken 
further  measures  to  ensure  that  victims  of  car 
receive 
compensation, 
accidents 
particularly 
insurance 
in  cases  of  cancelled 
contracts,  and  that  all  Bulgarian  insurers  have  a 
network  of  claims  representatives  in  all  EU 
Member States, as required by the Motor Insurance 
Directive. As expected under the 2017 action plan, 
the  Financial  Supervision  Commission  has 
published a report on the level of motor third-party 
significant 
liability  premiums.  Nevertheless, 
challenges  regarding  the  business  model  and 
business  strategy  of  market  participants  remain  a 
concern,  with  potential  spillovers  beyond  the 
sector itself. 

line  of  business 

Motor  third-party 
liability  premiums  have 
increased significantly, but the sustainability of 
is  not  yet  ensured. 
this 
Following a period of low premiums and in some 
cases  negative  margins, 
insurers  have  been 
increasing  their  premiums  since  the  beginning  of 
2018(27). However, a recent ruling by the Supreme 
Court  has  extended  the  scope  of  beneficiaries  of 
motor third-party liability claims to include family 
members  and  relatives.  They  will  be  entitled  to 
claim  moral (non-material) damages in court.  The 
ruling  concerns  both  future  claims  and  those 
incurred over the last 5 years. The possible impact 
on the insurance sector is still unknown but could 
be  significant,  although  the  Financial  Supervision 
Commission  believes  that  the  recently  increased 
premium  levels  may  be  enough  to  absorb  the 
losses.  To  mitigate  the  risks,  on  22 November 
an 
2018 

the  National  Assembly 

adopted 

(27)  The average motor third-party liability premium was €98 in 
2013,  €101  in  2017,  €119  in  May  2018  and  €170  in 
October 2018. 

30 

 
                                                           
                                                           
4.2. Financial sector 

4.2.4.  PRIVATE INDEBTEDNESS  

linked 

The debt of non-financial corporations has been 
rapidly  decreasing.  In  2017,  private  sector  debt 
fell  to  100 %  of  GDP,  from  a  peak  of  134 %  of 
GDP  in  2009.  At  end-2017  four  fifths  of  the  debt 
was 
to  non-financial  corporations  as 
households  have  much  lower  debt  levels  than  the 
EU  average.  At  80 %  of  GDP  in  2017,  non-
financial  corporations  debt  levels  are  still  well 
above  fundamentals,  but  increasingly  below  the 
prudential benchmark (Graph 4.2.1)(28).  

Graph 4.2.1:  Fundamental-based and prudential 

benchmarks and NFC debt 

Decomposition of the gap between changes of nominal 
household debt stocks and benchmarks for changes (in 
percent of GDP). Methodology to compute the 
fundamentals-based and the prudential benchmarks based 
on Bricongne et al. (2017). 
Source: European Commission 

Robust economic growth has been the main driver 
of  debt  reduction,  together  with  a  modest  pick-up 
in  inflation,  valuation  changes  and  write-offs  (see 
Graph  4.2.2).  However,  the  pace  of  deleveraging 
has slowed down recently.  

(28)  For  an  explanation  of  the  benchmarks,  see  European 

Commission, 2017d. 

to 

the  Insurance  Code 

amendment 
imposing 
ceilings  on  the  amount  of  compensation  to  be 
awarded  to  those  entitled  to  it  under  the  recent 
Supreme Court ruling. 

is 

pricing,  which 

A methodology for claims and improved pricing 
methods would contribute to the stability of the 
sector.  Well-specified  rules  on  compensation 
would  facilitate  a  more  harmonised  approach  by 
judges  when  deciding  on  individual  cases.  In  the 
longer  term,  such  a  methodology  would  help  to 
reduce costs, volatility and underwriting risk in the 
motor  third-party  liability  line  of  business.  The 
sustainability of the sector would also benefit from 
still 
improved 
largely 
rudimentary.  In  contrast 
to  most  developed 
markets in other Member States, motor third-party 
liability  pricing  in  Bulgaria  does  not  take  into 
account  the  clients'  driving  history,  the  best 
predictor  of 
future  claims.  The  Financial 
Supervision  Commission  has  proposed  a  bonus-
malus  system,  which  is  undergoing  broad  public 
debate.  If  well  designed, 
the  system  could 
significantly  improve  the  pricing  of  motor  third-
party liability policies and positively influence the 
driving  behaviour  of  policyholders.  Its  prompt 
implementation  would 
the 
stabilisation of this line of business. 

contribute 

to 

into 

The  liquidity  of  the  ‘Green  Card  Bureau’  has 
raised  substantial  concerns.  In  early  2018,  the 
International Council of Bureaux initiated informal 
monitoring  of  its  Bulgarian  member,  the  National 
Bureau  of  Bulgarian  Motor  Insurers  (or  ‘Green 
Card  Bureau’),  due  to  the  non-payment  of  claims 
by  two  Bulgarian  insurers.  This  resulted  in  a 
higher  guarantee  required  by  the  International 
increased 
translates 
Council,  which 
contributions  by  the  whole  Bulgarian  sector.  The 
situation  worsened  in  December  2018  when  the 
International  Council  initiated  formal  monitoring 
and  required  a  sector-wide  reinsurance  contract, 
together  with  monthly  reporting 
in  order  to 
safeguard the Bulgarian bureau’s membership. The 
market  impact  of  those  additional  requirements  is 
yet to be fully assessed but could prove substantial. 
The 
the  Green  Card  Bureau  is 
benefiting  from  ongoing  on-site  inspections  and 
specific  provisions  of  the  new  Insurance  Code. 
These  measures  should  be  promptly  and  fully 
implemented,  while 
remaining 
governance issues should also be tackled to ensure 
the trust and participation of member insurers. 

the  potential 

liquidity  of 

31 

0204060801001201409596979899000102030405060708091011121314151617% of GDPNFC debt, consolidated, unadjustedFundamentals-based benchmark for consolidated unadjusted NFC debtPrudential benchmark for consolidated NFC debt 
 
                                                           
4.2. Financial sector 

7.5 %  year-on-year.  Given  the  strong  capital  and 
liquidity positions of the banking sector, declining 
non-performing  loans  and  strong  deposit  growth, 
this is set to continue. Accordingly, the decrease in 
private  sector  debt  is  set  to  decelerate,  but 
increased  lending  activity  could  in  turn  support 
higher  investment  expenditure,  which  is  yet  to 
recover  from  its  post-crisis  slump,  as  well  as 
stronger potential growth. 

4.2.5.  INSOLVENCY FRAMEWORK 

Insolvency proceedings are slow and costly and 
produce  unsatisfactory  results.  The  length  (3.3 
years compared to the EU average of 2) and cost of 
insolvency proceedings mean they usually result in 
very  low  recovery  rates  for  creditors  (35 %  v  the 
65 % EU average (World Bank, 2017c). They also 
create  a  very  heavy  workload  for  the  28  district 
courts  that  hear  insolvency  cases.  Between  2010 
and 2017, on average 1 200 insolvency cases were 
lodged  with  the  district  courts  annually  (Institute 
for  Market  Economics,  2018).  At  the  same  time, 
about  900  cases  per  year  remained  unresolved.  In 
the  same  period,  49 %  of  insolvency  cases  were 
settled  within  3  months  while  51 %  of  cases  took 
longer.  There  were  also  large  regional  differences 
in terms of courts’ workloads. For 2010-2017, the 
District  Court  in  Vratsa  had  an  annual  average  of 
88  bankruptcy  decisions  per  10 000  companies, 
which  is  almost  three  times  the  national  average 
and well above the District Court in Montana that 
came in second. Measures designed to improve the 
efficiency  and  effectiveness  of  the  insolvency 
framework, 
in  combination  with  appropriate 
flanking  policies,  could  help  to  reduce  the  high 
outstanding  private  sector  debt  and  the  still  high 
share of non-performing loans (see section 4.2.3). 

The 

from 

further 

pre-insolvency 

Reform  of  the  insolvency  framework  is  still 
incomplete,  with  important  legislative  elements 
lacking. 
restructuring 
procedure entered into force on 1 July 2017, but its 
take-up has been weak. The new framework could 
less 
benefit 
complexity,  also  by  encouraging  out-of-court 
settlements, 
and 
court 
administration and lower voting thresholds for the 
adoption  of  restructuring  plans.  Functioning  rules 
for  granting  a  second  chance  to  consumers  and 
entrepreneurs in a reasonable timeframe following 
a  bankruptcy  are  still  missing.  In  2018,  Bulgaria 

streamlining  and 

involvement 

less 

Graph 4.2.2:  Breakdown of y-o-y changes in debt-to-GDP 

ratios of NFCs (1) 

(1) Quarterly non-consolidated data 
Source: European Commission 

Tools  to  address  the  still  high  levels  of  non-
performing  loans  have  not  yet  been  developed. 
Increased  lending  activity  and  a  more  dynamic 
secondary market contributed to the decline in the 
share  of  non-performing  loans,  but  levels  remain 
well  above  the  EU  average  (see  Section  1). 
However,  tools  to  deal  with  the  current  stock, 
mainly the legacy of the pre-2009 credit boom, are 
still to be developed. Earlier plans to introduce the 
European Central Bank's guidelines have not been 
pursued  (European  Commission  2018a,  2018b). 
Instead,  the  authorities  have  announced  their 
intention  to  comply  with  the  European  Banking 
Authority's guidelines for non-performing loans, to 
be applied as of 30 June 2019. 

in 

improve 

non-performing 

Other  factors  could  further  accelerate  the 
reduction 
loans. 
Improvements in the valuation of collateral should 
substantially 
the  clearing  of  non-
performing 
loans,  while  comfortable  capital 
buffers  in  the  banking  system  provide  space  for  a 
balance  sheet  clean-up  (see  Section  4.2.1).  The 
improved  recent  dynamism  of 
the  secondary 
market  is  helping  reduce  non-performing  loans.  
Stronger  legal  framework  for  foreclosure  would 
further  accelerate  this  process  (see  Section  4.2.4 
and European Commission, 2018b).  

Credit  flows  have  rebounded  driven  by  the 
improved  macroeconomic  environment,  lower 
interest rates and the accommodative European 
Central  Bank  monetary  policy.  In  September 
2018, loans to  non-financial  corporations grew by 

32 

-20-1001020304007Q408Q208Q409Q209Q410Q210Q411Q211Q412Q212Q413Q213Q414Q214Q415Q215Q416Q216Q417Q217Q418Q2ppsCredit flowReal growthInflationOther changesD/GDP (y-o-y %) 
 
4.2. Financial sector 

4.2.6.  ACCESS TO FINANCE 

from 

Access  to  finance  for  small  and  medium-sized 
enterprises  in  Bulgaria  is  in  line  with  the  EU 
average  and  has  further  improved,  backed  by 
EU  measures.  Access  to  finance  is  the  most 
important concern for only 6 % of Bulgarian small 
and  medium-sized enterprises  compared to 7 % at 
EU  level  (ECB,  2018).  Small  and  medium-sized 
enterprises  have  benefited 
the  overall 
improvement in the banking  environment but also 
from  EU  funding  through  programmes  such  as 
(EUR 1.27 
and  Competitiveness 
Innovation 
billion)  and  Small  and  Medium-sized  Enterprises 
Initiative 
(EUR 102  million).  The  centrally 
managed  banking  instruments  of  the  Investment 
Plan  for  Europe  were  successfully  used  by 
Bulgarian  banks  and  provided  further  support 
(EUR 256  million  under 
the  COSME  Loan 
Guarantee Facility) (29). The equity funds selected 
by  the  European  Investment  Fund  in  2007-2013 
gave an impetus to the start-up ecosystem in Sofia, 
particularly in the information and communication 
technology sector. However, the rest of the county 
is  lagging  behind.  The  EU  financial  instruments 
provide a good alternative to grants for investment 
in  both  innovation  and  technical  modernisation, 
but  the  awareness  of  these  types  of  funding 
opportunities is still low. 

Venture  capital  and  business  angels'  financing 
are still limited. The small size of the market is an 
obstacle to attracting large equity investors, hence 
public  support  has  played  a  decisive  role  for 
developing  this  ecosystem.  The  Fund  Manager  of 
Financial  Instruments  in  Bulgaria  (the  Fund  of 
Funds)  is  in  charge  of  implementing  all  the  EU-
funded  innovation  and  competitiveness  financial 
instruments.  Despite 
some  delays,  positive 
developments  from  the  previous  programming 
period  are  expected  to  continue.  At  the  end  of 
first 
2018, 
operational  agreement  for  the  management  of  a 
Seed/Acceleration  and  Start-Up  Fund.  The 
deployment  of  the  remaining  EU-funded  equity 
instruments  of  the  Fund  of  Funds  remains  crucial 
for  the  venture  capital  market.  In  addition,  the 
focus of financing needs is shifting from the early 
stage towards scale-up financing. 

the  Fund  of  Funds  signed 

the 

(29)  Committed  amount  to  final  recipients  as  of  30.6.2018 
under  Competitiveness  of  Enterprises  and  SMEs  -  Loan 
Guarantee Facility (COSME LGF). 

asked  for  assistance  to  help  it  advance  the  reform 
of  the  insolvency  framework.  This  project  will 
produce a roadmap addressing the identified gaps. 

for 

proceedings. 

commencing 

The  weak  regulatory  and  institutional  set-up 
does  not  support  timely  and  cost-effective 
conduct of insolvency proceedings. The share of 
successful  reorganisation  plans  is  very  low  and 
there  is  a  problem  with  constant  reopening  of 
Cumbersome 
insolvency 
requirements 
insolvency, 
inefficient  rules  and  processes  for  recognising 
creditors’  claims,  and  weak  adherence  by  market 
participants and courts to the  prescribed deadlines 
are  some  of  the  major  impediments  to  cost-
effective  and 
insolvency 
timely  access 
proceedings. There is also a lack of adequate rules 
on  the  protection  of  post-petition  financing  that 
would  enable  debtors  to  meet  their  ongoing 
business 
to 
commercially  sound  forms  of  financing  upon 
commencement of the insolvency procedure. Rules 
on  the  stay  of  enforcement  actions  also  need  an 
overhaul.  Moreover,  a  diverse  interpretation  of 
rules on avoidance actions causes legal uncertainty 
and  prevents  an  orderly  distribution  of  funds  to 
creditors.  Insufficient  training  in  the  field  of 
insolvency  and  restructuring  for  both  trustees  and 
judges further exacerbates all these problems. 

facilitating 

access 

needs 

by 

to 

to 

access 

insolvency 

transparency 

Insolvency proceedings are not perceived as an 
effective collection mechanism. There is a lack of 
and 
electronic 
files 
insufficient 
the  cashing-out 
process carried out by trustees. Combined with the 
lack  of  effective  control  of  asset  appraisals,  this 
has  led  to  sales  of  assets  within  the  insolvency 
estate  at  exceptionally  low  prices  or  in  ways  that 
are very disadvantageous to many creditors. 

in 

for 

analysis 

intercompany  debt 

A  lack  of  adequate  monitoring  tools  makes  it 
difficult  to  assess  the  efficiency  of  insolvency 
and  restructuring  proceedings.  This  is  also  the 
case 
and 
enforcement in general. Within the judicial system, 
data  are  available  on  the  number  of  pending  and 
completed cases, the average length of proceedings 
and  the  terms  for  issuance  of  court  acts,  but  they 
are  mainly  used  to  report  on  the  workload  of 
courts.  The  Supreme  Judicial  Council  and  the 
National  Statistical  Institute  also  gather  data  on 
insolvency and restructuring proceedings, but they 
are also not used for analytical purposes. 

33 

 
                                                           
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

rates  coupled  with  the  highest  mortality  rates  in 
Europe  and  negative  migration  flows  will  reduce 
the  population  to  5.424  million  in  2050,  or  by 
0.8 %  annually  (UN,  2017).  The  working-age 
population (aged 15 to 64) is set to contract at even 
faster annual rates (1.2 %) (see Graph 4.3.1).  

Graph 4.3.1:  Population pyramid 

4.3.1.  LABOUR MARKET 

skill 

shortages  are 

Sustained economic growth is having a positive 
impact  on  the  labour  market,  although  labour 
and 
increasing.  The 
employment  rate  reached  73.5 %  in  Q3-2018,  2.8 
pp. above its highest level before the crisis (70.7 % 
in  2008).  The  unemployment  rate  fell  to  5.2 %  in 
Q4-2018, below its pre-crisis level (Q4 2008) and 
below  the  EU  average  of  6.8 %.  In  absolute 
figures,  however,  the  labour  force  has  200 000 
fewer  people  than  in  2008.  This  decline  of  the 
active  population  and  the  scarcity  of  skilled 
workforce  are 
labour  market. 
Meanwhile,  some  disadvantaged  groups  still  face 
difficulties 
the 
education  and  training  systems  are  not  well 
equipped  to  respond  to  evolving  labour  market 
needs.  Prioritising 
training, 
upskilling  and  reskilling  and  in  better  aligning 
education  to  labour  market  needs  would  support 
long-term growth. 

in  entering  employment,  and 

investment 

tightening 

the 

in 

Source: European Commission 

The  level  of  labour  shortages  has  reached  a 
historical  peak  in  2018,  following  a  decline 
during  the  crisis.  The  greatest  shortages  are  in 
industry  and  construction,  but  the 
increasing 
shortages  in  services  have  been  equally  steep  in 
recent  years  (see  Graph  4.3.2).  As  a  response, 
Bulgaria  has  signed  or  is  negotiating  agreements 
with non-EU countries to enable the recruitment of 
foreign  workers.  The  number  of  workers  arriving 
from  outside  the  EU  is  still  limited  and  mostly 
concentrated 
few  economic  activities; 
however, no comprehensive forecasts or evaluation 
of  the  potential  impact  by  sector  or  type  of 
employment seems to exist at present. The lack of 
teachers  and  nurses  is  also  having  an  impact  on 
public service delivery. Measures are under way to 
increase  the  attractiveness  of  these  professions, 
including noteworthy salary increases for teachers, 
but their results will most probably be seen only in 
the medium term. 

in  a 

in  the 

Regional  disparities 
labour  market 
remain  significant.  The  most  densely  populated 
regions,  South-West  and  South-Central,  also  had 
the  highest  employment  rates  in  2017,  of  76.7 % 
and  71.3 %  respectively.  By  contrast,  since  2013 
the  regional  dispersion  of  wage  levels  has  been 
decreasing.  The  median  value  of  the  wage  gap 
relative  to  Sofia  fell  by  2 pp.  (from  57.7 %)  in 
2017.  However,  in  some  regions  (Vidin  and 
Blagoevgrad)  wages  are  still  less  than  half  of  the 
Sofia  levels  and  the  catching-up  process  is  weak. 
There  are  also  considerable  divergences  in  the 
unemployment  rate  —  from  3.3 %  in  the  South-
West  to  11.3 %  in  the  North-West  in  2017.  This 
divide  points  to  a  need  for  more  comprehensive 
economic  development  policies  and  coordinated 
measures to support balanced internal mobility. 

Demographic developments are having a strong 
impact on the labour market. Bulgaria is one of 
the  few  Member  States  in  which  the  rates  of 
natural population change and of net migration are 
both negative(30). It is estimated that the low birth 

(30)  Negative  net  migration  has  however  been  decreasing  and 
stabilised at around 4 000 migrants per  year in 2012-2016 
(Open Society, 2017). 

34 

-1-0.75-0.5-0.2500.250.50.7510102030405060708090100+% of total populationAgeMen (2050)Men (2017)Women (2050)Women (2017) 
 
                                                           
 
 
 
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 is designed as a compass for a renewed process of upward convergence 
towards better working and living conditions in the European Union. It sets out 20 principles and rights in the 
areas of equal opportunities and access to the labour market; fair  working conditions; and social protection 
and inclusion(1).  

of 

of 

indicators 

Bulgaria  faces  challenges  with  regard  to  a 
the  Social 
number 
Scoreboard  supporting  the  European  Pillar 
of Social Rights.  It has still one of the highest 
numbers  of  people  living  at  risk  of  poverty  or 
social  exclusion  as  well  as  high  levels  of 
income  inequality.  Social  transfers  have  a  low 
impact  on  poverty  reduction.  Major  challenges 
for  the  education  and  training  system  remain, 
including  providing  quality  inclusive  education 
and  tackling  early  school  leaving.  The  level  of 
digital  skills  of  the  population  remains  very 
low.  Despite  improvements  in  labour  market 
performance,  the  low  skilled,  the  Roma  and 
people  with  disabilities  still  face  significant 
difficulties in finding work. 

The  very  low  enrolment  rate  of  young 
children in formal childcare continues to be a 
challenge.  Only 9.4% %  of  children  aged  0 to 
3  are  enrolled,  significantly  below  the  EU 
average of over 30 %. It is due to the significant 
shortages  of  nurseries  and/or  other  appropriate 
arrangements. This situation translates into poor 
labour  market  outcomes  for  young  women.  In 
2017,  the  gender  employment  gap  in  Bulgaria 
(8 %)  was  below  the  EU  average  (11.5 %)  for 
the  general  population,  but  significantly  above 
the EU average for the 20-29 age group. 

Bulgaria has made significant progress in the deinstitutionalisation of children. There has been an 80 % 
decrease  in  the  number  of  children  placed  in  institutional  care,  to  below  1 000  in  2017.  All  specialised 
institutions  for  children  with  disabilities  have  been  closed  following  the  implementation  of  the  national 
‘Vision  for  Deinstitutionalisation’  strategy  and  its  action  plans.  EU  funds  catalysed  this  change  from 
institutional  to  community-based  care,  but  it  certainly  would  not  have  been  achieved  without  national 
political  commitment.  Monitoring  the  implementation  of  deinstitutionalisation  reforms  and  continuous 
training  and  supervision  of  staff  is  also  important  to  guarantee  good  quality  services.  Sustained  efforts  are 
also being made on prevention, family support and early intervention with integrated service provision, but 
these efforts need to continue.  

(1)  The European Pillar of Social Rights was proclaimed on 17 November 2017 by the European Parliament, the Council 
and  the  European  Commission.  https://ec.europa.eu/commission/priorities/deeper-and-fairer-economic-and-monetary-
union/european-pillar-social-rights/european-pillar-social-rights-20-principles_en 

35 

Early leavers from education and training (% of population aged 18-24)Weak but improvingGender employment gapOn averageIncome quintile ratio (S80/S20)Critical situationAt risk of poverty or social exclusion (in %)Critical situationYouth NEET (% of total population aged 15-24)Weak but improvingEmployment rate (% population aged 20-64)Better than averageUnemployment rate (% population aged 15-74)On averageLong-term unemploymentOn averageGDHI per capita growth Best performersNet earnings of a full-time single worker earning AWWeak but improvingImpact of social transfers (other than pensions) on poverty reductionCritical situationChildren aged less than 3 years in formal childcareCritical situationSelf-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 marketSOCIAL SCOREBOARD FOR BULGARIAMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituation").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,pleaseconsultthedraftJoint Employment Report 2019, COM (2018)761 final.NEET:neitherinemploymentnorineducationandtraining;GDHI:grossdisposablehousehold income.                       
 
 
 
4.3. Labour market, education and social policies 

Graph 4.3.2:  Labour shortage index (1) 

(1) Percentages show share of respondents citing labour 
shortage as a limiting factor on production; the index (total) 
averages the labour shortage indices for the building, 
industry and service sectors weighted by sectoral 
employment. 
Source: European Commission 

Inequalities  of  opportunity  are  limiting  access 
to  the  labour  market  for  large  groups  of  the 
population, which could hinder sustainable and 
inclusive growth. People living in rural areas, the 
low-skilled and the Roma still have very low levels 
of  activity  and  employment.  Around  55 %  of 
Roma  are  unemployed;  only  26 %  are  engaged  in 
any  form  of  paid  work  and  65 %  of  young  Roma 
continue to be neither in work nor in education or 
training  (FRA,  2016)(31).  In  view  of  the  adverse 
demographic  trends,  the  Roma  community  will 
represent  a  significant  share  of  the  working-age 
population  in  the  short  term,  making  activation, 
outreach,  upskilling  and 
reskilling  measures 
essential.  The  co-financed  programmes  of  the 
European  Social  Fund  provide  a  wide  range  of 
initiatives.  These 
labour  market  reintegration 
include 
low-skilled 
young people and the support of psychologists and 
Roma  mediators  for  public  employment  services. 
Job creation, as well as improvement of knowledge 
and  training  in  rural  areas,  is  among  the  main 
the 
objectives  of  support  provided 
European  Agricultural 
Rural 
Fund 
Development.  Positive  results  are  expected  in  the 
coming years. 

training  opportunities  for 

through 
for 

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

The  number  of  young  people  not  in  education, 
employment or training is still high but steadily 
decreasing.  In  2017,  the  rate  for  young  people 
aged 15-29 in Bulgaria fell to 18.9 % (from 25.7 % 
in 2013), but  was still  well above the EU average 
of  13.4 %.  While  the  rate  of  people  not  in 
education,  employment  or  training  in  cities  is 
lower  (11.2 %)  than  the  EU  average  (12.5 %),  in 
rural  areas  it  is  much  higher  (31.1 %  against 
14.2 %). The majority of those people are inactive, 
which  contributes  to  the  low  participation  in  the 
Youth Guarantee (in 2017, this included only 13 % 
and  18.8 %  of  the  population  not  in  education, 
employment  or  training  in  age  groups  15-24  and 
25-29,  respectively).  Nevertheless,  more  than  two 
thirds 
in 
employment,  education  or  training  6  months  after 
leaving the scheme. The youth unemployment rate 
has  also  been  decreasing  steadily  and  reached 
12.9 % in 2017, below the EU average of 16.8 %. 
In addition, the share of young people unemployed 
for longer than 12 months shrank rapidly from 8 % 
in 2016 to 4.7 % in 2017. 

participants 

reported 

being 

of 

Educational  attainment  is  a  major  factor  in 
determining  employment  prospects  for  young 
people. The unemployment rate among low-skilled 
young people (24.8 %) is nearly three times higher 
than  for  the  medium-skilled  (8.7 %)  and  this 
difference has widened in the last 3 years. Several 
measures  co-funded  by  the  Youth  Employment 
Initiative  and  the  European  Social  Fund  provide 
tools  for  people  to  access  the  labour  market, 
including  incentives  for  employers  to  hire  young 
people  after 
supervised 
internships. 
traineeships  and 
apprenticeships  could  help  to  make  young  people 
more employable. 

their 
Investment 

training  and 

in 

The  overall  inactivity  rate  decreased  sharply, 
partly reflecting positive dynamics in the labour 
market.  With  the  inactivity  rate  declining  from 
31.3 % in 2016 to 28.7 % in 2017, Bulgaria came 
close  to  the  EU  average  of  26.5 %  (see  Graph 
4.3.3). Inactivity levels are highest in two  groups: 
persons  aged  15-24  (35 %  of  the  total)  and  those 
aged  55-64  (28.5 %).  Many  of  the  young  people 
(15-24) are still studying or in training, while older 
individuals  (55-64)  are  more  likely  to  be  inactive 
because of early retirement. Also, there is a greater 

36 

0510152025303540030405060708091011121314151617%BuildingIndustryServicesTotal 
 
                                                           
4.3. Labour market, education and social policies 

prevalence of  inactivity due to discouragement(32) 
in Bulgaria than in most other EU countries. 

Graph 4.3.4:  Expenditure and participation in activation 
measures, 2017 and January-August 2018 

Graph 4.3.3:  Inactivity rates and shares of the inactive 

people 

Source: National data from public employment services 

Source: European Commission 

implemented 

Targeting  of  active  labour  market  policies  has 
improved,  but  the  level  of  participation  is  still 
very low though increasing. Only 5.4 % of those 
wanting  to  work  participated  in  active  labour 
market  policies  in  2016.  On  a  positive  note, 
specific  measures  are  being 
to 
support  people  with  disabilities,  the  long-term 
unemployed  and  the  low-skilled.  Enrolment  in 
training and upskilling increased in 2018, although 
adult  participation  in  learning  remains  among  the 
lowest  in  the  EU  at  only  2.3 %.  Employment 
subsidies  and  direct  job  creation  still  absorb  most 
of the expenditure on active labour market policies 
(see  Graph  4.3.4).  Strengthening  the  training 
component of these policies and further developing 
vocational  education  and  training  could  improve 
impact  and  sustainability  of  activation 
the 
measures. 

(32)  Defined as being willing and able to work but not actively 

searching for jobs. 

the 

systems 

although 

information 

integration 

through 
to 
reduce 

Modernisation  of  the  Employment  Agency  is 
advancing, 
of 
employment  and  social  services  is  still  limited 
further 
and  could  be 
improved 
integrate 
investment.  Efforts  are  ongoing 
several 
the 
to 
administrative  burden,  but  basic  tasks  and  checks 
are  still  carried  out  using  paper  certificates.  A 
software programme to facilitate job matching has 
been tested in 27 labour offices and will be rolled 
out  nationwide  in  2019.  This  system  helps  the 
matching of jobseekers’  skills to the requirements 
of  employers.  Additional  services  have  been 
introduced,  such  as  ‘mentors’,  ‘mobile  services’, 
‘family  counselling’  and  ‘professional  compass’ 
for  online  self-assessment,  but  these  are  still  in  a 
very preliminary phase of implementation. Finally, 
a  National  Framework  Agreement  (33)  aiming  to 
improve  the  delivery  of  integrated  services  to  the 
long-term  unemployed  was  signed  in  January 
2019. 

an 

rather 

medium-term 
than 

Increases  in  the  minimum  wage  follow  the 
budgetary 
government’s 
projections 
established 
transparent  mechanism.  From  January  2019  the 
minimum  wage  is  set  at  BGN  560  (EUR 286), 
which  represents  an  increase  of  nearly  10 %  from 
2018  and  over  100 %  since  2011.  After  several 
rounds of negotiations between the social partners 
during  2018,  diverging  views  remain  between 

(33)  Between  the  Ministry  of  Labour  and  Social  Policy, 
Ministry of Education and Science, Ministry of Health and 
the National Association of the Municipalities. 

37 

05101520253035404550071217LowMediumHigh15-2425-3435-4445-5455-64Inactivity rateShares, by skilllevelShares, by age%0%10%20%30%40%50%60%70%80%90%100%Participants2017Participants2018Expenditure2017Expenditure2018trainingemployment incentivessupported employmentdirect job creationstart-up incentives 
 
                                                           
 
                                                           
4.3. Labour market, education and social policies 

employers and trade unions over the criteria to be 
applied in setting the minimum wage. The number 
of  people  receiving  the  minimum  wage  has 
increased,  reaching  almost  15 %  of  the  labour 
force  in  Q2-2018(34).  Meanwhile,  the  maximum 
insurable  income  has  been  increased  from  BGN 
2 600  to  3 000  (EUR 1 329  to  1 534)  in  2019  and 
the  minimum  social  security  contribution  for 
people working in the  agricultural sector has been 
raised from BGN 300 to 350 (EUR 153 to 178).  

of  employed  persons  at  risk  of  poverty  slightly 
decreased to 10 % in 2017 (EU-28 average 9.4 %). 
In-work poverty has been rising in the last decade 
and is particularly high among low-skilled workers 
and  people  in  temporary  employment.  Income 
inequality has risen steadily in recent years to one 
of  the  highest  levels  in  the  EU.  In  2017,  the 
income of the richest 20 % of population was over 
eight  times  higher  than  that  of  the  poorest  20 %, 
which is significantly higher than the EU average. 

have 

been 

there 

agree 

active 

although 

tripartite 

Social  dialogue  remains  challenging  in  spite  of 
cooperation. 
the  more 
Substantial  differences  persist  between  social 
partners  on  several  issues  related  to  industrial 
relations  and  the  tripartite  dialogue.  The  social 
recent 
partners 
improvements  regarding  their  involvement  in  the 
implementation  of  policies  and 
design  and 
reforms, 
the 
they 
consultation  process  is  often  formalistic  and  with 
little real impact. Membership of trade unions and 
employers’  associations  has  decreased  further  in 
recent  years,  though  at  a  slower  pace.  Collective 
the 
place 
bargaining 
company/enterprise  level  (35)  and  the  majority  of 
collective  agreements  are  in  the  public  sector 
(87.2 %). Broken down by economic activities, the 
in 
largest  share  of  collective  agreements 
education (828), healthcare and social work (288), 
and manufacturing (124).  

consider 

largely 

takes 

that 

at 

is 

4.3.2.  SOCIAL POLICIES 

High  levels  of  poverty  and  income  inequality 
remain a serious challenge. In 2017, 39 % of the 
total  population  was  at  risk  of  poverty  or  social 
exclusion,  according  to  the  Social  Scoreboard 
supporting  the  European  Pillar  of  Social  Rights. 
The  rate  of  severe  material  deprivation  decreased 
by  1.9 pp.  to  30 %  of  the  population  (see  Graph 
4.3.5),  or  about  2.8  million  people.  Poverty  is 
particularly high for the most vulnerable groups — 
the  elderly,  in  particular  women,  people  with 
disabilities, the Roma, families with three or more 
children and those living in rural areas. The share 

(34)  473 000  workers  receiving  the  minimum  wage,  out  of  a 

total workforce of 3 157 000 in Q2-2018. 

(35)  General  Labour  Inspectorate  and  CITUB  data:  in  2016 
there were 1 404 valid collective agreements plus  annexes 
at 
level  and  63  collective 
the  company/enterprise 
agreements at sectoral/branch level. 

Graph 4.3.5:  At-risk-of-poverty or social exclusion rate and 
its components (AROP, SMD, LWI) 

Source: European Commission 

largely  along 

Major  regional  and  spatial  disparities  persist. 
The risk of poverty or social exclusion is above the 
EU  average  in  all  regions  but  63 %  higher  in  the 
less developed North-West region than the South-
West region, which includes the capital Sofia (see 
Graph  4.3.6). There  is  a  large  variance  in  income 
levels 
the 
difference  in  median  household  income  between 
rural  and  urban  dwellers  is  one  of  the  most 
pronounced in the EU(36). To alleviate the effect of 
poverty  on  the  most  disadvantaged,  the  Fund  for 
European  Aid  to  the  Most  Deprived  supported  an 
estimated  630 000  individuals  in  2017  through 
food  packages,  ‘hot  lunches’  and  accompanying 
measures.  

rural-urban 

lines; 

(36)  In 2017, the median income of rural households was 40 % 

lower than that of urban households. 

38 

010203040506070060708091011121314151617% of populationAt-risk-of-poverty-or-social-exclusion rateAt-risk-of-poverty rate (AROP)Severe material deprivation (SMD)People living in low work intensity households (LWI) 
                                                           
 
                                                           
4.3. Labour market, education and social policies 

Graph 4.3.6:  At-risk-of-poverty or social exclusion by 

NUTS2, 2017 

Source: European Commission 

The  situation  of  children  and  the  elderly 
remains particularly alarming. In 2017, 49 % of 
people  aged  65  and  over  and  42 %  of  children 
were  at  risk  of  poverty  or  social  exclusion.  The 
risk for women over 60 was 14 pp. higher than for 
men. Despite the indexation of pensions and an ad 
hoc  payment  of  extra  supplements (37), 
the 
minimum  pension  of  BGN  207.60  is  still  60 % 
below the at-risk-of-poverty threshold of BGN 351 
(EUR 179)  and  the  average  pension  of  BGN 364 
(EUR 186)  is  almost  equivalent  to  this  threshold. 
Child  poverty  is  particularly  influenced  by  the 
economic  activity  and  educational  attainment  of 
their  parents(38).  One  in  five  children  suffers 
severe housing deprivation and more than 6 in 10 
live in overcrowded households. 

Inequality  of  opportunity  remains  a  major 
challenge.  The  gap  in  at-risk-of-poverty  or  social 
exclusion  rates  for  children  of  low-skilled  and 
high-skilled  parents  is  among  the  highest  in  the 
EU, at 83.4 % in 2017. Key factors in perpetuating 
the cycle of disadvantage are unequal access to the 
healthcare  system  as  well  as  failure  to  enrol  in 
early  childhood  education  and  to  benefit  from 
efficient education services. 

(37)  In  December  2018,  BGN  51.6  was  allocated  for  one-time 
supplements  of  BGN  40  to  pensions  below  the  poverty 
line.  In  July  2018,  all  pensions  were  increased  by  3.8 %. 
The planned increase in July 2019 is by 5.7 %.  

(38)  77.5 %  for  children  whose  parents  have  attained  less  than 
primary, primary and lower secondary education; 18 % for 
those  whose  parents  have  attained  upper  secondary  and 
post-secondary non-tertiary education; and 3.1 % for those 
whose parents have attained tertiary education. 

The Roma continue to face multiple challenges. 
The  proportion  of  the  Roma  population  living  at 
risk of poverty is estimated at 89 %. The majority 
(65 %)  suffer  from  living  in  households  without 
access  to  public  utilities  such  as  tap  water  and 
basic housing amenities (FRA MIDIS, 2016). The 
lack  of  a  functioning  coordination  mechanism  for 
Roma  integration  policies  at  national  level  adds  a 
further  layer  of  difficulty  to  defining  policy  and 
implementing 
integration  strategy 
effectively. The monitoring and evaluation system 
for this strategy developed with EU resources will 
facilitate the design of appropriate policy measures 
based on a system of indicators. 

the  Roma 

People  with  disabilities  receive  limited  support 
to help them live independently. In 2016, the rate 
of poverty and social exclusion among people with 
disabilities  stood  at  55.9 %,  18.4  pp.  higher  than 
the  rate  for  those  without  disabilities.  More  than 
half  of  people  with  disabilities  drop  out  of 
education early(39) and only 34 % have jobs. Their 
tertiary education attainment rate of 13.5 % is also 
very low.  

The  affordability  of  housing  and  energy 
services  is  limited,  especially  for  vulnerable 
groups.  The  share  of  the  population  experiencing 
severe housing deprivation is very high, at 10.6 % 
in 2017 (EU average 4.0 %). The situation is worse 
for  the  population  at  risk  of  poverty  (27.2 %  of 
households  in  this  category).  Housing  costs  are 
also  an issue for the  majority of the  population at 
risk  of  poverty  (50.1 %  of  households  at  poverty 
risk  overburdened  by  housing  costs,  compared  to 
the  EU  average  of  37.9 %).  This  contributes  to  a 
high  share  of  overcrowded  households  at  41.9 % 
and  to  the  development  of  illegal  dwellings  and 
neighbourhoods,  while  30 %  of  dwellings  are 
vacant  (World  Bank,  2017b).  In  2017,  around 
59.5 %  of  the  most  socially  deprived  households 
were  unable  to  heat  their  homes.  This  remains 
significantly  above  the  EU  average  of  18.4 %. 
More  than  20  urban  municipalities  have  made 
plans  (40)  to  invest  in  social  housing,  but  the 
operation  is  still  in  a  preparatory  phase.  The 

(39)  The early school leavers’ rate and the gap between people 
with and without disabilities is one of the highest in the EU 
(51.2 % vs. the EU average of 23.6 %, 32.9 pp. vs. the EU 
average of 12.6 pp.). 

(40)  Integrated Plans for Urban Regeneration and Development, 
with  the  support  of  the  European  Regional  Development 
Fund. 

39 

 
 
                                                           
                                                           
4.3. Labour market, education and social policies 

employment  are  not  sufficiently  supported,  which 
hinders  effective 
integration. 
Restrictive  conditions  for  claiming  social  benefits 
even after short-term employment are an issue. 

labour  market 

the 

Social  services  are  hampered  by  low  quality, 
limited  accessibility  and 
lack  of  an 
integrated approach. An evaluation conducted in 
2017 identified insufficient provision of most types 
of  social  services  across  the  territory  (46),  which 
calls  for  further  investment.  This  is  an  issue 
especially  in  smaller  and  rural  municipalities 
where  there  is  a  serious  shortage  of  services  for 
both  children  and  adults,  particularly  for  home-
based  care,  day-care,  mobile  and 
integrated 
services. Based on the centralised planning system, 
the 
services  are  provided  mostly  based  on 
availability of resources instead of the needs of the 
vulnerable  person.  The  fragmentation  of 
the 
provision  of  services  impairs  the  effectiveness  of 
the support they give, since integrated services can 
address  multiple 
among  vulnerable 
issues 
populations simultaneously.  At the  same  time, the 
social  services  sector  suffers  from  high  staff 
turnover, limited training and the low qualification 
standards of social workers. 

A  comprehensive  reform  of  social  services  is 
under  preparation.  A  draft  new  social  services 
law was approved by the government in December 
2018. The planning of social services will be based 
on  a  national  map  of  needs  and  a  minimum 
package  of  services  for  each  municipality  and 
region.  This  new  model  is  expected  to  improve 
quality(47),  planning,  financing  and  accessibility, 
as  well  as  monitoring  and  control.  The  law  also 
aims  to  tackle  the  qualification  of  social  workers, 
strengthen the competencies of local authorities in 

(45)  Although  heating  benefits  are  regularly  increased  in  line 
with  energy  prices,  for  the  2018-2019  heating  season  the 
government  introduced  a  one-time  supplement  of  BGN 
100. 

(46)  Ministry  of  Labour 

and  Social  Policy 

(2017), 
‘Compendium: Model for planning a minimum package of 
services at regional and municipal level; Objective criteria 
for  developing  mapping  of  needs  and  services  at  national 
level;  A  map  of  needs  and  a  map  of  services  at  national 
level’.  The  mapping  made  a  distinction  between  six 
different  types  of  services:  1)  consultative  social  services; 
2) mobile social services; 3) day-care; 4) residential social 
services;  5)  home-based  social  services;  and  6)  integrated 
services. 

(47)  The  Social  Services  Agency  will  authorise  social  service 
providers, develop quality standards, ensure that consumer 
rights are respected, carry out ex post controls and monitor 
the efficiency of the services. 

exception  is  the  city  of  Blagoevgrad,  where  202 
social  apartments  are  already  under  construction 
(Roma Civil Monitor, 2018). The limited scope of 
the  social  housing  measures  currently  being 
implemented 
dedicated 
for 
investment. 

further 

calls 

The  tax  and  benefit  system  has  a  weak  impact 
on  reducing  poverty  and  income  inequality.  In 
2017,  taxes  reduced  income  inequality  by  only 
4.13%,  against  an  EU  average  of  11.7%,  while 
social transfers reduced inequality by only 28.3%, 
against  an  EU  average  of  40.4%.  (41).  The  low 
overall spending on social protection, the lack of a 
consistent  mechanism  to  update  social  transfers 
and  the  limited  redistributive  features  of  the 
taxation system (see Section 4.1.1) play a relevant 
role.  

The  social  security  system  does  not  cover  all 
people  in  employment.  In  particular  seasonal 
workers  do  not  have 
for 
unemployment  and  maternity  benefits,  accident 
and  occupational  injuries  and  old  age/survivors’ 
pensions. Moreover, the self-employed do not have 
formal  coverage  for  unemployment  benefits  and 
accident and occupational injuries. 

formal  coverage 

the  poverty 

income  adequacy  and  coverage 
Minimum 
remain  limited.  Only  6.3 %  of  people  living 
below 
threshold  benefited  from 
minimum  income  support  in  2016(42).  In  the  past 
10  years,  the  level  of  the  guaranteed  minimum 
income threshold (43) was increased only twice, by 
37 % in total, while the national poverty line grew 
by  112 %.  As  a  result,  the  adequacy  of  the 
minimum  income  schemes  is  estimated  at  only 
24 %  of  the  poverty  threshold  or  20 %  of  the 
income  of  a  low-wage  earner(44).  Moreover,  there 
is  no  objective  mechanism  for  regularly  updating 
minimum 
line 
line  with  poverty 
inflation  or  minimum  wage 
developments, 
increases(45).  Transitions  from  social  benefits  to 

income 

in 

(41)  Income inequality as measured by the S80/S20Commission 

calculations based on EU-SILC. 
(42)  This  percentage  covers  only 

the  social  assistance 
component  based  on  average  number  of  recipients  per 
month. 

(43)  In 2018, the GMI was increased to EUR 38. 
(44)  According  to  the  Benchmarking  Framework  on  Minimum 
the  Social  Protection 
Incomes 
Committee.  For  details,  see  the  draft  Joint  Employment 
Report 2019, COM(2018) 761 final. 

conducted  within 

40 

 
                                                           
 
                                                                                   
4.3. Labour market, education and social policies 

etc. However, concerns over the implementation of 
the individual assessment by yet-to-be-formed new 
assessment  committees 
the 
limitations on administrative  capacity. The effects 
of  the  reform  and  of  the  new  measures  on  social 
and labour market integration remain to be seen. 

remain  due 

to 

4.3.3.  EDUCATION 

(21.6 %)  and  South-East 

Despite  recent  improvements,  the  rate  of  early 
school  leaving  remains  high  at  12.7 %(51)  (see 
Graph  4.3.7).  It  is  estimated  to  be  significantly 
above 
the  national  average  among  Roma 
(67 %)(52),  in  rural  areas  (27.9 %)  and  in  the 
North-West 
(22 %) 
regions. Measures to prevent dropout and improve 
school  retention  are  being  developed  through  the 
interinstitutional  mechanism(53)  and  European 
Social  Fund  projects.  The  continuity  and 
is  of  vital 
sustainability  of 
importance.  A  revised  school  curriculum  is  being 
implemented  and  there  is  an  increased  focus  on 
digital skills(54). However, available data show that 
there are still significant gaps in the acquisition of 
basic(55) and digital(56) skills and knowledge of the 
Bulgarian  language.  These  call  for  additional 
investments  and  policy  measures  in  improving 
basic  and  digital  skills.  Career  guidance  centres 
were set up with European Social Fund support but 
the  provision  of  career  guidance  and  individual 
approaches to every student require strengthening.  

these  efforts 

(51)  The rate of girls who are early leavers from education and 
training is higher than for boys (gender gap of -1.5 pp.). 
(52)  The  indicators  used  in  the  2016  FRA  survey  closely 
resemble those applied in standard European surveys (EU-
SILC, EU Labour Force Study) but full comparability was 
not intended. For more details see FRA 2016. 

(53)  In  2017  almost  22 000  children  were  brought  back  to 
school, but 1 200 (5 %) had dropped out by the end of the 
first school term along with 4 500 other students. 

(54)  E.g. computer modelling was introduced in third grade; the 
number  of  classes  with  profiles  in  computer  studies  in 
upper  secondary,  is  increasing;  extra-curricular  activities 
oriented  towards  science,  technology,  engineering  and 
mathematics  are  pursued;  the  European  Social  Fund  will 
finance  the  development  of  a  cloud  with  educational 
content, digital competences are being assessed, etc. 

(55)  About  40 %  of  Bulgarian  15-year-olds  do  not  have  basic 
competences  in  either  reading,  sciences  or  mathematics 
(PISA, 2015). 

(56)  Bulgaria  has  the  highest  share  of  population  without  any 
digital skills (37 %). Digital skill levels are also low among 
the young: 45.7 % of people aged 16-24 do not have basic 
digital skills, compared to the EU average of 18.1 %. 

planning  and  delivering  services,  and  introduce 
universal 
the  whole 
population. 

services  accessible 

to 

In  addition, 

the  care  sector 

Bulgaria faces increasing demand for long-term 
care  services.  The  rapidly  ageing  population  and 
an uneven distribution of existing care services are 
among  the  key  contributing  factors.  In  2016,  the 
reported unmet need for homecare services was the 
highest  in  the  EU  at  65.1 %,  mainly  for  financial 
reasons. 
lacks 
professional  standards,  with  no  clear  formal 
definition  of  a  care  worker  and  no  common 
competence-based  standards.  The  government  has 
adopted  a  strategic  framework  for  long-term  care 
and  implementation  of  the  action  plan  is  under 
way.  Deinstitutionalisation  (moving  vulnerable 
people from specialised institutions to community-
based  care)  and 
the  development  of  quality 
community-based  services  for  adults  with  mental 
disorders and mental retardation remain among the 
key 
the 
deinstitutionalisation  process  would  warrant 
further investment. 

Completing 

challenges. 

legislation(48), 

The  delayed  reform  of  the  social  inclusion  of 
people  with  disabilities  will  be  implemented  in 
2019.  Through  national 
the 
government  adopted  several  measures  including 
personal assistance and targeted support for people 
with  disabilities  conditional  on  assessment  of 
individual  needs.  A  new  methodology 
for 
assessment, to be drafted and brought into force by 
April  2019,  should  have  a  positive  impact  on 
labour  market  participation.  Moreover,  the  law 
introduces an increased disability allowance which 
may  benefit  more  than  600 000  people(49).  In 
addition,  to  improve  access  for  people  with 
disabilities  to  the  labour  market,  the  legislation 
envisages 
requiring 
employers  to  hire  them,  specific  subsidies  for 
employers,  job  brokerage  services  at  the  labour 
offices,  pilot  centres  for  protected  employment, 

quotas(50) 

obligatory 

(48)  In December 2018, the People with Disabilities Act and the 

Personal Assistance Law were adopted. 

(49)  Depending  on  the  level  of  disability,  the  new  benefit  for 
people  with  disabilities  above  18  years  will  be  7-57 %  of 
the national poverty line, i.e in 2019 from BGN 25 to 198 
(EUR  13  to  101)  per  month.  Previously,  the  disability 
allowance was BGN 11-37.5 per month. 

(50)  For  employers  with  50  to  99  employees,  the  quota  is  1 
employee  with  permanent  disability;  for  100  or  more 
employees, it is 2 % of their average staff total. 

41 

 
                                                           
 
                                                           
4.3. Labour market, education and social policies 

Graph 4.3.7:  Early leavers from education and training by 

regions, 2017 

approaches for students to overcome learning gaps 
(59)  but  promoting  ethnically-mixed  schools  and 
desegregation  measures  remains  a  challenge. 
Further  investment  could  help  to  offset  this 
phenomenon. 

and 

information 

Despite  their  central  role  in  improving  the 
quality  of  education,  policies  concerning 
teachers  show  weak  results.  About  half  of  all 
teachers  are  set  to  retire  within  the  next  10  years, 
particularly in big cities. Teacher salaries are set to 
reach 120 % of the average wage by 2021 in a bid 
to raise the attractiveness of the profession, which 
remains  low,  partly  due  to  unattractive  working 
conditions.  This  is  reflected  by  low  entry  into  the 
teaching  profession(60).  Already  about  2 300 
teaching  positions  are  vacant(61),  especially  in 
English, 
communication 
technology,  physics,  kindergarten  and  primary 
schools.  On  the  other  hand,  the  number  of  lower 
secondary classes in small localities is insufficient 
for  teachers  to  complete  their  teaching  norm  (i.e. 
the  number  of  hours  teachers  need  to  have). 
Despite  recent  measures 
initial 
teacher  education,  teachers  still  need  to  acquire 
adequate  skills 
to  work  with  students  from 
disadvantaged  backgrounds  or  those  with  special 
educational needs. There are a number of national 
measures  trying  to  tackle  the  shortage  of  teachers 
which  need  to  continue.  In  addition,  European 
Social  Fund  supported  interventions(62)  focus  on 
the training of teachers in digital skills,  which are 
often  outdated,  and  modern  pedagogics.  Despite 
improvements,  school  management  capacities 
require strengthening.  

to  strengthen 

Recent  reforms  aim  at  improving  the  quality 
and  relevance  of  vocational  education  and 
training.  The 
to  schools 
providing  this  training  combined  with  regular 
updates  of  the  curricula  in  cooperation  with 
businesses  is  expected  to  increase  the  quality  and 

financial  stimulus 

(59)  Under the project ‘Your class’, for 2017 more than 53 000 
students  (9 %  of  students  in  grades  I-XII)  were  receiving 
support 
language.  33 000  (6 %)  were 
receiving support in mathematics. Support for overcoming 
learning  gaps  also  covers  foreign  languages,  natural 
sciences, digital competence, etc. 

in  Bulgarian 

(60)  According  to  Bulgaria  University  Ranking  (BURS)  only 
60 %  of  graduates  in  teacher  training  and  pedagogy  enter 
the profession. 

(61)  Data from October 2018. 
(62)  These  interventions  aim  to  support  39 000  teachers  -  the 
equivalent of 47 % of teachers and pedagogical specialists 
in pre-primary and school education. 

Source: European Commission 

for 

supporting 
these 

Bulgaria  invests  insufficiently  in  pre-primary 
and  primary  education  —  areas  which  are 
equal 
instrumental 
opportunities.  Spending  on 
levels  of 
education  amounted  to  only  0.7 %  of  GDP  in 
2016, less than half of the EU average of 1.5 %. In 
general,  expenditure  on  education  as  a  percentage 
of  GDP  is  among  the  lowest  in  the  EU  (3.4 %  vs 
4.7 %).  Participation  in  early  childhood  education 
and care for ages 0-3 is improving, but is still low 
at  9.4 %  (the  EU  average  is  34 %);  a  lack  of 
facilities  is  one  reason.  Quality  standards  are  not 
up  to  date.  For  the  5-6  age  group,  for  which  pre-
school  is  compulsory,  care-related  costs  and  fees 
are  a  barrier  to  the  participation  of  students  from 
including  Roma. 
disadvantaged  backgrounds, 
Plans  to  lower  the  age  of  the  compulsory  pre-
school  programme  to  4  are  hampered  by  the 
insufficient  availability  of  places  (57).  Investment 
in  care  infrastructure  is  therefore  important  both 
for economic and societal reasons. 

The concentration of disadvantaged students in 
schools with low performance is relatively high 
in  Bulgaria,  driving  the  skills  divide.  Several 
international  surveys  confirm  that  socio-economic 
status  has  a  significant 
impact  on  students’ 
performance(58).  An  estimated  60 %  of  Roma 
students  study  in  Roma-majority  or  Roma-only 
schools  (FRA,  2016).  A  European  Social  Fund 
individualised 
financed 

supports 

project 

(57)  For  Sofia  alone,  authorities  reported  a  shortage  of  about 

5 000 places. 

(58)  PISA, ICCS, PIRLS. 

42 

0510152025% 
 
                                                           
                                                           
4.3. Labour market, education and social policies 

which  are  in  oversupply  (accounting  for  49 %  of 
all  graduates  in  2016,  against  the  EU  average  of 
34 %), are being reduced. Employers often identify 
knowledge and skills deficiencies, in particular the 
lack  of  soft  skills  among  graduates  (CEDEFOP, 
2018). Only 1.8 % of new university entrants have 
parents with a low level of education. 

and 

lacks 

Anticipating  and  matching  skills  demand  with 
education 
effective 
training 
coordination. In spite of the existing medium- and 
long-term forecasts of the Ministry of Labour and 
Social  Policy,  complemented  this  year  by  the 
employers’  surveys, 
link  between  skills 
the 
forecasting and follow-up in the  education system 
is  still  not  comprehensive.  A  project  is  underway 
to  adjust  the  national  list  of  professions  to  the 
requirements of the economy. In addition, the issue 
of  matching  supply  and  demand  for  skills  and 
qualifications  is  being  addressed  with  a  project  in 
cooperation  with  the  European  Centre  for  the 
Development of Vocational Training. 

Bulgaria  has  one  of  the  EU's  lowest  rates  of 
participation in adult learning. According to the 
benchmarking  framework  on  adult  skills  and 
learning, in 2017 it stood at 2.3 %, compared to the 
EU average of 10.9 %. In addition to the measures 
set out in the National Employment Action Plan, in 
2018  consultations  at  national,  regional  and  local 
level resulted in updates of the Action Plan for the 
Implementation  of 
the  National  Strategy  for 
Lifelong  Learning.  At  the  same  time  many  adult 
learning  programmes  are  project-based,  which 
calls 
sustainability  and 
highlights  the  need  for  a  more  strategic  approach 
by authorities and employers. 

into  question 

their 

4.3.4.  HEALTH POLICIES 

to 

Many  Bulgarians  still  face  significant  obstacles 
in  accessing  healthcare.  According 
the 
authorities,  at  the  end  of  2017  the  number  of 
people  lacking  health  insurance  was  719 000, 
which  is  more  than  10 %  of  the  population.  For 
those  without  insurance,  hospital  and  emergency 
services  are  usually  an  entry  point  to  the  system, 
which  reduces  the  efficiency  of  healthcare  use. 
This  is  especially  the  case  for  many  Roma,  fewer 
than  50 %  of  whom  are  estimated  to  have  health 
insurance  coverage  (FRA,  2016).  The  number  of 
people  reporting  unmet  medical  needs  has  been 

labour  market  relevance  of  vocational  education 
and  training.  The  lists  of  protected  professions 
were  initiated  in  2018  to  address  the  qualification 
shortages, in particular in the metallurgy, machine 
industry,  electrical  engineering  and  construction 
sectors. 

The  employability  of  vocational  education  and 
training  graduates  (63)  remains  a  challenge. 
While the share of students in vocational education 
and  training  in  Bulgaria  is  slightly  above  the  EU 
average  (51.3 %  compared  to  49.3 %  in  2016), 
their  employability  is  17.1  pp.  lower.  This  could 
partly  be  due  to  the  low  participation  in  work-
based learning (only 22 % of vocational education 
and  training  graduates  aged  15-34)  and  the  slow 
rollout  of  dual  vocational  education  and  training, 
which  is  primarily  project-based.  In  spite  of  high 
demand, in particular for technicians and machine 
operators, and the changes in secondary legislation 
facilitating  partnership  with  businesses,  only  1 % 
of students in vocational gymnasiums were in such 
dual  programmes  in  the  2017/2018  school  year. 
Targeted  investment  could  help  to  enhance  the 
attractiveness, quality and labour market relevance 
of vocational education and training. 

Despite  ongoing  efforts,  higher  education  is 
insufficiently  aligned  to  labour  market  needs. 
The  number  of  students  in  higher  education 
decreased  by  17 %  between  2012  and  2017  as  a 
result of demographic factors; students’ preference 
to study abroad(64), also due to a perception of low 
teaching  quality  at  home;  and  few  international 
students.  Tertiary  educational  attainment 
is 
improving  but  remains  below  the  EU  average 
(33 %  in  2017  compared  to  40 %).  Enrolment  in 
technology-
information  and  communication 
related  fields 
the 
is 
attractiveness  of  science,  technology,  engineering 
and  mathematics  has  not  increased  significantly 
and  the  percentage  of  graduates  in  those  subjects 
remains  low  (19.7 %  in  2016).  Only  10.9 %  of 
graduates  in  these  subjects  are  women.  Tuition 
fees will be eliminated for professions in shortage 
on the labour market.  At the same time, the state-
funded places in social sciences, business and law, 

increasing,  but  overall 

(63)  VET  graduate  employability,  2017:  EU  Labour  Force 
Survey  -  graduates  aged  20-34,  not  enrolled  in  any 
education  or  training,  who  graduated  1-3  years  before  the 
survey. 

(64)  In  2016,  7.4 %  of  upper  secondary  graduates  in  Bulgaria 

had finalised tertiary education abroad. 

43 

 
                                                           
4.3. Labour market, education and social policies 

decreasing, but the share is still high among those 
in  the  lowest  income  quintile  (5.6 %  compared 
with the  EU average of 3.2 %). The  gap in unmet 
medical  needs between the lowest and the highest 
income  quintiles 
is  very  high. 
in  Bulgaria 
Increasing  access  to  health  services,  in  particular 
for primary care, including  through infrastructural 
development, could help to tackle these issues. 

Public  expenditure  on  healthcare  remains  low. 
In 2016, public spending was only 5 % of GDP, 2 
pp.  below  the  EU  average.  In  addition,  the  public 
expenditure  covered  only  around  50 %  of  total 
healthcare  costs,  against  77 %  on  average  in  the 
EU.  Therefore,  out-of-pocket  payments  (formal 
and informal) cover almost half of healthcare costs 
— the highest share in the EU. 

There  is  a  shortage  of  nurses  and  general 
practitioners,  while  physicians  are  unevenly 
distributed.  Although  the  number  of  medical 
doctors  in  Bulgaria  is  above  the  EU  average,  at 
district  level  their distribution varies  widely, from 
597  per  100 000  inhabitants  in  Pleven  to  264  in 
Kardzhali. In addition, only 15 % of all physicians 
are general practitioners (significantly less than the 
EU  average  of  23 %),  which  limits  the  scope  to 
deliver  primary  care.  The  ratio  of  440  nurses  per 
100 000 inhabitants is among the lowest in the EU 
and significantly below the EU average of 840, in 
part  due  to  unattractive  working  conditions.  The 
National Health Map estimates that around 30 000 
more nurses are needed to reach the EU level. On a 
positive  note,  in  2018  the  number  of  study  places 
for  nurses  at  universities  increased  and  unlike  in 
2017,  all  of  them  were  filled.  There  is  a  plan  to 
educate  medical  assistants  and  paramedics  in 
greater numbers, which would relieve doctors and 
nurses  from  some  of  their  current  tasks.  This 
should  help  ensure  the  healthcare  workforce  is 
used more efficiently. 

Hospital  services  dominate  in  the  Bulgarian 
healthcare 
total  health 
system.  34 %  of 
expenditure is earmarked for inpatient care, above 
the  EU  average  of  30 %  and  one  of  the  highest 
shares among all Member States. 8.6 % of hospital 
admissions are potentially avoidable, 3.2 pp. above 
the  EU  average.  In  contrast, 
the  share  of 
expenditure on outpatient care (17 %) is among the 
lowest in the EU where the average is 30 %. Over 
2014-2020,  the  European  Regional  Development 
Fund  is  investing  in  a  network  of  emergency 

healthcare  which,  as  planned  in  the  National 
Health  Strategy,  will  contribute  to  alleviating  the 
burden on hospitals. In the long run, the challenge 
is  to  develop  a  network  of  accessible  primary 
healthcare, including long-term care. 

2011-2015, 

Limited  access  to  healthcare  and  low  health 
expenditure  are  among  the  factors  which 
negatively  affect  the  health  status  of  the 
population.  Over 
preventable 
mortality in the EU dropped by 1.1 %, whereas in 
Bulgaria it increased by 2.5 %(65). The pattern was 
similar for amenable mortality(66), with a decrease 
of  2 %  in  the  EU  and  increase  of  0.2 %  in 
Bulgaria. Total life expectancy in Bulgaria, at 74.9 
years, is 6.1 years below the EU average. 

Health promotion and preventive  measures are 
insufficiently  used to improve  health outcomes. 
In Bulgaria unhealthy diet and high blood pressure 
are the greatest health risks. More could be done to 
lower  the  relatively  high  use  of  alcohol  and 
tobacco and to promote a healthier diet. The share 
of  people  vaccinated  against  certain  infectious 
diseases,  such  as  measles  or  polio,  is  below  the 
level  that  guarantees  immunity  of  the  whole 
population. 

The  implementation  of  the  National  Health 
Strategy action plan is considerably delayed. In 
2018,  some  progress  was  achieved  in  improving 
access 
to  disease  prevention  medicines  and 
outpatient  programmes.  Most  of  the  measures 
planned  for  2019  aim  to  improve  the  system’s 
efficiency. They include the introduction of central 
procurement  for  public  hospitals  and  actions  to 
reduce public expenditure on pharmaceuticals and 
increase  the  currently  limited  uptake  of  digital 
health solutions. Further reform measures targeted 
at  improving  the  governance  of  the  health  system 
were  adopted  as  part  of  the  National  Health 
Insurance  Fund  budget  for  2019.  However,  their 
implementation  may  be  delayed  as  corresponding 
amendments in other legal provisions first need to 
be  approved  by  Parliament.  Altogether, 
the 
envisaged  reform  measures  for  2019  are  not 
the  mounting  challenges 
enough 

to  address 

(65)  Preventable  mortality  is  defined  as  deaths  that  could  be 
avoided through public health and prevention interventions. 
(66)  Amenable  mortality  is  defined  as  deaths  that  could  be 

avoided through effective and timely healthcare. 

44 

 
                                                           
4.3. Labour market, education and social policies 

concerning  the  health  of  the  population  and  the 
status of the healthcare workforce. 

healthcare  services,  while  paying  due  attention  to 
geographical disparities. 

a  mandatory 

The  Ministry  of  Health  has  proposed  public 
discussions  on  two  options  for  reforming  the 
health  insurance  system.  Both  options  should 
enable  competition  between  the  existing  single 
payer National Health Insurance Fund and private 
insurance  companies  and  keep 
the  current 
contribution  levels unchanged. One of the  options 
includes  an  increase  in  the  system’s  financing  by 
introducing 
complementary 
healthcare  insurance  in  the  form  of  a  flat,  non-
means-tested  contribution,  intended  to  lower  out-
of-pocket payments. Not linking the amount of this 
contribution  to  incomes  will  result  in  a  greater 
financial burden on low-income groups. Moreover, 
out-of-pocket  payments  may  increase  because  of 
the proposed limits on public financing of hospital 
care  and  outpatient  specialist  care.  Having  a 
voluntary  supplementary  health  insurance  should 
remain  possible.  Both  reform  options  will  lead  to 
an increase in administrative and governance costs, 
by 
supervision  of  private  health 
insurance companies and administration of a risk-
adjustment  mechanism 
resource 
allocation between the competing health insurance 
funds.  Under  government  plans,  a  new  financing 
model  will  become  operational  in  2020  at  the 
earliest. 

requiring 

finance 

to 

4.3.5.  INVESTMENT 

Increased  investment  in  skills,  education  and 
training, and social inclusion are important for 
improving productivity and long-term inclusive 
growth.  Considerable  labour  and  skills  shortages 
point  to  the  need  to  invest  more  in  training  and 
reskilling,  aligning  education  to  labour  market 
needs  and  improving  the  capacity  of  public 
employment  services.  Persistently  high  early 
school  leaving  and  low  educational  outcomes 
highlight  the  need  for  significant  investment, 
notably for early childhood, school and vocational 
relevant 
education 
infrastructure.  Wide  income  inequalities  and  the 
high  number  of  people  at  risk  of  poverty  point  to 
the need for investment in active inclusion policies 
to  vulnerable  groups, 
and 
including  the  Roma,  as  well  as  improving  the 
availability  and  quality  of  integrated  social  and 

targeted  support 

including 

training, 

and 

45 

 
4.4. COMPETITIVENESS REFORMS AND INVESTMENT 

4.4.1.  COMPETITIVENESS 

Graph 4.4.2:  Breakdown of rate of change of Unit Labour 

Costs 

labour  costs  have 

Labour  costs  have  outpaced  productivity 
developments over the last 10 years. During this 
period, 
risen  by  8.3 %, 
significantly  above  the  growth  of  productivity  at 
2.5 %.  This  is  reflected  in  the  average  yearly 
increase of 5.7 % in the nominal unit labour costs 
(Graph 4.4.1). In 2017, after 3 years of somewhat 
subdued  growth  in  nominal  compensation  of 
employees, it surged by 10.5 %, while productivity 
grew  at  a  slower  rate  of  2 %.  The  pick-up  in  unit 
labour  costs  has  been  mainly  driven  by  the  non-
tradable  sector,  especially  construction  and  the 
public  sector. 
industry,  and  particularly 
manufacturing, which covers the bulk of exporting 
companies,  unit  labour  costs  have  risen  less  on 
average than in the rest of the economy. 

In 

Graph 4.4.1:  Nominal unit labour costs 

Source: European Commission 

With a fixed nominal exchange rate, the rise in 
unit  labour  costs  has  also  been  reflected  in  the 
appreciation in the real effective exchange rate. 
Since 2010, there has been a significant increase in 
the unit labour costs-based real effective exchange 
rate in comparison with peer countries and the EU 
average.  It  stabilised  between  2014  and  2016, 
which  has  helped  external  competitiveness,  and  it 
was  reflected  in  stronger  export  growth.  In  2018, 
Bulgaria’s real effective exchange rate (unit labour 
costs)  further  appreciated  by  5 %,  increasing  the 
risk of cost-competitiveness losses (Graph 4.4.3). 

Source: European Commission 

Cost  developments  have  not  so  far  hampered 
external competitiveness but might be a risk in 
the  medium  term.  The  faster  increase  in  unit 
labour  costs  in  Bulgaria  than  in  its  main  trade 
partners  has  translated  into  a  higher  increase  in 
tradable  prices.  In  2017,  export  prices  (in  euro) 
increased  by  4.4 %  and  by  1.2 %  cumulatively 
over  the  last  3  years  (see  Graph  4.4.4).  A 
continuation of this rising trend in unit labour costs 
and  export  prices  could  threaten  further  increases 
in  export  market  shares,  unless  accompanied  by 
non-cost  factors  leading  to  a  transition  to  higher 
value added products, integration into global value 
chains and access to new export markets. 

Graph 4.4.3:  Real effective exchange rate, Unit Labour 

Costs deflator (IC-37) 

Source: European Commission 

46 

-6-4-202468BGROEELULVLTHUATSEFIDEMTSKPLSIUKCZBEEU-28DKITEA-19FRNLPTESCYELHRIEAverage of annual changes %2007-172007-122012-17-10-505101520030405060708091011121314151617181920Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU28forecast5060708090100110120130140150Index, 2010=100BGHRCZEUPLRORussiaSITurkey 
 
 
 
 
 
4.4. Competitiveness reforms and investment 

Graph 4.4.4:  BGN-denominated export price evolution 

capability,  as  well  as  by  making  the  institutional 
and business environment more efficient. 

4.4.2.  INVESTMENT AND PRODUCTIVITY 

in 

skills, 

the  weak 

productivity 

infrastructure  and 

Investments 
infrastructure  and 
research  and  innovation  are  needed  to  support 
competitiveness, 
the 
and 
convergence  process  with 
the  EU.  Skills 
shortages represent a significant barrier to business 
investment  and 
limit  productivity  gains  (see 
Section  4.3).  The  still  low  quality  of  energy  and 
water 
transport 
connections, especially in the north of the country, 
are  an  obstacle  to  investment  and  to  the  export 
potential of Bulgarian companies. Improved R&D 
investments, 
between 
businesses  and  research  institutions  and  a  better 
integrated  research  and  innovation  system  are 
needed to remove bottlenecks to productivity gains 
and 
Equally 
importantly,  ensuring  the  quality  of  institutions  is 
key 
reforms  and 
to  successfully 
investment priorities. 

strengthened 

implement 

innovation 

capacity. 

boost 

links 

Investment activity 

Investment  is  still  insufficient  to  narrow  the 
capital gap with the EU. The investment-to-GDP 
ratio of around 20 % is below that of most regional 
peers,  except  for  Poland  and  Slovenia,  and  below 
the EU average since 2016. Insufficient investment 
is  preventing  the  renewal  and  increase  of  the 
capital  stock,  whose  share  of  GDP  is  well  below 
the EU average and has been declining since 2014. 
It  is  also  delaying 
introduction  of  new 
the 
technologies. The private sector is the main source 
of  investment.  However,  despite  its  lower  overall 
weight,  public  investment  is  vital  for  specific 
areas, such as infrastructure development. 

funding  plays  a  key  role 

EU 
in  public 
investment.  Since  2007,  public  sector  investment 
has  been  on  average  around  4.2 %  of  GDP.  The 
contribution  of  EU  funds  can  be  more  than  two 
thirds of total public investment, depending on the 
year.  This 
the 
fluctuations in public investment. In 2015, the last 
year  that  allowed  absorption  of  funds  under  the 
previous  programming  period,  public  investment 
jumped  to  6.5 %  of  GDP,  only  to  fall  back  to 
2.6 % in 2016 and 2.1 % in 2017 as the projects of 

reliance  explains  most  of 

Source: European Commission 

Exports have improved both in terms of volume 
and  quality.  Over  the  last  decade  exports  have 
increased  by  55 %,  reaching  67.4 %  of  GDP  in 
2017 (from about 56 % in 2007). Quality has also 
improved. The share of top quality products in the 
value  of  manufacturing  products’  exports  almost 
doubled between 2012 and 2017, to around 20 %. 
Over  the  same  period,  the  share  of  low-quality 
products  dropped  substantially.  Quality  gains 
occurred across all main export industries but were 
more  conspicuous  for  computers-office  machines 
The 
electronics-telecommunications. 
and 
proportion of high-tech exports is nevertheless still 
well below the EU average (5.4 % vs 17.8 %). 

Bulgaria has consistently gained export market 
share  in  recent  years.  Bulgaria's  export  market 
share increased by 8.4 % in 2016 and by a further 
5.0 %  in  2017.  Over  2012-2017  it  increased  by 
15 %,  which  is  in  line  with  peer  countries.  The 
main  gains  came  from  products  such  as  basic 
metals,  minerals  and  machinery  and  equipment. 
Export  market  shares  in  services  continued  to 
expand  as  well.  Over  2012-2017,  Bulgaria  gained 
market  shares  in  some  of  its  main  destination 
countries such as Germany and Russia. 

improvements 

Further 
in  non-cost  factors 
would help increase competitiveness. The quality 
improvements  and 
improved  competitiveness 
mentioned above seem to have led to this progress 
in  external  performance.  Further  competitiveness 
gains  could  be  achieved  by  improving  non-cost 
innovation 
factors  such  as 

infrastructure  and 

47 

-15-10-50510152009Q109Q310Q110Q311Q111Q312Q112Q313Q113Q314Q114Q315Q115Q316Q116Q317Q117Q318Q118Q3Y-o-y rate of change, 4 quarter moving average (%)GoodsGoods and servicesServices 
 
4.4. Competitiveness reforms and investment 

stock 

the  new  programming  period  had  not  picked  up 
yet.  The 
and  quality  of  physical 
infrastructure  is still inadequate (see Section 4.4.4 
and 4.4.5) and several sectors would require higher 
public investment (see Section 4.3 and EIB, 2017). 

Graph 4.4.5:  Investment by sector 

and 

picked  up  slightly  in  2017.  However,  the  average 
share  of  state-of-the-art  machinery  and  equipment 
in  firms  is  low  (EIB,  2017).  Investment  in 
technology 
information 
equipment  has  declined  in  recent  years.  This 
reflects  mainly  a  reduced  effort  by  Bulgarian 
companies  to  digitalise  and  to  a  lesser  extent  the 
falling  cost  of  information  and  communication 
technology equipment. 

communication 

Graph 4.4.6:  Gross fixed capital formation 

Source: European Commission 

Business 
investment  has  been  weak  and 
unstable  in  almost  all  sectors  since  the  crisis. 
According to a European Investment Bank survey, 
only  around  two  thirds  of  firms  reported  some 
investment  activity  for  2017.  This  is  one  of  the 
lowest levels in the EU, only slightly above Greece 
(EIB,  2018).  Moreover,  almost  one  fifth  of  these 
companies reported investing too little over the last 
3  years. The  manufacturing sector has the  highest 
share  of  investment  and  together  with  electricity 
and  water  utilities  seems  to  be  the  main  driving 
force  of  total  investment  growth  (positive  or 
negative)  since  2015  (see  Graph  4.4.6).  However, 
their size and contribution to investment growth is 
unstable  and  often  driven  by  one-off  projects  and 
financial  events  in  these  sectors. The  construction 
sector played a leading role in investment activity 
in the  past but its share of investment  has  halved. 
Transport  and  storage  and  other  service  sectors 
have  gained  some  momentum  in  recent  years, 
taking a much higher share of total investment and 
investment growth than in the past. 

is 

The  role  of  intellectual  property  as  investment 
assets 
increasing.  The  growing  share  of 
investment in intellectual property products, which 
could support productivity growth in the future, is 
a positive sign for the economy (see Graph 4.4.6). 
Investment  in  machinery  and  equipment  also 

Source: European Commission 

Business environment 

and 

The  business  environment  remains  weak.  In 
2018,  Bulgaria  fell  from  50th  to  59th  place  in  the 
‘Ease  of  Doing  Business’  ranking  (World  Bank, 
2018).  The  most  problematic  area  is  still  getting 
complicated 
lengthy 
electricity,  with 
procedures for connecting to the network, creating 
significant obstacles to new businesses (see Graph 
4.4.8).  The  unavailability  of  the  Commercial 
register  in  August  2018  due  to  technical  reasons 
also  had  a  negative  impact  on  the  conditions  for 
doing  business  and  on  trust  in  public  institutions. 
Business  regulations  and  their  implementation 
vary  substantially  within  Bulgaria,  with  Sofia 
lagging  behind  other  regional  centres(67)  (World 
Bank, 2017a). 

(67)  Plovdiv, Pleven, Burgas, Varna, Ruse. 

48 

0.00.10.20.3979899000102030405060708091011121314151617% of GDPA - Agriculture, forestry and fishingC - ManufacturingD - Electricity, gas, steam and air conditioning supplyF - ConstructionG - Wholesale and retail trade; repair of motor vehicles and motorcyclesH - Transportation and storageJ - Information and communicationL - Real estate activitiesO - Public administration and defence; compulsory social securityOthers0.00.10.10.20.20.30.30.408091011121314151617% of GDPIntellectual property products (gross)Cultivated biological resources (gross)Machinery and equipment (gross)Total Construction (gross) 
 
 
                                                           
4.4. Competitiveness reforms and investment 

just 45.3 % of the EU average in purchasing power 
standard,  ranking  Bulgaria  last  in  the  EU.  Since 
2000,  labour  productivity  has  increased  by  only 
12.8 pp., while it rose by 26 pp. on average in the 
Baltic  states  and  by  37.5  pp.  in  Romania,  which 
had  started  from  similar  productivity 
levels. 
Growth  in  total  factor  productivity  slowed  after 
2007 but is picking up again. Moreover, the share 
of  investment  in  GDP  across  all  regions  ranges 
around the EU and country average, but this is not 
reflected  in  higher  labour  productivity.  The  main 
obstacles  to  productivity  growth  are  a  lack  of 
skilled  labour  (see  Section  4.3),  the  challenging 
business  environment,  insufficient  spending  on 
research  and  innovation  and  the  slow  digitisation 
of  the  economy.  This  is  putting  at  risk  the 
its 
country's  mid-term  competitiveness  and 
capacity  to  attract  foreign  and  domestic  capital. 
Moreover, Bulgaria has decided not to follow 2016 
Council Recommendation and establish a National 
Productivity  Board,  on  the  account  of  existing 
institutions that already perform some of the tasks.  

and 

Low- 
medium-low-technology 
manufacturing  continue  to  dominate  industry. 
This is the  case in terms of both employment and 
value  added.  Labour  productivity 
in  high-
technology manufacturing is more than three times 
higher than in low and medium-low segments, but 
only  about  10 %  of  all  manufacturing  companies 
belong  to  this  category.  In  addition,  Bulgaria  is 
well  integrated  in  terms  of  trade  but  the  domestic 
value  added  in  gross  exports  is  relatively  low. 
Increasing  the  share  of  companies  in  high  value 
added  sectors  and  moving  up  in  the  global  value 
chains  will  be  key  for  maintaining  the  country's 
long-term competitiveness and economic growth. 

Research and innovation 

Weak innovation performance is not supportive 
of  productivity  gains.  Bulgaria  ranks  27th  in  the 
European 
(European 
Innovation  Scoreboard 
Commission,  2018d)  with  a  performance  level 
below 50 % of the EU average. Bulgaria’s relative 
weaknesses  are  in  the  categories  of  innovative 
companies, finance and support, attractive research 
systems and links between companies and research 
institutions. The share of  small and  medium-sized 
introducing  product  or  process 
enterprises 
innovation  is  only  11 %  of  the  EU  average;  the 
share  of  those  innovating  in-house  is  14 %  of  the 
average. 

Graph 4.4.7:  World Bank Doing Business 2019 score 

Source: Source: World Bank (2019) 

Small and  medium-sized enterprises still face a 
number  of  challenges.  Bulgaria’s  progress  in 
implementing the  Small Business  Act(68) is  weak, 
especially  in  the  areas  of  skills  and  innovation, 
responsive administration, environment and, above 
all, entrepreneurship,  where  Bulgaria ranks last  in 
the  EU  (European  Commission,  2018g).  The 
measures to address these shortcomings have been 
often small-scale and sporadic and have not led to 
visible  improvements.  The  most  promising  step 
was the introduction of entrepreneurship training at 
schools  which  is  expected  to  have  a  long-term 
effect.  Companies’  engagement  in  the  process  is 
crucial  for  its  success.  In  addition,  the  frequently 
changes  in  legislation  have  been  identified  as  one 
for 
of 
companies(69).  However,  the  recently  introduced 
Impact  Assessment  and  the  ‘SME  Test’  have  not 
improved the situation (see Section 4.4.6). 

sources  of  uncertainty 

the  main 

Productivity 

far  below 

Labour productivity has been increasing but  is 
still 
the  EU  average.  Raising 
productivity  levels  is  essential  for  narrowing  the 
income gap and preserving competitiveness, given 
the  increasing  levels  of  labour  compensation  and 
the ageing population. Despite its upward trend, in 
2017 labour productivity per hour worked reached 

(68)  Small  Business  Act  is  an  overarching  framework  for  EU 
policy  on  small  and  medium-sized  enterprises.  It  aims  to 
improve  the  approach  to  entrepreneurship  in  Europe, 
simplify  the  regulatory  and  policy  environment  for  small 
and  medium-sized  enterprises  and  remove  the  remaining 
barriers to their development. 

(69)  Council of Ministers’ Decision No. 617 of 12 August 2015. 

49 

Starting aBusinessDealing withConstructionPermitsGettingElectricityRegisteringPropertyGetting CreditProtectingMinorityInvestorsPaying TaxesTrading acrossBordersEnforcingContractsResolvingInsolvencyBGEU28 average 
 
                                                           
4.4. Competitiveness reforms and investment 

Box 4.4.1: Investment challenges and reforms in Bulgaria 

Section 1. Macroeconomic perspective  

Total investment remains relatively low and the business environment is still weak. The recovery 
of private investment after the crisis was subdued and unstable. Public investment financed by the 
EU Structural and Investment Funds picked up only in 2018. Institutional shortcomings, regulatory 
uncertainty and corruption remain among the  main obstacles to investment and create a business 
environment that is weak overall.  

Section 2. Assessment of barriers to investment and ongoing reforms 

So  far  only  about half  of  the  measures  in  the  government's  action  plan  to  remove  obstacles  to  investment 
have been put in effect. The government updated the action plan at the beginning of 2018; however there is 
no evaluation of the impact of the measures applied. Public administration reform and the introduction of e-
government are slow with insufficient results. (see Section 4.4) 

The lack of adequately skilled staff continues to be a key obstacle to many investments. The low quality of 
the education and training systems and the limited supply of programmes that correspond to market needs 
weigh on investment decisions. (see Section 4.3) 

Insolvency  framework  reform  is  still  incomplete  and  the  insolvency  proceedings  cannot  support  the 
reduction  of  private  debt  (see  Section  4.2.4).  Justice  system  has  improved  with  changes  to  reinforce 
independence of the judiciary, but there are still a number of challenges concerning the prosecution service 
and the distribution of workload among the courts (see Section 4.4.5). 

Despite the ongoing deleveraging process the level of private sector debt remains high and credit subdued, 
while the only gradually decreasing high stock of non-performing loans is limiting banks’ capacity to boost 
credit for investment (see Section 4.2.3). Venture capital and the other forms of non-banking financing are 
still  limited  (see  Section  4.2.5).  The  financial  market  is  underdeveloped  and  the  public  support  plays  an 
important  role.  The  EU  financial  instruments  provide  possibilities  of  improved  financing  conditions  for 
businesses. 

The national promotional institution is the  Bulgarian Development Bank (99.9% state-owned). The Bank's 
main goal is to support small and medium-sized enterprises focusing on start-ups and innovation, exports of 
final  products,  manufacturing,  mineral  extraction  and  agriculture  and  tourism.  The  national  promotional 
institution  is  the  Fund  Manager  of  Financial  Instruments  in  Bulgaria  (the  Fund  of  Funds,  100%  state-
owned),  acting  as  long-term  investor  in  infrastructure  and  entrepreneurship  with  European  Structural  and 
Investment Funds. 

50 

 
 
 
 
 
 
4.4. Competitiveness reforms and investment 

R&D  system  is  a  source  of  significant  concern. 
Bulgaria  has  only  four  researchers  per  thousand 
employees (STIP, 2018), and mainly in the public 
sector. 

for 

innovation  under 
these 

Important  projects 
to  encourage  business 
innovation and digitisation are on the way. Over 
2014-2020, EU funds are financing four centres of 
excellence  and  nine  centres  of  competences,  as 
well  as  regional  research  projects  outside  Sofia. 
Together  with  other  EU  grants  and  financial 
instruments 
the  smart 
investments  are 
specialisation  strategy, 
expected to lay the basis for collaboration between 
research  institutes,  universities  and  the  private 
sector.  They  should  facilitate  knowledge  transfer, 
help  to  create  university  spin-offs  and  attract 
(venture) 
and 
performance  of  these  projects  are  vital  for  future 
investments,  both  in  terms  of  infrastructure  and 
soft  measures.  Meanwhile,  the  flagship  ‘Sofia 
Tech  Park’  continues  to  face  challenges.  The 
underuse of its scientific infrastructure, governance 
issues and its long-term financial sustainability are 
some  of  the  concerns.  Clusters  and  their  potential 
in Bulgaria are underdeveloped as they often lack a 
critical mass. 

capital.  The 

sustainability 

The  smart  specialisation  strategy  seems  to  be 
limited  to  guiding  EU-funded 
investments. 
Instead  of  empowering 
local  businesses  and 
communities,  it  remains  very  much  a  top-driven 
bureaucratic  exercise.  The  Council  for  Smart 
Growth, which should set priorities and coordinate 
and  monitor  the  strategy,  has  undertaken  little 
activity, thus weakening the whole process. 

Digitalisation 

and 

Index 

Society 

Uptake  of  digital  technologies  is  slow  in  both 
public and private sectors. Bulgaria is among the 
lowest  performing  Member  States  in  the  Digital 
Economy 
(European 
Commission, 2018f). The  main challenges are  the 
very low level of citizens’ digital skills and the low 
integration of digital technologies by businesses. A 
growing 
tech 
of 
entrepreneurs  has  emerged  in  recent  years,  but 
investment  in  the  digitisation  of  the  economy  is 
still  limited  and  lacks  an  overarching  strategy. 
Bulgaria is committed to strategically  investing in 
EU-coordinated 
digital 
Joint 
programmes 

technologies 
(e.g. 

through  EuroHPC 

ecosystem 

digital 

and 

via 

R&D  spending  remains  very  low  in  both  the 
private  and  public  sectors.  Private  sector  R&D 
expenditure  amounted  to  only  0.53 %  of  GDP  in 
2017  (compared  to  the  EU  average  of  1.36 %), 
even  though  it  has  been  improving  since  2007, 
particularly for manufacturing and information and 
communication  technology.  Large  multinational 
companies  account  for  half  of  the  entire  business 
sector’s  R&D  investment.  Regional  concentration 
is  also  strong,  with  more  than  70 %  of  R&D 
investment  going  to  the  South  Western  region, 
primarily  to  Sofia.  The  public  sector’s  R&D 
spending is among the lowest in the EU (European 
Commission, 2018e). In 2017 it amounted to only 
0.21 %  of  GDP,  far  from  the  EU  average  of 
0.69 %.  However,  in  2018  Bulgaria  doubled  its 
public  research  budget  to  support  its  2017-2030 
Strategy  for  Research  and  its  commitment  to 
gradually increasing public R&D spending to 1 % 
of GDP by 2025. The lack of an adequate funding 
portfolio  in  R&D  remains  a  barrier  for  fostering 
public-private cooperation and  internationalisation 
as  well  as  reintegration  of  researchers  and 
innovators. 

of 

high-quality 

slow  pace 

in 
High 
fragmentation  and 
implementing  reforms  prevent 
the  move 
towards  a  more  innovation-oriented  research 
and innovation system. . There is a large number 
of universities and research institutes, but  most of 
them  show  low  performance  in  research  and 
production 
scientific 
publications(70).  To  address  the  recommendations 
stemming  from  the  evaluation  of  its  national 
research 
(European 
Commission,  2015),  Bulgaria  has  started  to  fund 
its  public  research  institutions  on  the  basis  of 
performance  criteria  and  has  created  national 
scientific  programmes  that  aim  to  consolidate 
resources and research potential. However, it is too 
early to assess results. 

innovation 

system 

and 

Science-business  cooperation  remains  very 
weak. Public-private scientific co-publications as a 
percentage  of  total  publications  declined  to  0.8 % 
in  2017,  compared  to  an  EU  average  of  3.9 %. 
Patent  applications  are  also  very  low(71).  In 
addition,  the  availability  of  human  capital  in  the 

(70)  In  2015,  3.6 %  of  total  publications  were  highly  cited, 

compared to the EU average of 11.1 %. 

(71)  In  2014,  eight  Patent  Cooperation  Treaty  patents  per 
million population compared to the EU average of 102. 

51 

 
                                                           
4.4. Competitiveness reforms and investment 

Undertaking). Bulgaria also has a National Centre 
for Supercomputing Applications, but its activities 
could be further enhanced, especially to the benefit 
of  small  and  medium-sized  enterprises.  While 
Bulgaria  is  a  signatory  to  the  Declaration  on 
Cooperation on Artificial Intelligence, measures to 
encourage  the  take-up  of  artificial  intelligence 
applications  in  the  public  and  private  sectors  are 
lagging behind. 

trade(74).  A  modern, 
important  obstacles 
to 
operational  infrastructure  allowing  for  intermodal 
transport connections is lacking, which also causes 
regional  disparities  (see  Section  4.4.4).  Inland 
navigability  suffers  from  bottlenecks  and  cross-
border 
and 
Romania  across  the  Danube  River  is  a  challenge 
due  to  the  low  number  of  bridges  that  have  been 
built or modernised(75). 

connectivity  between  Bulgaria 

Connectivity has slightly improved but still lags 
far  behind  the  EU  average.  Fixed  broadband 
take-up remains well below the EU average (58 % 
v  77 %),  as  well  as  4G  coverage  (80 %  v  98 %). 
More  positively,  the  take-up  of  fast  broadband  is 
slightly  above  the  EU  average  (43 %  v  41  %), 
while  ultrafast  broadband  coverage  is  well  above 
(75 % v 60 %). Investments in better, more reliable 
and faster connectivity would help to attract more 
high value added businesses and are a prerequisite 
for improving the level of digitisation. There is no 
5G  strategy  yet,  but  a  dedicated  working  group 
was 
the  Next 
Generation  Access  plan  to  include  it.  Securing  a 
very  high  speed  connectivity  of  academic  and 
educational  entities  to  facilitate  access  to  e-
education and cloud services remains a challenge. 

to  revise 

in  2017 

launched 

Transport 

in 

The  coverage  and  quality  of 
transport 
infrastructure have improved but remain below 
the  EU  average.  Key  connections  are  still 
underdeveloped,  especially 
the  North  and 
between  Northern  and  Southern  regions(72).  The 
low  quality  of  road  and  rail  connections(73), 
including  trans-European  transport  core  network, 
results  in  long  travel  times,  poor  transport  safety 
and  low  connectivity  across  regions  in  Bulgaria 
and  with  the  neighbouring  countries.  The  lack  of 
comprehensive network connections to Serbia and 
the  Republic  of  North  Macedonia  creates 

(72)  The  south’s  more  developed  road  infrastructure  creates 
more  favourable  investment  conditions.  Furthermore,  the 
connection  between  the  south  and  the  north  is  often 
in  winter  conditions  (National  Transport 
interrupted 
Strategy 2030, 2017: pp.106, 194). 

(73)  Priority  projects  include  the  speedways  Vidin  -  Montana 
and  Vratsa  -  Mezdra,  IMT  Ruse  and  Varna,  connections 
between  IMTs  Burgas-Varna  and  Varna-Ruse.  The  IMT’s 
significance  would  be  further  enforced  through  motorway 
connections  between  Ruse-Veliko  Tarnovo  and  Varna-
Veliko Tarnovo. 

to 

the 

Implementing  the  Trans-European  Transport 
Network  policy  is  important  for  the  future  of 
the transport system. Transposition of the Trans-
European  Transport  Network  would  bring  about 
low-emission  facilities,  new  generation  services’ 
includes 
concepts  and 
the 
innovation.  This 
infrastructure, 
construction  of  road  and  rail 
building 
the  Western  Balkans, 
links 
exploiting  the  potential  of  the  Black  Sea  and  the 
Danube  and  putting  in  place  more  innovative 
financial  instruments  while  ensuring  consistency 
of  investment  between  the  programming  periods. 
This  would  allow  Bulgaria  to  benefit  from  its 
central  location,  including  as  a  transit  country  on 
freight 
the 
corridor.  The  priority  remains  to  develop  the 
Trans-European  Transport  Network  corridors 
‘Orient/East-Med’  and  ‘Rhine-Danube’  and  the 
connections with Western Balkan countries. 

future  Alpine-West  Balkans 

rail 

Bulgaria is among the countries with the lowest 
perceived  quality  of  transport  infrastructure. 
Bulgaria  ranks  93rd  out  of  137  countries  on  road 
quality  (World  Economic  Forum,  2018).  To 
improve  road  infrastructure,  intelligent  transport 
systems  need  to  be  developed,  encompassing 
cross-border  data,  road  charging/e-toll  schemes, 
safety  and  parking  facilities.  Along  the  core  rail 
network,  there  are  compliance  issues  with  train 
lengths,  operating  speeds  and  the  European  Rail 
Traffic Management System standards. 

Road safety is a major issue. Bulgaria has one of 
the  highest  road  fatality  rates  in  the  EU,  with  96 
deaths  per  million  inhabitants  in  2017  (almost 
double the EU average). Traffic control teams can 
sanction  law  violations,  but  the  enforcement  acts 
are  often  cancelled  by  the  courts  due  to  legal 
loopholes.  Drivers’  behaviour,  a  very  old  vehicle 

(74)  National Transport Strategy 2030 p.54 
(75)  EU Strategy for the Danube Region. 

52 

 
                                                           
                                                           
4.4. Competitiveness reforms and investment 

Energy and climate 

foreign 

investment 

and  predictable 

Investment  needs  in  the  fields  of  energy  and 
climate  are  significant.  Frequent  amendments  of 
the  Energy  Act  are  not  conducive  to  creating  a 
stable 
climate. 
Likewise,  recent  transactions  in  the  energy  sector 
have  fuelled  speculation  of  political  meddling, 
reducing the sector’s attractiveness and potentially 
deterring  much-needed 
investment. 
Bulgaria  is  expected  to  adopt  the  final  version  of 
its Integrated National Energy and Climate Plan by 
31  December  2019,  as  required  by  the  Energy 
Union  Governance  Regulation,  with  an  overview 
of investment needs for the different dimensions of 
the Energy Union until 2030. Having this strategy 
long-term 
in  place  would  help 
predictability 
in 
presenting  it  could  lead  to  investor  uncertainty. 
Also,  Bulgaria  hosts  several  Projects  of  Common 
Interest which aim at improving security of supply, 
better  integrating  the  country  into  the  EU  energy 
markets, and integrating renewable electricity.  

improve 
investors,  and  delays 

for 

Bulgaria  remains  the  most  energy-intensive 
economy  in  the  EU  by  a  wide  margin.  The 
structure of Bulgaria's final energy consumption is 
quite similar to that of the EU. However, in 2016 
energy  consumption  per  unit  of  GDP  was  three 
times  the  EU  average  (European  Commission, 
(2017c).  This 
is 
preventing  Bulgaria  from  fully  exploiting  the 
potential of its relatively low energy prices. 

inefficient  use  of  energy 

Bulgaria  is  lagging  behind  in  its  progress 
towards  its  2020  indicative  national  target  for 
energy  efficiency.  In  2017,  Bulgaria  was  off  the 
mark  by  approximately  8%  in  terms  of  primary 
energy  consumption  and  15%  in  terms  of  final 
energy consumption(78), with both gaps increasing 
compared  to  2016  levels.  Bulgaria  ranked  last  in 
the  EU  in  2011  on  energy  efficiency(79),  which 
illustrates  that  this  is  a  long-standing  issue  and  it 
negatively 
and 
competitiveness  of  businesses  in  the  country. 
Additional  efforts  should  thus  be  made  to  ensure 
that  sufficient  energy  savings  are  achieved  by 
2020.  Targeted  measures  and  investment  can 
unlock  the  huge  energy-saving  potential  in  the 

productivity 

affects 

fleet  and  an  underdeveloped  road  network  are 
contributing factors to the poor performance. 

Traffic  intensity  of  freight  and  passenger  rail 
transport  is  decreasing.  Rail  accounts  for  only 
2 %  of  passenger  and  17 %  of  freight  transport 
(European  Commission,  2018h).  The  railway 
company  BDZ  accounts  for  92 %  of  the  total 
transport volume and has a public service contract 
to  transport  passengers  by  2024,  but  nonetheless 
has  unsatisfactory  financial  results.  In  rail  freight 
transport, there is a need to address the significant 
maintenance  backlog  of  the  rail  network.  The  rail 
regulatory  body faces  serious  governance  issues 
in  performing  controls  on 
and  challenges 
certification.  The  extremely 
level  of 
remuneration  is  a  major  obstacle  to  attracting 
highly  qualified  specialists.  Increasing  the  use  of 
competitive  tendering  and  award  procedures  for 
public  service  contracts  for  access  to  rail  rolling 
stock  would  encourage  the  entry  of  new  private 
operators in rail. 

low 

The  use  of  alternative  and  clean  fuels  in 
transport is not reaching the targets. Despite the 
government's  intention  to  promote  the  use  of 
alternative  fuels(76),  there  are  currently  only  108 
publicly  accessible  charging  stations  for  electrical 
vehicles, ranking Bulgaria as second to last in per 
capita  (peri-)  urban  area  coverage  in  the  EU.  It  is 
unclear  how  the  country  will  reach  its  national 
target  of  2 500  public  charging  stations  by  2020. 
Bulgaria  has  developed  very  few  natural  gas 
refuelling stations (none for liquefied natural gas), 
and no hydrogen refuelling infrastructure, although 
its  National  Policy  Framework  announced  10 
hydrogen refuelling stations by 2025. 

Urban  transport  is  an  issue  in  all  major 
cities(77). These cities suffer largely from poor air 
quality (European Commission, 2018j), congestion 
and accelerated urbanisation (NSI, 2016). There is 
a  lack  of  sustainable  urban  mobility  plans  and 
action 
to  reduce  pollution,  CO2  and  noise 
emissions,  to  improve  urban  road  safety,  and  to 
increase  energy  efficiency  as  well  as  the  share  of 
renewables in urban transport. 

(76)  Tax  exemption  for  vehicles  with  electric  engines  since 

2018. 

(77)  In  line  with  the  Urban  Mobility  Package  (European 

Commission, 2018i). 

(78)  2018 ESTAT data  
(79)  Energy  Union  Factsheet  Bulgaria,  SWD(2017)  386  final, 
available  at:  https://ec.europa.eu/commission/sites/beta-
political/files/energy-union-factsheet-bulgaria_en.pdf 

53 

 
                                                           
                                                           
4.4. Competitiveness reforms and investment 

waste  remains  suboptimal  at  all  levels,  as  do 
related 
infrastructure,  public  awareness  and 
monitoring  (European  Commission  2018m).  A 
formally 
‘pay-as-you-throw’ 
introduced but is not enforced. The secondary use 
of  material  in  Bulgaria  was  4.3 %  in  2016, 
substantially below the EU average of 11.7 %. The 
capacity of municipalities to organise, procure and 
manage waste collection and treatment is limited. 

principle  was 

Connection  and  treatment  rates  for  urban 
wastewater  are  very  low.  Investments  in  water 
supply  and  sanitation  have  increased  significantly 
in the last decade, mainly  supported by EU funds. 
However, there are weaknesses in the planning and 
management of these projects. Only about 26 % of 
Bulgaria's  wastewater  is  collected;  20.4 %  is 
subjected 
treatment  and  6.7 % 
undergoes more stringent treatment where required 
(European Commission, 2017b). 

to  secondary 

Air quality continues to give cause for concern. 
Bulgaria  remains  among  the  Member  States  with 
the  highest  pollution-related  deaths,  number  of 
years  of  life  lost  associated  with  air  pollution  and 
urban  population  exposure  to  particulate  matter 
(dust)  (EEA,  2018b).  The  main  sources  of  air 
pollution  with  particulate  matter  are  the  domestic 
(residential)  heating  sector  using  solid  fuels  and 
transport.  The  age  of  the  road  transport  fleet 
increases  the  risk  of  exceeding  nitrogen  oxide 
emission  values.  Bulgaria  has  not  yet  taken  any 
structural measures to address air pollution and to 
align  air  quality  objectives  with  policies  in  key 
sectors such as climate, energy and transport. 

The emergency management system for disaster 
prevention  and  response  requires  investment. 
Mitigation  measures  for  floods  and  earthquakes, 
adaptation to climate change and monitoring of the 
marine  environment  are  of  concern.  There  is  a 
response-focused 
need 
emergency  management system  to a more holistic 
disaster  risk  prevention  and  management  system 
(Briggs et al, 2015).  

transition 

from  a 

to 

to  develop 

Plans 
efficient  management 
structures  for  areas  in  the  Natura  2000  nature 
protection  network  are 
lagging  behind. 
Construction  in  Natura  2000  areas  and  a  lack  of 
integration  of  nature  and  biodiversity  policy  into 
other sectoral policies are among the  main threats 
to  nature  and  biodiversity  in  Bulgaria.  Other 

residential 

transport  and 

industrial, 
sectors, 
improving  the  economy’s  overall  competitiveness 
and  people's  quality  of  life.  Attracting  investment 
and unlocking private financing to improve energy 
efficiency  is  also  crucial  for  securing  the  Union's 
energy  transition  targets  with  a  2020  perspective 
and beyond.  

To  alleviate  the  socio-economic  impacts  of  the 
clean energy transition, planning of transitional 
measures is important. This is also to ensure that 
Bulgaria  can  reap  the  benefits  from  low-carbon 
transformation in the form of new jobs and growth. 
The  scale  of  the  challenge  is  substantial  as 
Bulgaria  accounts  for  7%  of  EU  coal  production 
and 6% of jobs in the coal mining sector, meaning 
that  over  12  000  jobs  in  coal  regions  are  at  risk. 
Active  participation  in  the  EC  Coal  Regions  in 
Transition 
the 
preparation  of  adequate  transition  strategies  and 
identification of priority projects and measures.  

should  help  with 

Initiative 

Though  on  track  to  achieve  its  2020  renewable 
energy  target,  Bulgaria  remains  the  most 
greenhouse  gas  emission-intensive  economy  in 
the  EU.  In  2016,  the  greenhouse  gas  intensity  of 
Bulgaria's  economy(80)  was  4.3  times  higher  than 
the  EU  average  (European  Commission  2017c). 
Bulgaria  exceeded  its  2017  indicative  trajectory 
target  as  set  under 
the  Renewable  Energy 
Directive. The 2017 level of the renewable energy 
share  in  gross  final  energy  consumption  stood  at 
18.7 %, well above the 16 % target. However, the 
share  of  renewables  in  transport  was  7.2 %  in 
2017,  still  below  the  2020  target  of  10 %.  At  the 
same time, based on its own projections, Bulgaria 
may  miss  by  1  pp.  its  2030  target  of  keeping  its 
greenhouse  gas  emissions  at  no  higher  than  the 
2005 level (European Commission, 2018c). 

Environment 

is  not  being 

The potential of new circular economy business 
models 
exploited.  Waste 
management  continues  to  be  a  challenge,  despite 
municipal  waste  generation  being  below  the  EU 
average(81).  Landfilling  rates  for  municipal  waste 
are among the highest in the EU, putting Bulgaria 
at  risk  of  missing  the  2020  target  for  50 % 
municipal  waste  recycling.  Separate  collection  of 

(80)  Measured in tCO2eq/M EUR (2010) 
(81)  Eurostat, Municipal waste by waste operations 

54 

 
                                                           
4.4. Competitiveness reforms and investment 

weaknesses  are  poor  enforcement  of  nature 
conservation  laws  and  environmental  regulations, 
including  the  absence  of  conservation  objectives 
and  measures  for  Natura  2000  sites;  ineffective 
management and administration of protected sites; 
and  insufficient  financing  or  inefficient  spending 
of the financing available. 

4.4.3.  FUNCTIONING OF THE MARKETS 

Single market for goods and services 

The  single  market  for  services  is  performing 
relatively well, with a few exceptions hampering 
competition.  The  new  Law  on  Private  Security 
Activities  introduces  complex  authorisation  and 
reporting 
requirements  and  an  even  more 
burdensome  regime  for  temporary  cross-border 
service providers. In the tourism sector, the recent 
regulations for tourist guides and mountain guides 
are  also  very  restrictive,  while  construction 
services  are  burdened  by  various  authorisation 
schemes. 

In  the  area  of  product  safety,  limited  financial 
and  human  resources  affect  the  possibility  to 
carry  out  product  testing.  This  results  in  only 
some product categories being subject to restrictive 
and  protective  measures  (and  notified  in  the  EU 
Rapid  Alert  System  on  non-food  products).  As  a 
consequence,  consumers  and  retailers  report  very 
low  levels  of  confidence  in  product  safety and 
retailers  give  low  assessment  of  product  safety 
legislation 
public 
enforcement 
authorities (European Commission, 2019a).  

by 

Bulgaria  is  pushing  forward  with  the  plan  to 
modernise and strengthen its high-pressure gas 
network.  Important  milestones  were  reached  on 
interconnector  between 
the  cross-border  gas 
Greece  (Komotini)  and  Bulgaria  (Stara  Zagora) 
and the operation is expected to start in July 2020. 
On  the  other  hand,  Bulgaria  still  lacks  access  to 
diversified  sources  of  gas;  bilateral  trade  and 
market-based  balancing  are  in  their  infancy;  an 
organised 
gas 
commodity trading is not yet operational and some 
problems  with  the  functioning  of  the  internal 
market remain unresolved(82). 

standardised 

exchange 

for 

Retail  markets  for  electricity  and  natural  gas 
remain  price-regulated.  Consumers  do  not  have 
transparent  and 
to  open, 
sufficient  access 
competitive  offers  and  their  level  of  satisfaction 
with  the  quality  of  service  received  is  among  the 
lowest  in  the  EU.  There  has  been  little  sign  of 
improvement over the years. 

The  overall  functioning  of  the  motor  fuel 
market  remains  problematic.  In  July  2018 
Bulgaria  adopted  the  Act  on  the  administrative 
regulation of economic activities related to oil and 
petroleum products. This aims to tackle issues such 
as  the  low  fuel  quality,  access  to  tax  warehouses, 
VAT  evasion,  unregulated  trades  at  selling  points 
which  are  not  connected  to  the  National  Customs 
Agency  and  the  National  Revenue  Agency,  and 
enforcing  fair  competition.  The  implementing  act 
is not yet adopted and the adoption process has so 
far  been  riddled  with  controversies  and  protests 
from stakeholders. 

Energy sector 

4.4.4.  REGIONAL DISPARITIES 

transactions 

forward  market  where 

Problems  with  liquidity  still  linger  on  the 
electricity market. This is particularly the case in 
in 
the 
standardised  baseload  and  flexible  products  are 
held  back  by  bilateral  trade,  despite  the  energy 
exchange's  steps  to  improve  liquidity  on  the  day-
ahead  segment  and  implement  market  coupling 
with  neighbouring  countries.  More  generally,  the 
Independent Bulgarian Energy Exchange still lacks 
an  operational  clearing  house  to  become  a  central 
counterparty  to  transactions  and  thus  reduce  risk 
and  improve  the  credibility  of  its  price  discovery 
mechanism. 

There  are  significant  regional  differences  in 
factor  endowments.  Despite  clear  improvements 
over recent years, there is still a wide gap between 
regions in terms of human capital. In skilled labour 
and  education  attainment,  the  capital  region  is  a 
strong  outperformer,  even  relative  to  the  EU 
is 
rest  of 
average,  but 
underperforming  (See  Graph  4.4.1).  Thus,  large 

the  country 

the 

(82)  In  December  2018  the  European  Commission  has  fined 
Bulgarian Energy Holding (BEH), its gas supply subsidiary 
subsidiary 
Bulgargaz 
Bulgartransgaz (the BEH group) €77 068 000 for blocking 
competitors' access to key gas infrastructure in Bulgaria, in 
breach of EU antitrust rules. 

infrastructure 

and 

gas 

its 

55 

 
                                                           
4.4. Competitiveness reforms and investment 

portions of the Bulgarian economy are lacking the 
fundamentals  needed  to  make  the  transition  to  a 
dynamic,  high  value  added,  knowledge-oriented 
economy. 

Graph 4.4.8:  Regional disparities 

intermodal  terminals  in  key  cities  like  Ruse  and 
Varna.  There  is  a  need  to  address  the  existing 
regional  disparities  by  completing  the  planned 
motorway and rail network, improving travel time 
and  safety  and  reducing  CO2  emissions  in  the 
north.  

4.4.5.  INSTITUTIONAL QUALITY AND 

GOVERNANCE 

Bulgaria 

governance. 
in 

indices  continue  to  point  to 
International 
is 
in 
problems 
the  European  Quality  of 
underperforming 
Governance  Index(85)  and 
the  World  Bank’s 
Worldwide  Governance  Indicators(86).  It  is  also 
the 
among 
Bertelsmann  Stiftung  Sustainable  Governance 
Indicators 
executive 
accountability  score  slightly  increasing  and  the 
executive capacity score the same as in 2017. 

lowest  EU  performers 

2018(87),  with 

the 

the 

in 

Public administration 

to  design  and 

Public  administration  reform  continues  to  be 
slow  and  is  yielding  insufficient  improvements. 
Bulgaria's  capacity 
implement 
policies  is  still  limited.  Despite  the  progress  in 
2018,  with  22  completed  comprehensive  impact 
assessments  and  344  partial  ones,  the  regulatory 
impact  assessment  system  suffers  from  several 
deficiencies.  Insufficient  data,  low  administrative 
capacity  and  political  interference  are  hampering 
the ex ante assessment of legislative proposals and 
do  not  support  informed  policy  choices.  Weak  ex 
ante  assessment  is  leading  to  frequent  legislative 
changes  and  creating  legal  uncertainty  for  both 
companies  and  citizens.  Moreover,  monitoring  of 
the  practical  implementation  and  enforcement  of 
measures  is  limited  and  ex  post  assessment  is 
lacking. 

There  has  been  little  progress  in  the  provision 
of  public  services.  Moreover,  the  perception  of 
to  a 
their  quality 
of 
Eurobarometer 

low.  According 
only 

survey(88), 

is  still 

28 % 

(85)https://ec.europa.eu/regional_policy/en/information/maps/qu

ality_of_governance. 

(86)http://info.worldbank.org/governance/wgi/index.aspx#home. 
(87)  https://www.bertelsmann-

stiftung.de/fileadmin/files/BSt/Publikationen/GrauePublika
tionen/SGI_2018_Englisch_komprimiert.pdf. 

(88)  Eurobarometer survey, spring 2018. 

Yellow areas represent the range of disparities across regions 
(1) Percentage of population aged 30-34 
(2) Percentage of population aged 20-64 
(3) Percentage of economically active population 
(4) Ratio population within 120km to population accessible 
with a 90 minute drive 
Source: European Commission 

activities 

Research 

Even  the  capital  region  is  lagging  behind  the 
EU  average  in  innovation  and  research  and 
and 
development. 
infrastructure are concentrated in Sofia and several 
of  the  biggest  cities  like  Plovdiv,  Varna,  Burgas, 
Ruse, Gabrovo, Stara Zagora and Blagoevgrad(83). 
Companies  are  late  in  spreading  the  benefits  of 
technological progress and this  weighs  heavily on 
total  factor  productivity.  According  to  the  2018 
Regional  Innovation  Scoreboard,  South  Western 
and south Bulgaria are 'moderate innovators' while 
north  and  east  Bulgaria  are  at  the  bottom,  with 
innovation  performance  decreasing  slightly  over 
time(84). 

Northern  regions  suffer  from  underdeveloped 
transport infrastructure. All the major motorway 
and  rail  developments  since  2010  have  been 
concentrated in the south of the country, while the 
density of motorways in the north remains close to 
zero.  In  addition,  the  north  of  Bulgaria  has 
underdeveloped 
cross-border 
connections  with  Romania  and  there  is  a  lack  of 

outdated 

and 

(83)  Bulgaria:  Diagnostic  Review  –  mapping  of  infrastructure, 

equipment and apparatus, 2017. 
(84)  Regional Innovation Scoreboard 2018. 

56 

20406080100120140160Innovationscoreboard,2017Tertiaryeducated (1),2017Employmentrate (2),2015-2017Unemploymentrate (3),2017Roadaccessibility(4),2016Index, EU 28=100EU28Non-capital regionsMS averageCapital region 
 
 
                                                           
                                                           
4.4. Competitiveness reforms and investment 

functions 

There  is  no  visible  progress  on  feedback-based 
human  resources  management.  The  adopted 
2019  State  Budget  Law  proposes  an  increase  of 
10 % in civil servants’ salaries, to take effect as of 
January  2019,  but  differences  in  salaries  for  the 
same 
among  different  budgetary 
institutions  persist.  This  is  due  to  the  different 
implementation  of  optimisation 
degree  of 
measures for the administrative structures in recent 
years. According to the 2017 Report on the state of 
the  administration(89),  31 %  of  the  administration 
units  still  do  not  have  a  human  resources 
management system and 4 % do not have a payroll 
system.  Although  legally  settled,  the  introduction 
of  centrally  managed  competitions  has  been 
postponed until October 2019. 

Administrative capacity continues to hinder the 
execution  of  EU-financed  projects.  Bulgaria  has 
proven  so  far  to  have  an  effective  EU-funded 
projects  control  system,  but  management  and 
implementation  need  further  improvement.  There 
are issues  with the stability in the  management of 
the  capacity  of 
managing  authorities  and 
to  manage 
(e.g.  municipalities) 
beneficiaries 
projects. Bulgaria participates in the Commission’s 
'Integrity Pacts — A Civil Control Mechanism for 
Safeguarding  EU  Funds'  initiative  as  a  concrete 
step to combat the misuse of EU funds. 

Public procurement 

The practical benefits of the ongoing reforms of 
public  procurement  are  still  limited.  The  vast 
majority  of  measures  included  in  the  national 
procurement strategy have been adopted, but their 
implementation 
requires  constant  monitoring, 
control  and  assessment.  The  World  Bank  is 
carrying  out  an  independent  review  of  the  public 
procurement  sector.  Assessment  of  the  overall 
institutional  capacity  of  the  Public  Procurement 
Agency,  an  overall  evaluation  of  how  well  the 
public  procurement  system 
functions  and  a 
qualitative  and  quantitative  analysis  of  data  are 
envisaged at the beginning of 2019. 

The public procurement sector's administrative 
capacity  is  still  a  matter  of  concern.  Currently, 
the  Public  Procurement  Agency  does  not  have 
sufficient capacity to intensify its proactive role in 
overhauling the procurement environment, beyond 

(89)  https://iisda.government.bg/annual_report/304. 

respondents  considered 
the  quality  of  public 
services  good,  while  53 %  considered  them  bad, 
putting  Bulgaria  among  the  worst  performers  in 
the EU. 

Progress with e-government remains critical for 
improving the public sector’s transparency and 
efficiency.  Actions  have  been  taken  to  update  the 
strategic  e-government  framework  for  the  period 
2019-2023.  Architecture  of  the  e-government  has 
been  developed  for  the  first  time.  The  strategic 
framework is in place and the State e-government 
the  key 
is  operational  and  plays 
Agency 
coordinating  role.  The  number  of  e-government 
users  has  increased  to  61 %  and  is  now  almost  in 
line  with  the  EU  average  (64  %).  Bulgaria’s 
interconnected  base  registers  —  which  constitute 
the  Registry  information  exchange  system  RegiX 
—  are  now  operational,  allowing  administrations 
to access data contained in registers and databases 
of  other  public  sector  services.  However,  the 
outdated  legal  framework  is  the  major  obstacle  to 
its  widespread  use.  The  so-called  ‘special  laws’ 
require citizens to bring and present in person hard 
copy  certificates.  This  may  constitute  an  obstacle 
to  the  full  digitisation  of  public  services.  It  could 
be  overcome  through  efficient  implementation  of 
the  national  e-identity  scheme,  which  is  lagging 
the 
behind.  Other 
establishment  of  the  National  Health  Information 
introduction  of  new  e-identity 
System, 
documents  and 
the  electronic  signatures  are 
significantly  delayed  and  have  shown  very  little 
progress  during  the  last  year.  Lastly,  a  major 
constraint  on  the  development  of  e-government  is 
the shortage of IT specialists in the country and the 
public sector's difficulty in attracting and retaining 
them. 

important  projects 

like 

the 

improved 

The  provision  of  digital  public  services  for 
businesses 
significantly.  Bulgaria 
scored  96  out  of  100  above  EU  average  in  the 
Digital  Scoreboard 
(European  Commission, 
2019b).  Since  2018,  tax  declarations  for  legal 
persons  are  to  be  submitted  only  in  electronic 
form.  For  physical  persons,  this  will  be  optional 
and  will  be  incentivised  via  a  tax  rebate.  On  the 
other  hand,  delays  to  reforms  have  diluted  the 
general  move  towards  modernisation,  putting  at 
risk  the  whole  reform  process.  Investment  in 
digital transformation is necessary to maintain and 
boost the improvement process. 

57 

 
                                                           
4.4. Competitiveness reforms and investment 

objective  is  to  prevent  abusive  appeals  affecting 
mainly  procurements  of  considerable  value. 
However,  their  impact  on  the  functioning  of  the 
review system has yet to be seen. 

in 

legal  certainty 

Frequent regulatory changes, such as successive 
amendments  to  the  Public  Procurement  Act, 
the 
risk  undermining 
application  of  public  procurement  rules.  In 
addition, the use of the less transparent negotiated 
procedures without prior publication in Bulgaria is 
well above the EU average (24% vs 4% in 2018). 
In  33%  of  the  awards  of  contract  there  was  only 
one offer received(90). Moreover, Bulgaria is using 
predominantly  the  lowest  price  as  the  only  award 
criteria, thus limiting the strategic use of the public 
procurement. 

Corruption 

of 

the 

component 

fight  against  corruption  remains  a 
The 
challenge. While Bulgaria’s rank on the ethics and 
corruption 
Global 
Competitiveness Index has moved from 27th to 25th 
place  in  the  EU,  the  country  continues  to  score 
poorly  on  favouritism,  irregular  payments  and 
bribes and diversion of public funds. According to 
the  Transparency  International  2017  Corruption 
Perception Index(91), Bulgaria ranks last in the EU 
with  a  score  of  43  out  of  100  (EU  average:  65). 
This  is  also  the  case  in  the  2017  World  Bank’s 
control  of  corruption  index(92).  In  the  Business 
Flash Eurobarometer, 62 % of businesses indicated 
that  corruption  creates  problems 
their 
operations  (EU  average:  37 %).  In  the  World 
Economic  Forum  survey  on  competitiveness, 
corruption  has  consistently  been  ranked  as  the 
single  most  problematic  factor  for  doing  business 
in Bulgaria(93). 

for 

In  January  2018,  Bulgaria  adopted  a 
comprehensive  reform  of  its  anti-corruption 
legislation. The new law establishes a new unified 

(90)  European  Commission,  Tenders  Electronic  Daily,  January 
2019, https://ted.europa.eu/TED/main/HomePage.do 
(91)https://www.transparency.org/news/feature/corruption_perce

ptions_index_2017. 

(92)http://info.worldbank.org/governance/wgi/index.aspx#home, 
World  Economic  Forum,  2017-2018  Competitiveness 
Report. 

(93)  Most  recently  in  the  index  published  in 2017.  In  its  latest 
report  from  2018,  the  World  Economic  Forum  stopped 
presenting 
the  ‘most  problematic  factors  for  doing 
business’ ranking. 

its  core  function  of  legal  compliance  and  ex  ante 
control.  Implementation  of  a  three-year  training 
plan  (2017-2019)  prepared  by  the  Institute  of 
is 
Public  Administration 
progressing.  Despite  continuous  effort  in  training, 
further  professionalisation  of  public  buyers  in 
particular 
remains 
challenging. 

at  municipality 

the  OECD 

level 

and 

is  a  serious  problem  as 

The uptake of electronic procurement has been 
delayed.  This 
the 
electronic  platform  is  an  important  instrument  for 
improving  the  transparency  and  efficiency  of 
public procurement processes. The practical use of 
the system has been postponed due to the need for 
further  testing  of  the  electronic  platform  and 
training of its users.  According to the amendment 
the  Public  Procurement  Act,  electronic 
to 
procurement  will  not  be 
functional  before 
November  2019.  The  uploading  of  all  buyer 
profiles of contracting authorities to the platform is 
to be completed by January 2021. The challenge of 
ensuring  the  necessary  technical  capacity  in  the 
administration remains. 

Aggregated  purchases  are  progressing  only  at 
the  central  level.  The  central  purchasing  body 
within the Ministry of Finance is functioning well 
and has expanded the product scope of the tenders 
it  manages  several  times.  The  central  purchasing 
body  for  municipalities  has  a  lot  of  untapped 
potential  to  broaden  the  scope  of  its  activity  and 
the  number  of  users.  The  possibility  of  joint 
procurement  has  not  been  explored  yet, 
in 
particular at the local level. The central purchasing 
body for the health sector has not seen an adequate 
uptake of activity since its establishment. 

effort  has  been  put 

Considerable 
into 
strengthening  ex  ante  controls,  in  particular 
through  random  selection  of  procedures  based 
on  risk  assessment.  The  control  exercised  by  the 
Public  Procurement  Agency  aims 
to  give 
methodological assistance to inspected contracting 
entities and provide an opportunity to rectify errors 
as  possible. 
as 
and 
Procurement  is  facilitated  by  the  use  of  standard 
contract  forms  and  special  clauses  in  public 
procurement  contracts,  approved  by  the  Minister 
of Finance. 

inconsistencies 

early 

New measures were introduced in the system of 
reviewing  procurement  procedures.  Their 

58 

 
                                                           
4.4. Competitiveness reforms and investment 

low  rankings  reflect 

2019  EU  Justice  Scoreboard 
(forthcoming), 
Bulgaria  improved  marginally  on  the  previous 
in  particular 
year.  The 
to  face 
concerns 
judges  are  perceived 
their  work  or  pressure  from 
interference 
economic 
the  government  and 
politicians. 

interests  and 

that 
in 

shows 

In terms of the quality of the justice system, the 
picture  is  mixed.  While  the  2019  EU  Justice 
Scoreboard 
there  are  positive 
that 
developments, such as the higher number of judges 
per  100 000  inhabitants,  there  are  also  some 
negative  trends.  The  continued  lack  of  a  reliable 
evaluation system is hindering improvement of the 
justice  system. In addition, the use of and follow-
up  on  the  results  of  surveys  conducted  among 
court  users  are  limited  (European  Commission, 
2019).  According 
the  2019  EU  Justice 
Scoreboard,  other  ways  of  further  improving  the 
quality  of  justice  include  compulsory  training  for 
judges. 

to 

The negative trend in the clearance rate for first 
instance  cases  other  than  criminal  cases  has 
continued.  This  means  that  more  cases  enter  the 
courts than are resolved, which is likely to result in 
a backlog. In general, first instance court cases and 
proceedings  related  to  specific  areas  of  EU  law 
which  are  of  particular  economic  relevance  are 
dealt  with  in  acceptable  timeframes  and  this  has 
remained  stable.  However,  the  distribution  of 
workload  among  the  various  courts  is  a  matter  of 
concern. 

Consumers have low trust in public authorities 
to  safeguard  their  rights.  Consumer  trust  in 
public authorities to safeguard their rights is one of 
the  lowest  in  the  EU,  whereas  the  proportion  of 
consumers  experiencing  illicit  practices  is  one  of 
the  highest.  At  the  same  time,  consumer  trust  in 
redress  mechanisms  (courts,  Alternative  Dispute 
Resolution)  did  not  increase  and  remains  low(97), 
whereas  Bulgarian 
that 
approximately  one  in  two  retailers  in  the  country 
conduct unfair commercial practices. 

retailers 

indicate 

(97)  Consumer trust in Alternative Dispute Resolution is among 
the  lowest  in  the  EU.  Retailers'  assessment  of  the 
prevalence  of  unfair  commercial  practices  is  one  of  the 
highest  in  the  EU  —  forthcoming  Consumer  Conditions 
Scoreboard (2019). 

of 

and 

anti-corruption agency. The agency is in charge of 
verifying conflicts of interest and the private assets 
of  high-level  officials,  investigating  allegations  of 
malpractice  among  them,  generally  promoting  the 
prevention 
conducting 
corruption, 
procedures  to  seize  and  confiscate  illicit  assets. 
The  Commission’s  November  2018  report  on 
Bulgaria's  progress  under  the  Cooperation  and 
Verification  Mechanism  underlined  as  key 
challenges for the new agency its very broad remit 
of  responsibilities  and  the  need  to  build  public 
trust. The report also acknowledged that efforts to 
improve  the  framework  for  investigating  and 
prosecuting  high-level  corruption  would  need  to 
continue  in  order  for  Bulgaria  to  be  able  to  show 
concrete  results  over  time  and  build  a  solid  track 
record(94). 

Judicial system 

to 

increase 

several  areas,  notably 

Bulgaria  has  carried  out  reforms  aimed  at 
improving  the  effectiveness  of  its  judiciary.  A 
number  of  challenges  remain  and  efforts  continue 
in 
the 
accountability  of  and  trust  in  the  prosecution 
service(95),  and  to  rebalance  the  workload  among 
courts while also preparing broader reforms of the 
judicial map and the introduction of e-justice. In its 
2018  Cooperation  and  Verification  Mechanism 
report, 
the 
that 
benchmarks 
constitutional 
safeguards  for  independence  of  the  judiciary  and 
framework  could  be 
the  broader 
provisionally closed. The benchmark on continued 
judicial  reform  remains  open  pending  further 
follow-up to a number of recommendations(96). 

the  Commission  concluded 

legislative 

referring 

the 

to 

Perceptions  among  citizens  and  businesses 
about the independence of the judiciary remain 
among  the  weakest  in  the  EU.  According  to  the 

(94)  COM(2018) 850. 
(95)  In  2016  the  European  Commission  organised  a  project  to 
carry  out  an  independent  and  comprehensive  analysis  of 
the  Prosecutor’s  Office  and  provide  suggestions  for  ways 
to improve the system. An executive summary is available 
at 
http://www.mjs.bg/Files/Executive %20Summary %20Fina
l %20Report %20BG %2015122016.pdf. 
The analysis formed the basis of a government roadmap in 
2017.  The  November  2018  Cooperation  and  Verification 
Mechanism  report  noted  that  this  work  will  take  time  to 
have an impact and will require a persistent and continued 
focus to ensure success over time. Some  legislative issues 
are also still under consideration.  

(96)  COM(2018) 850. 

59 

 
                                                           
                                                           
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment [1] 

2018 country-specific recommendations (CSRs)  

spending, 

including  by 

CSR 1: Improve the efficiency of tax collection and 
public 
stepping  up 
enforcement of  measures to reduce the extent of  the 
the  State-owned 
informal  economy.  Upgrade 
enterprise  corporate  governance  framework  in  line 
with international good practices.  

Bulgaria  has  made  Some  Progress  in  addressing 
CSR 1  

Improve the efficiency of tax collection  

and public spending  

Some Progress In 2018, Bulgaria has put in place a 
number  of  measures  to  tackle  the  shadow  economy 
and improve tax collection. Many of those measures 
were  implemented  in  the  framework  of  “The  Single 
National  Strategy  for  improving  tax  collection, 
tackling  shadow  economy  and  reducing  compliance 
costs”.  These  measures  have  brought  some  positive 
results in the form of higher revenue.  A particularly 
successful  measure  was  the  checks  of  declared  cash 
by the companies (bringing in additional BGN 108.3 
million,  a  55.6%  increase  year-over-year),  which 
encouraged many of the companies with excess cash 
to  amend  their  financial  results  or  declare  dividend 
payments.  In  addition, 
the  introduction  of  tax 
controls  on  the  movement  of  high-risk  goods  has 
brought  higher  direct  and  indirect  tax  revenue  from 
companies in these sectors.  

institutions 

Some  Progress  The  government  has  made  steps  to 
improve  public  expenditure  efficiency.  In  2018,  the 
World  Bank  completed  a  spending  review  in  a 
(ministries  and 
number  of  public 
municipalities),  published  two  pilot  studies  and 
delivered  to  the  authorities  a  manual  for  future 
reviews.  No  follow-up  measures  or  additional 
spending  reviews  have  been  announced  as  yet.  The 
government  also  updated  and  stabilised  the  set  of 
performance 
the 
medium term fiscal strategy. The Ministry of Finance 
is  planning  to  use  this  stable  set  of  indicators  to 
assess  the  impact  of  public  spending  and  to  inform 
the  budget  evaluation  and  planning  in  the  medium 
term.  

indicators  per  policy  area 

in 

,  including  by  stepping  up  enforcement  of  measures 
to reduce the extent of the informal economy.  

Some  Progress  To  fight  undeclared  work,  the 
authorities  implemented  measures  such  as  one-day 
flexible contracts in agriculture and the exclusion of 
companies convicted for undeclared work (in the last 
three  years)  from  public  procurement.  The  General 
Labour  Inspectorate  has  signed  an  agreement  with 
the trade unions to jointly fight undeclared work. At 

60 

 
 
A. Overview Table 

in  high-risk  sectors, 

the same time, the National Revenue Agency (NRA) 
applies a number of measures to improve compliance 
and  collection 
including 
undeclared  work  risk.  Another  positive  element  in 
2018  is  the  launch  of  an  information  campaign 
“Salary  in  an  Envelope”  by  the  National  Revenue 
Agency.  The  campaign  primary  aim 
to 
demonstrate  to  the  citizens  the  amount  of  the  losses 
they  are  experiencing  from  this  practice  in  the  long 
run,  including  a  dedicated  webpage  in  which  they 
can estimate the actual losses in their future pension, 
among other harmful consequences.  

is 

Upgrade 
the  State-owned  enterprise  corporate 
governance  framework  in  line  with  international 
good practices.  

the 

legal, 

corporate 

enterprises 

Limited Progress There is not yet any change in the 
state-owned 
governance 
framework  but  its  reform  has  been  planned.  The 
government  put  in  place  a  project  to  (i)  review  and 
assess 
regulatory  and  operational 
framework of State-owned enterprises and (ii) revise 
and  align  legislation  with  OECD  guidelines  on 
corporate  governance  of  State-owned  enterprises. 
The  initiative  is  part  of  the  action  plan  of  the 
government in view of the envisaged application for 
participation  in  the  ERMII.  A  technical  assistance 
project  with  the  European  Commission  and  the 
OECD  was  launched  in  August  2018.  The  adoption 
of the new framework is expected by July 2019.  

Bulgaria  has  made  Some  Progress  in  addressing 
CSR 2  

sector 

implement 

CSR 2: Take follow-up measures resulting from the 
financial 
the 
reviews  and 
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.  

Take follow-up measures resulting from the financial 
sector reviews  

the  completion  of 

Substantial Progress Most recommendations of the 
2016 asset quality review of the banking sector have 
been  addressed,  leaving  one  important  outstanding 
action. Insurance companies' solvency has improved 
since 
the  sector's  reviews. 
According to the Financial Supervision Commission, 
all  recommendations  of  the  independent  balance 
sheet  reviews  of  insurance  companies  and  pension 
funds were fully implemented by April 2017. At the 
end  of  2017,  all  but  one  insurer  satisfied  Solvency 
Capital  Requirements,  without  the  application  of 
Long-Term  Guarantee  and  transitional  measures. 
However, some insurers’ solvency ratios are close to 
100%,  which  could  indicate  potential  weaknesses 

61 

 
A. Overview Table 

the 

the 

failure 

identification  of 

that  should  be  closely  monitored.  In  2017,  the 
Financial  Supervision  Commission  withdrew  the 
licences  of  two  insurers  for  a  number  of  reasons, 
to  comply  with  capital 
including 
requirements.  Both  companies  have  appealed  this 
sanction.  The  decision  is  still  pending  before  the 
administrative  higher  court.  Group-level  supervision 
remains  a  challenge  for  an  adequate  risk-based 
insurance supervision. The group-level assessment of 
two insurance groups was never completed. While in 
one  case  group  supervision  is  no  longer  applicable 
due  to  restructuring,  in  the  other  case  the  Supreme 
Administrative  Court  revoked  the  decision  of  the 
authority  for 
the  group.  The 
authorities'  approach  following  the  court’s  decision 
will  still  have  to  take  into  account  the  requirements 
under 
II  Directive 
transposed  Solvency 
stipulating  that  group  level  supervision  is  to  be 
applied at the  ultimate  parent level. The  supervision 
of the car insurance sector is being strengthened. The 
to 
authorities 
automatically  match 
car 
registration databases with motor third-party liability 
fraud.  The  Financial 
contracts, 
Supervision Commission has taken further measures 
to  ensure  that  victims  of  car  accidents  receive  the 
proper  compensation,  in  particular  in  cases  of 
cancelled insurance contracts, and that all Bulgarian 
insurers  have a  network of claims representatives in 
all  EU  Member  States,  as  required  in  the  Motor 
Insurance  Directive.  As  expected  under  the  Action 
Plan  2017,  the  Financial  Supervision  Commission 
has  published  a  report  on  the  level  of  motor  third-
party  liability  premiums.  Nevertheless,  significant 
challenges 
the  business  model  and 
business  strategy  of  market  participants  remain  a 
concern, with potential spill overs beyond the sector 
itself. 

in  November 
information 

2017 
from 

regarding 

combat 

started 

to 

and implement the supervisory action plans in order 
to strengthen the oversight and stability of the sector.  

supervision 

Some  Progress  Delayed  actions  for  improving 
banking  supervision  from  the  2015  plan  are  being 
completed.  The  Financial  Supervision  Commission 
adopted  an  Action  Plan  for  reforming  non-bank 
financial 
in 
in  September  2017, 
the  European  Insurance  and 
cooperation  with 
Occupational  Pensions  Authority.  Implementation  is 
on-going.  The  actions  towards  a  proper  risk-based 
forward-looking 
already 
supervisory 
delivered  some  outputs,  like  a  supervisory  manual 
and  risk  matrices.  These  are  useful  and  necessary 
tools, but the full implementation of an action plan to 

process 

62 

 
A. Overview Table 

a 

such 

risk-based 

establish 
forward-looking 
supervisory process remains key, and only time will 
show  to  what  extent  new  rules  are  effectively 
really 
enforced  and  whether  supervision  has 
improved in practice. The failure of Olympic, issues 
with group-level supervision, the frequency at which 
the  supervisor's  decisions  are  overturned  by  the 
courts and the worsened problems of the Green Card 
Bureau  show  that  insurance  supervision  still  faces 
some  real  challenges.  In  the  area  of  pension  funds, 
amendments  to  the  Social  Insurance  Code  were 
adopted  by  the  parliament  in  November  2017. They 
include a broader definition of related parties, in line 
with  international  standards.  As  the  law  previews  a 
12  months  implementation  delay,  the  changes  need 
their  effectiveness 
to  be  duly  enforced  and 
monitored.  In  addition,  the  Financial  Supervision 
Commission  was 
legislative 
amendments  introduced  in  2017,  which  provided  it 
with  sufficient  funding  and  staff  and  expanded  its 
supervisory  capacity.  A  proper  risk  assessment 
framework,  currently  under  development,  should 
support the improved supervision capacity. The head 
the  Financial 
of 
Supervision  Commission  resigned  in  August  2018, 
as  a  consequence  of 
the  failure  of  Olympic 
Insurance.  Despite  announced  plans  to  designate  a 
successor,  no  formal  steps  have  been  taken  so  far. 
Furthermore, the announced  change in the  Financial 
Supervision Commission chair in March 2019 could 
generate  further  uncertainty,  in  particular  given  the 
ambitious  scope  of  the  planned  reforms.  It  is 
important 
timely 
appointment of professionals who duly fulfil fit-and-
proper requirements. 

Insurance  Supervision 

strengthened  by 

in  both  cases 

to  ensure 

the 

in 

Ensure  adequate  valuation  of  assets,  including  bank 
collateral,  by  enhancing  the  appraisal  and  audit 
processes.  

the  valuation  of 
Some  Progress  Issues  with 
collateral limit the  incentives  of banks to dispose of 
non-performing  loans.  A  range  of  hard-to-value 
assets  still  exist,  notably  related  to  immovable 
property.  Examples  include  real-estate  collateral  in 
the  banking  sector,  receivables  and  real  estate 
holdings  in  the  insurance  sector,  and  stocks,  bonds, 
real  estate  and  other  financial  instruments  in  the 
pension funds sector. In addition, the uneven quality 
of  auditing  affects 
illiquid 
instruments  traded  on  stock  exchanges,  as  well  as 
non-traded  assets,  including  receivables,  minority 
real-estate 
equity  stakes  and  subsidiaries.  For 
valuations, 
locally-licensed 
rely 
appraisers.  Despite  the  advantage  of  local  expertise, 

the  valuation  of 

auditors 

on 

63 

 
A. Overview Table 

sector 

require 

regarding 

valuation standards differ and the licensing system is 
not sufficiently tight.  In the absence of  a  mandatory 
standardised  methodology,  commercial  banks  have 
the discretion to use different valuation frameworks, 
which  may  create  considerable  discrepancies.  Some 
issues  related  to  valuation  in  the  non-banking 
financial 
further  monitoring. 
According to the Financial Supervision Commission, 
auditors  have  not  identified  any  particular  problem 
with  the  clean-cut  reinsurance  contracts.  However, 
concerns 
treatment 
their  supervisory 
to  be  addressed.  The  on-going  on-site 
remain 
inspections  are  also  expected  to  allow  further 
assessment 
Supervision 
Commission.  The  issue  of  hard-to-value  assets, 
including traded securities with low liquidity and low 
free  float,  as  well  as  non-traded  assets,  has  been 
identified  in  the  reviews  of  both  the  banking  and 
non-bank financial sectors but has not yet been fully 
addressed.  Amendments  to  secondary  legislation 
could be followed by changes to the rules governing 
the  work  of  valuation  practitioners  to  improve  the 
application  of  valuation  rules.  Amendments 
to 
the  Financial  Supervision 
Ordinance 
Commission,  concerning  the  valuation  of  the  assets 
and liabilities of the pension funds, entered into force 
on 19 November 2018. 

Financial 

the 

by 

of 

9 

Complete the reform of the insolvency framework   Limited  Progress  Reform  of 

the 

is  still 

incomplete,  with 

insolvency 
framework 
important 
legislative  elements  missing.  The  pre-insolvency 
restructuring  procedure  entered  into  force  on  1  July 
2017, but so far its take-up has been weak. The new 
framework  could  benefit  from  further  streamlining 
and less complexity, inter alia by encouraging out-of-
court  settlements, 
involvement  and 
less  court 
administration and lower thresholds  when  voting on 
adoption of restructuring plans. On the positive note, 
Bulgaria  asked  for  assistance  to  progress  on  the 
reform  of  the  insolvency  framework  in  2018.  This 
project  will  put  forth  a  roadmap  addressing  the 
identified gaps.  

and promote a functioning secondary market for non-
performing loans.  

Limited  Progress  The  overall 
ratio  of  non-
performing  loans  declined  to  9.2%  in  June  2018, 
from 12.1% a year earlier. Non-performing loans by 
non-financial  corporations  also  decreased,  but  still 
topped  15.4%  of  total  loans  and  advances  (19.9%  a 
year  earlier).  These  levels  are  well  above  the  EU 
averages  in  June  2018.  Progress  with  restructuring 
has been slow. 

64 

 
A. Overview Table 

Bulgaria  has  made  Limited  Progress  in  addressing 
CSR 3  

CSR 3: 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.  

Increase  the  employability  of  disadvantaged  groups 
by upskilling and strengthening activation measures.  

the 

their 

including 

them  after 

labour  market, 

Some  Progress  Several  measures  are  being 
implemented  supporting  disadvantaged  groups  to 
access 
training, 
supervised internships and incentives to employers to 
training.  Other  measures 
hire 
encourage entrepreneurship among young people for 
starting their own business. Mediation services have 
been  broadened  and  Job  Integration  Agreements 
(JIA)  have  been  introduced  during  2018  for  long-
term unemployed. Overall, however, participation in 
active  labour  market  policies  (ALMP)  remains  low 
and the training component of these policies could be 
vocational 
strengthened. 
education and training could improve the impact and 
sustainability of activation measures.  

developing 

Further 

inclusive 
the  provision  of  quality 
Improve 
mainstream  education,  particularly  for  Roma  and 
other disadvantaged groups.  

as 

the 

such 

in 
Some  Progress  Some  Progress  was  made 
improving 
inclusive 
the  provision  of  quality 
mainstream  education,  but  a  significant  amount  of 
work  is  still  needed.  A  few  measures  have  been 
inter-institutional 
implemented 
mechanism  to  identify  out-of-school  children  and 
return  them  to  school,  support  for  students  to 
overcome learning gaps, several measures aiming to 
improve  digital  skills,  increasing  teachers’  salaries 
and retraining teachers, as well as reforming funding 
standards 
to 
disadvantaged  schools  and  kindergartens.  However, 
improvements  in  educational  outcomes  have  not 
been recorded yet and efforts to improve the situation 
of  students  from  the  most  vulnerable  groups  and 
Roma are lagging behind.  

additional 

allocate 

funding 

to 

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.  

implementation  of 

the 
Limited  Progress  The 
National Health Strategy action plan is considerably 
delayed.  In  2018,  some  progress  was  achieved  in 
improving  access  to  disease  prevention  medicines 
and  outpatient  programmes.  The  2014-2020  ERDF 
investment  in  a  network  of  emergency  health  care, 
planned  in  the  National  Health  Strategy,  started  as 

65 

 
A. Overview Table 

late as end of 2018.  

Introduce  a  regular  and  transparent  revision  scheme 
for  the  minimum  income  and  improve  its  coverage 
and adequacy.  

Limited  Progress  While  no  regular  and  transparent 
revision  mechanism  has  been  proposed  for  the 
minimum  income  (MI)  the  number  of  supported 
persons  has  increased  according  to  administrative 
data  of 
income 
the  authorities.  The  minimum 
remains too low to have an impact on the number of 
people living in poverty or on income  inequality. In 
2018  the  guaranteed  minimum  income  (GMI)  was 
increased  by  15%  -  from  BGN  65  to  75  (EUR  5). 
However,  the  minimum  income  is  still  among  the 
least adequate in the EU and significantly below the 
at-risk-of-poverty  threshold  (EUR  180  in  2018). 
Despite  the  measures  that  have  been  taken  –  social 
assistance for heating is being granted on the current 
place  of  residence,  making  it  more  flexible  and 
accessible, the amount of the heating benefits for the 
next  heating  season  is  adjusted  to  the  electricity 
prices, the mechanism for compensation of pensions’ 
increase is being updated so that the pensioners who 
receive heating benefits could not drop out due to the 
pensions'  increase  –  the  coverage  and  adequacy  of 
social  benefits 
low  and  an  objective 
mechanism for their regular updates is still lacking.  

remain 

Europe 2020 (national targets and progress)  

Employment rate target: 76 % 

71.3 % in 2017. 

Early school leaving target: 11 % 

12.7 % in 2017. 

Tertiary education target: 36 % 

32.8 % in 2017. 

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

1 665 000 in 2017. 

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% 
is  an 
overachievement  of  the  2020  target  by  a  margin  of 
21.7 percentage points.  

in  2005,  which 

than 

less 

The  increase  in  non-ETS  greenhouse  gas  emissions 
between  2005  and  2017  was  +17.9%  according  to 

66 

 
 
 
 
 
 
A. Overview Table 

preliminary  data,  which  underachieves  the  2017 
interim target by 0.9 percentage point. 

Non-ETS interim target(98) for 2017: +17% 

2020 Renewable energy share target:  

16 % in Gross Final Energy Consumption 

Bulgaria is on track. The 2017 the share of renewable 
energy in gross final energy consumption was 18.7%, 
on  par  with  the  level  registered  in  2016  and  well 
above  the  2020  target  of  16%  of  gross  final  energy 
consumption (99). 

The RES share of transport stabilised around 7.2% in 
2017,  broadly  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) 

In 2017 PEC stood at 18.3 Mtoe, up from 17.7 Mtoe 
in 2016. 

8.6 Mtoe in final energy consumption (FEC) 

R&D target: 1.5 % of GDP 

In 2017 FEC stood at 9.89 Mtoe, up from 9.65 Mtoe 
in 2016. 

0.75 % (2017) No progress towards the target: R&D 
intensity  decreased  from  0.78  %  of  GDP  in  2016  to 
0.75 % in 2017, and is one of the lowest in the  EU. 
Business R&D activities were just 0.53% of GDP in 
2017,  despite  a  substantial  improvement  over  a 
in  2007).  Large 
decade  ago  (0.13%  of  GDP 
companies  account  for  half  of  this  spending  with 
intra-group  funding  being  their  main  sources  of 
investment.  In  2017  R&D  intensity  in  Bulgaria  was 
composed  of  0.22  %  public  R&D  intensity,  0.53% 
business R&D intensity. 

 [1]  The  following  categories  are  used  to  assess  progress  in  implementing  the  country-specific 
recommendations (CSRs): 

(98)  The Effort Sharing Decision sets both overall national 2020 targets for Member States and annual interim targets for the period 
2013-2020  to  monitor  progress  across  the  EU,  allow  for  corrective  action  and  ultimately  ensure  that  the  EU attains  its  GHG 
emission target by 2020. 

(99)  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 

67 

 
 
 
 
 
 
 
 
 
                                                           
A. Overview Table 

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 fully 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.  

68 

 
  
 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

69 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2017201820192020202120222023202420252026202720282029Gross debt ratio25.623.321.319.518.217.016.115.214.413.813.212.812.4Changes in the ratio (-1+2+3)-4.0-2.3-2.0-1.8-1.3-1.2-1.0-0.9-0.8-0.6-0.5-0.4-0.4of which(1) Primary balance (1.1+1.2+1.3)1.91.51.31.21.11.00.80.80.70.50.50.40.4(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)1.91.41.10.90.90.90.80.80.70.50.50.40.4(1.1.1) Structural primary balance (bef. CoA)1.91.41.10.90.90.90.90.90.90.90.90.90.9(1.1.2) Cost of ageing0.00.00.10.10.20.30.40.50.5(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.00.00.00.0(1.2) Cyclical component0.00.10.20.30.20.10.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.00.00.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-1.2-0.8-0.7-0.6-0.2-0.2-0.1-0.1-0.1-0.1-0.10.00.0(2.1) Interest expenditure0.80.70.70.60.60.50.50.50.40.40.40.40.4(2.2) Growth effect-1.1-0.9-0.8-0.7-0.4-0.3-0.3-0.3-0.3-0.2-0.2-0.2-0.2(2.3) Inflation effect-1.0-0.7-0.6-0.5-0.4-0.4-0.3-0.3-0.3-0.3-0.3-0.3-0.3(3) Stock-flow adjustments-0.80.00.00.00.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Fiscal Sustainability Report (FSR) 2018. b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2033. The critical values used are 0 and 2.5 pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018.BG - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 0510152025303540455020162017201820192020202120222023202420252026202720282029Debt as % of GDP -BGBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario0102030405020162017201820192020202120222023(% of GDP)Stochastic debt projections 2019-2023 -BGp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline0510152025303540455020162017201820192020202120222023202420252026202720282029Debt as % of GDP -BGBaselineHistorical SPB scenarioSGP scenario0510152025303540455020162017201820192020202120222023202420252026202720282029Debt as % of GDP -BGBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryLOWLOWLOWLOWLOWMEDIUMDebt level (2029)12.414.413.312.715.2Debt peak year20182018201820182018Percentile rank42.0%45.0%Probability debt higher28.7%Dif. between percentiles29.6LOWLong termDSALOWDebt sustainability analysis (detail)Medium termLOWLOWShort termLOW(S0 = 0.2)(S1 = -4.2)S2LOW(S2 = 1.8)S1 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

1) Latest data Q3 2018. Includes not only banks but all monetary financial institutions excluding central banks. 
2) Latest data Q2 2018. 
3) Quarterly values are annualised. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); European 
Central Bank (all other indicators). 

70 

201320142015201620172018Total assets of the banking sector (% of GDP)1)113.3110.6107.3105.7103.2102.4Share of assets of the five largest banks (% of total assets)49.955.057.658.056.5-Foreign ownership of banking system (% of total assets)2)71.576.176.376.576.478.1Financial soundness indicators:2)              - non-performing loans (% of total loans)-16.014.512.810.29.2              - capital adequacy ratio (%)17.021.521.621.521.820.8              - return on equity (%)3)4.47.28.011.310.211.8Bank loans to the private sector (year-on-year % change)1)1.12.2-0.23.47.89.5Lending for house purchase (year-on-year % change)1)-0.8-1.7-0.52.78.711.6Loan to deposit ratio2)-82.773.472.472.672.7Central Bank liquidity as % of liabilities1)0.00.00.00.00.00.0Private debt (% of GDP)132.3123.4110.5104.8100.1-Gross external debt (% of GDP)2) - public8.214.112.314.111.110.3    - private66.165.354.048.045.242.6Long-term interest rate spread versus Bund (basis points)*190.3218.4199.6218.2128.549.3Credit default swap spreads for sovereign securities (5-year)*102.1119.4153.8139.0102.762.0 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

(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) Long-term unemployed are people who have been unemployed for at least 12 months. 
(4) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019. 
(5) 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). 
(6) Average of first three quarters of 2018 for the employment rate, long-term unemployment rate and gender employment 
gap. Data for unemployment rate is annual. 
Source: Eurostat. 

71 

201320142015201620172018 6Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)12.512.913.413.812.7:Gender employment gap (pps)5.76.16.67.38.07.8Income inequality, measured as quintile share ratio (S80/S20)6.66.87.17.78.2:At-risk-of-poverty or social exclusion rate1 (AROPE)48.040.141.340.438.9:Young people neither in employment nor in education and training (% of population aged 15-24)21.620.219.318.215.3:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)63.565.167.167.771.372.4Unemployment rate2 (15-74 years)13.011.49.27.66.25.3Long-term unemployment rate3 (as % of active population)7.46.95.64.53.43.1Gross disposable income of households in real terms per capita4 (Index 2008=100) 111.6113.0116.9123.2130.0:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)7615816487429329::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)3.75.57.38.5::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction521.320.122.517.919.9:Children aged less than 3 years in formal childcare11.011.29.012.59.4:Self-reported unmet need for medical care8.95.64.72.82.1: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) 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. 
(2) PISA (OECD) results for low achievement in mathematics for 15 year-olds. 
(3) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science. 
(4) Average of first three quarters of 2018 for the activity rate, employment growth, employment rate, part-time employment, 
fixed-term employment. Data for youth unemployment rate is annual. 
Source: Eurostat, OECD 

72 

Labour market indicators201320142015201620172018 4Activity rate (15-64)68.469.069.368.771.371.6Employment in current job by durationFrom 0 to 11 months11.510.69.99.610.2:From 12 to 23 months7.88.27.27.27.3:From 24 to 59 months19.419.317.918.217.5:60 months or over61.161.965.065.065.0:Employment growth* (% change from previous year)-0.40.40.40.51.81.0Employment rate of women(% of female population aged 20-64)60.762.063.864.067.368.4Employment rate of men (% of male population aged 20-64)66.468.170.471.375.376.2Employment rate of older workers* (% of population aged 55-64)47.450.053.054.558.260.5Part-time employment* (% of total employment, aged 15-64)2.52.52.22.02.21.9Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)5.65.34.44.14.44.2Participation in activation labour market policies(per 100 persons wanting to work)7.13.22.85.4::Transition rate from temporary to permanent employment(3-year average)34.731.528.928.2::Youth unemployment rate (% active population aged 15-24)28.423.821.617.212.913.3Gender gap in part-time employment (aged 20-64)1.00.50.50.50.30.4Gender pay gap1 (in undadjusted form)14.114.215.414.413.6:Education and training indicators201320142015201620172018Adult participation in learning(% of people aged 25-64 participating in education and  training)2.02.12.02.22.3:Underachievement in education2::42.1:::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)29.430.932.133.832.8:Variation in performance explained by students' socio-economic status3::16.4::: 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

73 

 
 
Table C.4: 

Social inclusion and health indicators 

C. Standard Tables 

* 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 

Table C.5: 

Product market performance and policy indicators 

(1) Value added in constant prices divided by the number of persons employed. 
(2) Compensation of employees in current prices divided by value added in constant prices. 
(3) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology. 
(4) 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 75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the 
application is still pending or don't know. 
(5) Percentage population aged 15-64 having completed tertiary education. 
(6) Percentage population aged 20-24 having attained at least upper secondary education. 
(7) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 

74 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare4.24.45.04.64.7:Disability1.31.41.41.31.3:Old age and survivors8.08.68.98.78.5:Family/children1.71.81.91.91.8:Unemployment0.60.50.50.50.5:Housing0.00.00.00.00.0:Social exclusion n.e.c.0.30.30.30.30.3:Total16.117.017.917.317.0:of which: means-tested benefits0.70.70.80.70.6: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)47.747.245.847.748.0:Children at risk of poverty or social exclusion (% of people aged 0-17)*52.351.545.243.745.641.6At-risk-of-poverty  rate1 (% of total population)21.221.021.822.022.923.4In-work at-risk-of-poverty rate (% of persons employed)7.47.29.27.711.49.9Severe material deprivation rate2  (% of total population)44.143.033.134.231.930.0Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan13.66.511.816.014.215.6Tenant, rent at market price12.613.918.116.914.111.4Proportion of people living in low work intensity households4 (% of people aged 0-59)12.513.012.111.611.911.1Poverty thresholds, expressed in national currency at constant prices*255325492875294128113246Healthy life years (at the age of 65)Females9.59.99.69.510.1:Males8.78.78.78.79.2:Aggregate replacement ratio for pensions5 (at the age of 65)0.40.40.40.40.50.4Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::36.544.048.252.3GINI coefficient before taxes and transfers*47.047.749.750.253.053.8GINI coefficient after taxes and transfers*33.635.435.437.037.740.2Performance indicators201220132014201520162017Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry3.123.223.421.635.112.92Labour productivity growth in construction0.345.05-2.330.23-2.934.24Labour productivity growth in market services1.200.461.122.742.043.13Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry2.613.413.741.454.336.85ULC growth in construction3.382.1213.114.672.608.46ULC growth in market services9.394.335.654.285.326.40Business environment201220132014201520162017Time needed to enforce contracts3 (days)564564564564564564Time needed to start a business3 (days)25.025.025.025.023.023.0Outcome of applications by SMEs for bank loans4:0.860.970.540.490.25Research and innovation201220132014201520162017R&D intensity0.600.640.790.960.780.75General government expenditure on education as % of GDP3.303.704.104.003.40:Employed people with tertiary education and/or people employed in science and technology as % of total employment293132333333Population having completed tertiary education5212224242425Young people with upper secondary education6868686858586Trade balance of high technology products as % of GDP-3.50-2.18-2.56-2.52-2.12-1.94Product and service markets and competition200320082013OECD product market regulation (PMR)7, overall::1.57OECD PMR7, retail::0.20OECD PMR7, professional services:::OECD PMR7, network industries8::2.45 
 
  
 
 
 
 
 
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 (Europe 2020-2030)(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 use in industry (in kgoe) divided by gross value added of industry, including construction 
(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 use in transport sector including international aviation, (in kgoe) divided by transport 
industry gross value added (in 2010 EUR) 
Transport carbon intensity: GHG emissions in transport sector divided by gross value added of the transport activities   
Energy import dependency: net energy imports divided by gross inland energy consumption plus consumption of 
international maritime bunkers    
Aggregated supplier concentration index: Herfindahl-Hirschman index for net imports of crude oil and NGL, natural gas and 
hard coal. Smaller values indicate larger diversification and hence lower risk. 
Diversification of the energy mix: Herfindahl-Hirschman index of the main energy products in the gross inland consumption of 
energy 
* 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); Eurostat (all other indicators) 

75 

Green growth performance201220132014201520162017MacroeconomicEnergy intensity kgoe / €0.470.430.450.450.420.42Carbon intensity kg / €1.561.421.471.501.38-Resource intensity (reciprocal of resource productivity)kg / €3.303.173.403.713.223.30Waste intensity kg / €4.14-4.50-2.81-Energy balance of trade % GDP-6.9-6.2-5.6-3.8-2.4-3.1Weighting of energy in HICP%13.715.014.013.110.711.5Difference between energy price change and inflation %6.5-2.9-1.36.2-0.72.2Real unit of energy cost% of value added36.134.030.830.430.4-Ratio of environmental taxes to labour taxesratio0.310.300.270.290.28-Environmental taxes% GDP2.72.82.72.92.82.7Sectoral Industry energy intensity kgoe / € 0.270.270.270.270.260.25Real unit energy cost for manufacturing industry excl. refining% of value added46.250.644.443.843.3-Share of energy-intensive industries in the economy% GDP11.411.511.312.313.012.9Electricity prices for medium-sized industrial users€ / kWh0.070.080.080.070.090.08Gas prices for medium-sized industrial users€ / kWh0.040.040.030.030.020.02Public R&D for energy % GDP0.000.000.000.000.000.00Public R&D for environmental protection% GDP0.010.000.000.000.000.00Municipal waste recycling rate%25.028.523.129.431.834.6Share of GHG emissions covered by ETS*%60.759.560.060.856.6-Transport energy intensitykgoe / €1.681.431.481.501.511.63Transport carbon intensitykg / €4.633.844.054.084.05-Security of energy supplyEnergy import dependency%36.938.535.336.538.639.5Aggregated supplier concentration indexHHI77.265.558.868.360.3-Diversification of energy mixHHI0.260.250.260.260.240.24 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX D: INVESTMENT GUIDANCE ON COHESION POLICY 

FUNDING 2021-2027 FOR BULGARIA 

Building  on  the  Commission  proposal  for  the  next  Multi-Annual  Financial  Framework  for  the  period 
2021-2027 of 2 May 2018 (COM (2018) 321), this Annex presents the preliminary Commission services 
views  on  priority  investment  areas  and  framework  conditions  for  effective  delivery  for  the  2021-2027 
Cohesion  Policy.  These  priority  investment  areas  are  derived  from  the  broader  context  of  investment 
bottlenecks,  investment  needs  and  regional  disparities  assessed  in  the  report.  This  Annex  provides the 
basis for a  dialogue between Bulgaria and the Commission services in  view of the programming of the 
cohesion policy funds (European Regional Development Fund, Cohesion Fund and European Social Fund 
Plus). 

Policy Objective 1: A Smarter Europe – Innovative and smart industrial transformation 

Bulgaria’s  weak  innovation  performance  is  not  supporting  productivity  gains.  Synergies  with  Horizon 
Europe  including  its  widening  instruments  can  help  improve  performance.  High  priority  investment 
needs(100)  have  therefore  been  identified  to  enhance  research  and  innovation  capacities  and  the 
uptake of advanced technologies, and in particular to: 

 

 

 

 

 

 

strengthen  innovation  performance  and  foster  productivity  growth  by  identifying  smart 
specialisation areas on the basis of national and regional needs and potential; 
increase the number of innovative  firms (introducing and  developing innovations) in high tech 
and knowledge intensive sectors, in line with the smart specialisation strategy; 
increase  the  competitiveness  and  efficiency  of  the  research  system  by  putting  emphasis  on 
performance  and  by  creating  incentives  for  attracting  qualified  researchers  (e.g.  improving 
working conditions, international collaboration and mobility, cooperation with businesses); 
develop  skills  in  universities  and  research  institutions  to  increase  the  commercial  viability  and 
market relevance of their research projects and ability to participate in research consortia; 
support 
transfer 
commercialisation of research outcomes; 
promote  business  investment  in  research  and  innovation,  intangible  assets  and  entrepreneurial 
universities. 

collaboration  between 

and  businesses, 

technology 

research 

and 

The  business  environment  for  small  and  medium-sized  enterprises  remains  a  challenge  as  Bulgaria  is 
underperforming in the area of entrepreneurship with the lowest score in the EU. High priority investment 
needs have therefore been identified for growth, competitiveness and skills development of small and 
medium-sized enterprises, and in particular to: 

 

 

 

 

foster the creation of new firms as well as scale-ups, in particular through financial instruments 
and  investments  in  intangibles  and  also  through  cooperation  networks  and  consolidation  of 
clusters, including coordination with other Danube Region States; 
encouraging  the  entrepreneurial  ecosystem,  in  particular  outside  Sofia,  and  the  sustained 
engagement of small and medium-sized enterprises in the Entrepreneurial Discovery Process; 
develop market-driven special Information and Communications Technology skills in small and 
medium-sized enterprises; 
develop entrepreneurship skills including by searching for synergies between governmental and 
private business initiatives for support of start-ups and entrepreneurship. 

The  number  of  digitalised  enterprises  in  2017  was  among  the  lowest  in  the  EU  while  the  relative 
improvement of digital public services resulted in an increased number of e-government users. In addition 
to digital skills, cyber-security is an issue. Investment needs have therefore been identified to sustain the 
relative progress and reap the benefits of digitalisation for citizens, companies and governments, and 

(100) The intensity of needs is classified in three categories in a descending order – high priority needs, priority needs, needs. 

76 

 
 
                                                           
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for Bulgaria 

in particular to: 

 

 

increase  Information  and  Communications  Technology  uptake  in  small  and  medium-sized 
enterprises, including supporting infrastructures and  services; all  with a view to  improving the 
number of enterprises reaching a high digital intensity; 
upscale and accelerate e-government, including the take-up of EU-wide interoperable services. 

Policy  Objective  2:  A  low  carbon  and  greener  Europe  –  Clean  and  fair  energy  transition,  Green 
and blue investment, circular economy, climate adaptation and risk prevention 

Bulgaria remains the most energy and greenhouse gas intensive economy in the EU. It has high levels of 
air pollution and landfilling rates for municipal waste. Its recycling rate is considerably lower than the EU 
average.  High  priority  investment  needs  have  therefore  been  identified  to  promote  energy  efficiency 
measures,  improve  resource  efficiency  and  waste  management  and  promote  the  transition  to  a 
circular economy and in particular to: 

 
 

 
 

 

 
 

support energy efficiency measures having as primary task to reduce air pollution; 
Improve  energy  efficiency  in  industrial  small  and  medium  sized  enterprises,  including  their 
premises, installations and processes; 
improve energy efficiency in buildings with a primary focus on public buildings; 
shift  towards  the  highest  steps  of  the  waste  management  hierarchy,  including  infrastructure: 
waste prevention, reuse and recycling and expanding separate collection system; 
increase  resource  efficiency  and  promote  the  circular  economy  including  the  development  of 
alternatives to raw materials and the use of recycled materials as raw materials; 
improve the knowledge base on the circular economy, waste monitoring and material streams; 
raise  awareness  of  sustainable  consumption  practices  and  behaviour,  as  well  as  accompanying 
measures with a focus on economic instruments. 

Bulgaria  has  very  low  connection  and  treatment  rates  for  urban  waste  water.  High  priority  investment 
needs have therefore been identified to promote sustainable water management, and in particular to: 

 

improve collection and treatment of waste water starting with agglomerations above 10000 p.e. 

Bulgaria's  response-focused  emergency  management  system  lacks  investments  in  risk  prevention,  air 
quality  and  habitat  restoration  despite  its  vulnerability  to  climate  change  effects.  Cross-border  and 
transnational cooperation can be reinforced. Priority investment  needs  have  therefore been identified to 
promote  climate  change  adaptation,  risk  prevention  and  disaster  resilience,  as  well  as  enhance 
biodiversity, green infrastructure and reduce pollution and in particular to: 

 

 

 

 

 

improve  air  quality  e.g.  through  green  infrastructure  in  urban  and  rural  environments  and 
environment friendly production processes; 
support  biodiversity  including  the  preparation  of  management  plans,  ecosystem  restoration 
projects,  actions  to  improve  the  knowledge  base  and  the  exchange  of  experiences  between 
stakeholders from different Member States; 
address risks from the national risks assessment, such as actions to improve the knowledge base, 
prevention  strategies,  awareness-raising,  green  infrastructure  for  flood  protection,  disaster-
proofing  of  buildings  and  networks,  etc.  and  support  preparedness  measures,  preferably  in  the 
context of the European Civil Protection pool of response assets; 
address  issues  at  sea  basin  level  including  through  coordinated  and  cooperative  actions  across 
borders in the Black Sea area; 
cooperate in international programmes for the Danube region and the Black Sea. 

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D. Investment Guidance on Cohesion Policy Funding 2021-2027 for Bulgaria 

Policy  Objective  3:  A  more  connected  Europe  –  Mobility  and  regional  Information  and 
Communications Technology connectivity 

At present the Trans-European Transport Network corridor in Bulgaria is still incomplete for rail and road 
especially  in  North  Bulgaria.  For  rail  there  is  a  need  for  further  development  and  road  sections  require 
Intelligent Transport System improvement. High priority investment needs have therefore been identified 
to  develop  a  sustainable,  climate  resilient,  intelligent,  secure  and  intermodal  Trans-European 
Transport Network, and in particular to: 

 

 

 

develop railways and roads on the core and comprehensive Trans-European Transport Network 
networks including cross-border sections to address bottlenecks and missing links of the Trans-
European Transport Network, to connect with neighbouring networks, and also bringing national 
sections of the network to meet EU standards;  
develop Intelligent Transport and Traffic System, for efficient and optimised infrastructure use, 
including for electronic tolling systems; 
improve navigability on the Danube River, deploy river information services and environmental 
protection measures along the corridor in cooperation with Danube region Member States. 

Rail connections to comprehensive network lines and development of intermodal terminals with road and 
rail  links  to  the  Trans-European  Transport  Network  core  network  are  essential  for  safer  passenger  and 
cargo transport with reduced emissions and pollution. High priority investment needs have therefore been 
identified to develop sustainable, climate resilient, intelligent and intermodal national, regional and 
local mobility, including improved access to Trans-European Transport Network and cross-border 
mobility, and in particular to: 

 

 

 

 

develop multimodality and intermodal terminals improving connectivity of different sustainable 
transport modes; 
reduce  the  current  negative  externalities  of  transport  (congestion,  emissions,  etc.)  and  improve 
access  to  Trans-European  Transport  Network  networks  where  positive  impact  on  regional 
development can be demonstrated;  
address safety (in particular the necessary upgrades and control measures to reduce the death rate 
in road accidents), energy efficiency, uptake of clean fuels and other environmental issues across 
all transport modes; 
improve  cross-border  connectivity  by  realising  additional  transport  connections  across  the 
Danube, either by constructing new bridges or improving ferry connections. 

The  need  for  more  sustainable  urban  transport  and  high  dependency  on  cars  is  an  issue  in  most  major 
cities  and  their  surroundings,  calling  for  Sustainable  Urban  Mobility  Plans.  Priority  investment  needs 
have therefore been identified to promote sustainable multimodal urban mobility, and in particular to: 

 

 

develop  sustainable  multimodal  urban  transport  systems  based  on  sustainable  urban  mobility 
plans (preferably part of integrated territorial development strategies) to reduce dependency on 
cars and enable shift towards cleaner public transport and active modes of mobility; 
support  sustainable  and  accessible  urban  and  peri-urban  transport  and  increasing  the  share  of 
renewables in transport. 

The  Information  and  Communications  Technology  sector  has  insufficiencies  in  the  broadband  strategy 
development.  Investment  needs  have  therefore  been  identified  to  enhance  digital  connectivity,  and  in 
particular to: 

 
 

support national broadband strategies; 
increase the capacity of programme authorities and implementing bodies in the sector and take 

78 

 
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for Bulgaria 

measures  to  reduce  the  cost  of  deploying  high  speed  electronic  communication  networks  (e.g. 
broadband infrastructure, demand/investment mapping). 

Policy Objective 4: A more social Europe – Implementing the European Pillar of Social Rights 

Shortages  and  skills  gaps  in  the  labour  market  are  increasing  in  a  context  of  regional  disparities,  low 
participation in activation measures and difficulties of disadvantaged groups to enter the labour market. 
High  priority  investment  needs  have  therefore  been  identified  to  improve  access  to  employment, 
anticipate skills needs and support labour market transitions and mobility, and in particular to: 

 

 
 

 

further  improve  the  design  of  and  participation  in  active  labour  market  policies  with  focus  on 
individualised and integrated support including for inactive persons; 
support targeted upskilling and re-skilling opportunities, traineeships, apprenticeships; 
finalise the modernisation of the Employment Agency and ensure adequate forecasting of future 
labour market needs; 
develop policies and actions which support internal labour mobility, self-employment and social 
entrepreneurship; promote longer active lives and lifelong career guidance. 

Education and training outcomes are still not sufficiently aligned to labour market needs; the acquisition 
of basic and digital skills is low and early school leaving remains a challenge. High priority investment 
needs  have  therefore  been  identified  to  improve  the  quality,  effectiveness  and  labour  market 
relevance of education and training, and to promote equal access to inclusive education and lifelong 
learning, and in particular to: 

 

 

 

 

 

 

improve inclusive, accessible and quality early childhood education and care, including relevant 
infrastructure and equipment;  
prevent  early  school  leaving  with  a  targeted  approach  and  promote  flexible  second  chance 
programmes;  
develop quality inclusive school education, including investment in out-of-school infrastructure 
and equipment; ensure attainment of basic and digital skills and foster inclusiveness in education 
and training; 
support  teachers'  and  trainers'  professional  development  and  promote  innovative  teaching 
methods and content to best support disadvantaged students; 
enhance attractiveness, quality and relevance of  vocational education and training programmes 
and  promote  participation  in  adult  learning,  including  investment  in  infrastructure  and 
equipment; 
improve  quality  and  labour  market  relevance  of  higher  education,  including  joint  research 
actions and traineeships in companies. 

High  levels  of  poverty  and  inequalities  remain  serious  challenges  while  active  inclusion  measures  are 
limited.  Disparities  in  access  to  social  services,  healthcare  and  long-term  care  persist.  High  priority 
investment  needs  have  therefore  been  identified  to  foster  active  inclusion,  promote  socio-economic 
integration  of  vulnerable  groups  including  Roma  community,  enhance  access  to  quality  services 
and address material deprivation, and in particular to: 

 

 

 
 

develop  active  inclusion  measures  to  improve  employability  of  the  vulnerable  groups  through 
integrated support; 
improve  access  of  vulnerable  groups  including  Roma  to  targeted  active  inclusion  support  and 
mainstream services and develop measures to overcome prejudice and housing discrimination; 
develop social housing for people at risk at poverty or social exclusion; 
increase  quality  and  availability  of  integrated  social  services  through  individual  needs' 
assessment;  

79 

 
 
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for Bulgaria 

 

 

 

support  deinstitutionalisation  for  children  and  adults  and  the  provision  of  community-based, 
home-based and long-term care services, including relevant infrastructure and equipment; 
increase  access  to  health  services,  in  particular  primary  care,  including  through  infrastructure 
and  digital  health  solutions;  develop  health  promotion  and  prevention  measures  for  vulnerable 
groups;  support  the  re-skilling  and  upskilling  of  social  and  health-care  workers  and  their 
territorial mobility; 
address material deprivation through food aid and basic material assistance to the most deprived. 

Policy  Objective  5  –  A  Europe  closer  to  citizens  by  fostering  the  sustainable  and  integrated 
development of urban, rural and coastal areas and local initiatives 

The matrix of the regional disparities in Bulgaria is complex as all regions face a multitude of issues with 
a limited number of major cities presenting the potential of being local economic drivers. High priority 
investment needs  have therefore  been identified to  foster the integrated socio-economic development 
in those major urban areas, and in particular to: 

 

reduce  inequalities  between  regions  by  developing  economic  activity  poles,  also  outside  the 
capital region and creating the necessary linkages with the surrounding areas. More specifically, 
investments in 7 leading economic centres based on integrated urban development strategies (to 
be  defined  by  the  Member  State/regional  and  local  bodies,  through  the  relevant  territorial 
development mechanisms) and administrative capacity necessary for the effective administration 
and implementation of the Funds. 

Smaller  cities  and  surrounding  territories  face  challenges  similar  to  rural  areas  (e.g.  access  to  labour 
market, education, healthcare and other social services). Their capacity to retain or attract people is very 
much dependent on their connectivity among themselves and to major centres. High priority investment 
needs  have  therefore  been  identified  to  foster  the  integrated  socio-economic  local  development, 
including for rural areas also through community-led local development, and in particular to: 

 

 

reduce  urban-rural  divide  by  supporting  functional  areas,  including  those  affected  by  the 
transition  from  the  carbon-intensive  industry,  covering  smaller  economic  centres  and  their 
linkages  to  the  major  economic  activity  poles  based  on  integrated  territorial  development 
strategies  (to  be  defined  by  the  Member  State/regional  and  local  bodies,  through  the  relevant 
territorial  development  mechanisms)  and  proper  administrative  capacity  necessary  for  the 
effective  administration  and  implementation  of  the  Funds  for  authorities  and  grass-root 
organisations; 
address  access  to  education,  employment,  health  and  social  vulnerability  issues  in  the  most 
deprived  regions  (e.g.  addressing  the  needs  of  elderly  people  in  rural  areas,  innovative 
approaches taking into account the diversity of the population). 

Factors for effective delivery of Cohesion policy 

 

 

 

 

 

additional efforts are needed to increase  the  administrative capacity necessary  for the effective 
administration and implementation of the Funds; 
development and implementation of a roadmap on strengthening administrative capacity, based 
on the pilot action on frontloading administrative capacity building; 
strengthened capacity of authorities to deliver policies and strategies that could be the basis for 
the implementation of European Structural and Cohesion Funds and improved coordination and 
information exchange between administrations for a better and integrated service delivery;  
strengthened  capacity  of  authorities  for  improved  project  implementation  and  service  delivery 
and ensured stability in the management of managing authorities;  
strengthened  capacity  of  local  authorities  to  implement  integrated  territorial  development 

80 

 
D. Investment Guidance on Cohesion Policy Funding 2021-2027 for Bulgaria 

 

 

 

 

 

strategies throughout the entire process; 
comprehensive simplification of the procedures in implementation of the EU funds, eliminating 
excessive burden for applicants and beneficiaries; 
strengthened  capacity  of  beneficiaries,  stakeholders,  social  partners,  civil  society  and  other 
bodies  to  prepare  and  implement  high  quality  projects  and  to  shape  policy  through  public 
consultation;  
improved  public  procurement  performance,  in  particular  through  improved  efficiency  and 
administrative  capacity  necessary  for  the  effective  administration  and  implementation  of  the 
Funds; 
broader  use  of  financial  instruments  and/or  contributions  to  a  Bulgarian  compartment  under 
InvestEU for revenue-generating and cost-saving activities; 
improved  and  more  efficient  measures  to  prevent  and  address  conflict  of  interest,  fraud  and 
corruption. 

81 

 
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S_201809_EN 

Danish  Technological  Institute  (2015),  Does  the  EU  need  more  STEM  graduates?  –  Final  Report, 
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/publication/60500ed6-cbd5-11e5-a4b5-01aa75ed71a1 

Commission, 

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at: 

CASE, Center for Social and Economic Research (2018), Study and Report on the VAT GAP in the EU-28 
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TAXUD/2015/CC/131, 

available 

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2018 

CEDEFOP,  European  Centre  for  the  Development  of  Vocational  Training  (2018),  available  at: 
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