COMMISSION STAFF WORKING DOCUMENT Country Report Bulgaria 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: Bulgaria, economic situation, green economy, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 501 final  COMMISSION STAFF WORKING DOCUMENT Country Report Bulgaria 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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(2020) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the MIP in-depth review 

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 
4.5.  Environmental sustainability 

Annex A: Overview table 

Annex B: Commission debt sustainability analysis and fiscal risks 

Annex C: Standard tables 

Annex D: Investment guidance on Just Transition Fund 2021-2027 for Bulgaria 

Annex E: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Table 1.1: 
Table 1.2: 
Table 2.1: 
Table 3.1: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 

Financial soundness indicators, all banks in Bulgaria 

Key economic and financial indicators - Bulgaria 

Assessment of 2019 CSR implementation 

MIP assessment matrix 

Financial market indicators 

Headline social scoreboard indicators 

Labour market and education indicators 

Social inclusion and health indicators 

Product market performance and policy indicators 

1 

4 

8 

15 

20 

24 

24 
27 
34 
46 
60 

65 

73 

74 

80 

82 

87 

13 
14 
17 
22 
74 
75 
76 
77 
78 

 
 
 
 
 
79 
82 

8 
8 
9 
10 
10 
11 
11 
12 

13 

15 

25 
32 
32 
34 
36 
41 
42 
45 
46 
46 
47 
47 
48 
49 
51 
60 

Table C.6: 
Table E.1: 

Green growth 

Indicators measuring Bulgaria’s progress towards the SDGs 

LIST OF GRAPHS 

Potential growth breakdown 

Current account developments 

Real GDP growth by demand components 

Evolution of GDP per capita in PPS among Bulgarian NUTS2 regions 

Graph 1.1: 
Graph 1.2: 
Graph 1.3: 
Graph 1.4: 
Graph 1.5: 
Graph 1.6: 
Graph 1.7: 
Graph 1.8: 
At-risk-of-poverty or social exclusion rate and its components (AROP, SMD, LWI, MSD) 
Graph 1.9:  Overvaluation gap with respect to price/income, price/rent and fundamental model-

Employment rate by age group and educational attainment level, 2018 

Net international investment position 

Labour market indicators 

based valuation gaps (1) 

Graph 2.1:  Overall multiannual implementation of 2011- 2019 country-specific recommendations 

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

Graph 4.1.1:  Number of hours needed to comply with taxes per year for a medium-sized company, 

2018 data 

Impact of social transfers (excluding pensions) on poverty reduction (1) 

Graph 4.2.1:  Fundamental-based and prudential benchmarks and NFC debt (1) 
Graph 4.2.2:  Breakdown of annual changes in debt-to-GDP ratios of NFC (1) 
Graph 4.3.1:  Population change and migration balances, 2013-18 
Graph 4.3.2:  Labour shortage index (1) 
Graph 4.3.3: 
Graph 4.3.4:  Adequacy of minimum income benefits 2017 
Graph 4.3.5:  Outpatient use vs inpatient use, 2017 
Graph 4.4.1:  Evolution of unit labour costs 
Graph 4.4.2:  Breakdown of rate of change of REER 
Graph 4.4.3:  Exports of products by R&D activity intensity 
Graph 4.4.4:  Labour share and nominal productivity growth of manufacturing industries (1) 
Graph 4.4.5: 
Graph 4.4.6:  Total factor productivity and labour productivity developments 
Graph 4.4.7: 
Graph 4.5.1:  Greenhouse gas intensity (1) 

Intramural R&D expenditure by sectors of performance 

Investment by asset type 

2 

 
 
 
 
LIST OF BOXES 

Box 2.1: EU funds and programmes to address the structural challenges and to foster 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 

Box 4.5.1: Coal regions in transition 

19 
35 
50 
63 

3 

 
 
 
 
EXECUTIVE SUMMARY 

income 

Bulgaria’s growth prospects remain favourable 
but  there  is  scope  to  further  strengthen  the 
overall  resilience  and  competitiveness  of  its 
open  economy.  Sound  macroeconomic  policies 
have  underpinned  robust  economic  growth  and 
historically low unemployment rates. Nevertheless, 
Bulgaria has been slow to catch up with the rest of 
the  EU  and  still  has  one  of  the  highest  levels  of 
poverty  and 
inequality.  Broad-based 
structural  reforms  and  additional  investments  are 
needed 
to  boost  productivity  and  achieve 
sustainable and inclusive growth, especially in the 
context  of  adverse  population  developments, 
considerable  shortages  of  workers  and  rising 
regional  disparities.  Improving  the  quality  of 
institutions,  fighting  corruption  and  fostering  a 
favourable  business  climate  are  important  for 
future  growth.  Bulgaria’s  firm  commitment  to 
enter  the  Exchange  Rate  Mechanism  II  provides 
further 
reforms.  The  authorities 
continued  to  tackle  the  identified  macroeconomic 
imbalances, particularly by strengthening financial 
supervision  and  taking  steps  to  address  financial 
sector vulnerabilities (1). 

impetus 

to 

Economic  expansion  has  proved  robust  in  the 
face  of  the  deterioration  of  developments 
abroad,  although  more  moderate  growth  lies 
ahead. After accelerating from 3.1% in 2018 to an 
estimated  3.7%  in  2019,  real  annual  GDP  growth 
is  expected  to  slow  to  around  3%  in  2020  and 
2021,  still  underpinned  by  domestic  demand. 
Private  spending  will  be  supported  by  real  wage 
increases,  but  curbed  by  the  limited  employment 
gains.  Investment  is  expected  to  expand  only 
moderately in the context of heightened economic 
uncertainty  abroad  and  somewhat  worsened 
domestic  growth  prospects.  Exporters  are  set  to 
through 
their  competitive  position 
preserve 
productivity 
quality 
product 
and 
improvements  and  exports  are  projected  to  regain 
modest  growth  after  a  small  decline  in  2019. 
Employment gains are likely to stall in 2020 and to 
turn  negative  in  2021  due  to  a  shrinking  labour 
force and an already existing shortage of workers 

gains 

(1)  This  report  assesses  Bulgaria’s  economy  in  light  of  the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy,  published  on  17  December  2019.  In 
this 
document, the Commission sets out a new strategy on how 
to address not only the short-term economic challenges but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains, fairness and macroeconomic stability. 

4 

Potential  GDP  growth  has  strengthened  in 
recent  years, but not enough as yet to ensure a 
rapid  catching-up  process.  Potential  growth  has 
hovered  around  3%  since  2016,  with  total  factor 
productivity  the  main  factor  behind  its  expansion. 
Investment  activity  has  also  contributed 
to 
potential  growth,  albeit  more  moderately.  The 
growing  export  market  share,  alongside  an 
increasing  cost  of  labour  per  unit  of  output 
produced,  suggests  that  non-price  factors,  such  as 
quality improvements and continued integration in 
global  value  chains,  have  underpinned  Bulgaria’s 
competitive position. 

in  green 

Insufficient  investment  is  holding  back  the 
modernisation  of 
the  economy.  Although 
investment is increasing, its share of GDP remains 
below the EU average, holding back the catching-
up  process.  Business  environment  improvements 
could  support  investment.  Identifying  investment 
technologies  and  sustainable 
needs 
solutions,  and  securing  adequate  funding  will  be 
key  to  deliver  on  climate  and  energy  objectives 
and  shaping  a  new  growth  model.  Investments  in 
transport,  energy  and  environmental  infrastructure 
could help attracting foreign direct investment and 
strengthen  business  competitiveness.  More  and 
better  targeted  investment  in  digitalisation  and  in 
R&D  can  lead  to  productivity  gains  but  attention 
should be paid to the governance and performance 
of  the  funded  projects. Targeted  investment  could 
also  help  to  tackle  growing  regional  disparities, 
particularly in the North-West region.  

Bulgaria has made some progress in addressing 
the 2019 country-specific recommendations (2).  

There has been substantial progress in:  

  upgrading the corporate governance framework 
of  the  State-owned  enterprises  in  line  with 
international good practices; 
 
reinforcing supervision of the banking sector;  
  effectively  enforcing  risk-based  supervision  in 

the non-banking financial sector.  

There has been some progress in:  

(2)  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 

 
                                                           
                                                           
 

through 

tax  collection 

improving 
targeted 
measures in areas such as fuel and labour taxes; 
  promoting  adequate  valuation  of  assets  in  the 
banking  sector  and  a  functioning  secondary 
market for non-performing loans; 

the 

  enforcing 

recently  adopted  valuation 
guidelines  and  group-level  supervision  in  the 
non-banking financial sector;  
improving the business environment; 

 
  strengthening  employability  by  reinforcing 

skills, including digital skills; 
inclusion 

  addressing  social 

through  more 

effective minimum income support. 

There has been limited progress in: 

  ensuring 

effective 

supervision 
the  anti-money 

the 
and 
laundering 

the 

insolvency 

framework 

enforcement  of 
framework; 
implementing 
roadmap; 
fostering  the  stability  of  the  car  insurance 
sector; 
focusing  investment-related  economic  policy 
transport  (in 
on  research  and 
particular  on  its  sustainability),  water,  waste 
energy 
and 
infrastructure 
efficiency, 
regional 
disparities; 
improving the quality, labour market relevance, 
and inclusiveness of education and training, in 
particular  for  Roma  and  other  disadvantaged 
groups; 

and 
into  account 

innovation, 

energy 

taking 

 

 

 

 

  addressing  social  inclusion  through  improved 
access  to  integrated  employment  and  social 
services; 
improving  access  to  health  services,  including 
reducing  out-of-pocket  payments  and 
by 
addressing shortages of health professionals. 

 

supporting 

The  Social  Scoreboard 
the 
European Pillar of Social Rights points to some 
challenges. The share of people at risk of poverty 
or social exclusion is high (especially for children), 
while  the  capacity  of  social  transfers(3)  to  reduce 
poverty remains limited.  Although decreasing, the 
share  of  young  people  neither  in  employment  nor 
in  education  or  training  and  the  share  of  early 
school  leavers  are  still  high.  The  level  of  digital 
skills is very low. Meanwhile, the employment rate 

(3) Social transfers cover the social help given by central, state 

or local institutional units. 

Executive summary 

is  relatively  high  for  men  and  women  and  gross 
disposable  household 
to 
increase.  

continues 

income 

Regarding  the  national  targets  under  the 
Europe  2020  strategy,  the  figures    for  people  at 
risk  of  poverty,  early  school 
leaving  and 
participation  in  tertiary  education  have  improved. 
However,  more  needs  to  be  done  to  reach  the 
nationally  set  goals.  Bulgaria  is  still  on  track  to 
achieve  its  targets  for  greenhouse  gas  emissions 
and  renewable  energy.    It  is  not  progressing 
towards its energy efficiency indicative targets and 
the  gap  between  the  current  and  target  levels  of 
energy  consumption  is  widening.  There  was  no 
progress towards the R&D intensity target. 

Bulgaria  is  making  progress  towards  achieving 
the  United  Nations’  Sustainable  Development 
Goals  (SDGs).  Bulgaria  has  fared  well    in  labour 
market  indicators  in  SDG  8  ‘Decent  work  and 
economic  growth’,  with  employment  rates  on  the 
rise.  In  terms  of  levels,  it  is  one  of  the  worst 
performers  in  the  EU  in  SDG  1  ‘No  poverty’, 
which  is  further  exacerbated  by  adverse  t  in  SDG 
10 ‘Reduced inequalities’(4).  

findings  of 

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

in-depth 

the 

  The  banking  sector  has  continued 

the 

to  be  among 

to 
strengthen,  while  follow-up  measures  are 
expected.  Overall,  banks  are  profitable  and 
well  capitalised  and 
ratio  of  non-
performing loans has been falling. Nonetheless, 
Bulgaria  continues 
the  EU 
countries  with  high  rates  of  non-performing 
loans, especially for non-financial corporations. 
Moreover,  the  asset  quality  review  and  stress 
test  conducted  by  the  European  Central  Bank 
revealed the need to increase the capital in two 
banks.  Several 
regulatory 
guidelines  have  been  introduced  and  there  has 
been  adequate  follow-up  of  already  adopted 

important  new 

4   Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring closer coordination of national efforts. The report 
contains  reinforced  analysis  and  monitoring  on  the  SDGs. 
A new annex (Annex E) presents a statistical assessment of 
SDGs’ trends during the past 5 years, based on Eurostat’s 
EU SDG indicator set. 

5 

 
                                                           
                                                           
Executive summary 

enterprises.  It  aims  to  address  significant 
performance  and  management  challenges.  A 
law  overhauling 
the 
principles  for  corporate  governance  of  these 
enterprises  was  adopted.  The  reform  will  only 
be  completed  when  the  implementing  acts  of 
the law are prepared and put into effect.  

framework  and 

the 

  The 

improved 

labour  market 

further, 
supported  by  solid  economic  growth.  The 
employment  rate  reached  72.4 %  in  2018, 
while  the  unemployment  rate  decreased  to 
5.2%.  However,  regional  disparities  remain 
high, and the declining working-age population 
and  labour  shortages  constrain  future  growth 
prospects.  Long-term  unemployment  and 
inactivity rates have fallen to the EU averages. 
However,  some  groups  still  find  it  difficult  to 
find  work,  including  Roma,  young  people  and 
people living in rural areas.  

  The  quality  and 

ongoing 

reforms.  This 

inclusiveness  of 

in  rural  areas  or 

the 
education system continue to be challenging, 
despite 
poses 
challenges  for  disadvantaged  groups,  such  as 
Roma  and  children 
in 
vulnerable situations. Persistently high rates of 
early  school  leaving  and  low  educational 
performance,  confirmed  by  the  2018  PISA 
results,  highlight  the  need  for  more  targeted 
measures.  The  reform  of  vocational  education 
and 
the 
employment  rate  of  VET  graduates  is  still 
below  the  EU  average.  Tertiary  educational 
attainment  is  still  below  the  Europe  2020 
target, and the provision of higher education is 
only  partially  aligned  with  the  needs  of  the 
labour market. The rate of participation in adult 
learning is one of the lowest in the EU. 

(VET)  continues,  but 

training 

  Social 

remain 

challenges 

significant. 
Although decreasing, the share of population at 
risk of poverty or social exclusion is still  very 
high.  The  in-work  poverty  rate  remains  a 
concern, particularly for young and low-skilled 
workers. Income inequality is the highest in the 
EU,  influenced  by  the  low  levels  of  minimum 
income  and  old  age  pensions.  The  adequacy 
and coverage of the minimum income remains 
insufficient,  despite  the  amendments  in  the 
allowance to support home heating. Reform of 
social services has been further postponed. 

acts.  The  work  on  banks’  resolution  plans  has 
advanced,  and  internal  rules  and  procedures 
introduced  in  July  2018  are  due  to  undergo 
review and possible fine-tuning.  

has 

sector 

financial 

  The  supervisory  framework  of  the  non-
banking 
been 
strengthened, but further action is necessary 
in  the  insurance  sector.  A  proper  risk-based, 
forward-looking 
supervisory  process  was 
established.  Legal  and  regulatory  provisions 
were  also  introduced  to  improve  supervisory 
effectiveness  and  practices  over  valuation 
methods  for  the  insurance  and  pension  funds 
sectors  and  for  related-parties  transactions  in 
the  pension  funds  sector.  The  remaining 
weaknesses in the insurance sector concern the 
adequacy 
the 
appropriateness  of  the  valuation  of  non-listed 
assets  and  the  effectiveness  of  governance. 
the 
Moreover, 
Bulgarian  Green  Card  Bureau  has  come  into 
question.  Other  challenges  in  the  motor  third 
party  liability  segment,  such  as  poor  pricing 
the 
uncertainty 
policies 
compensation  of  victims  of  car  accidents,  are 
expected  to  be  addressed  by  forthcoming 
legislative proposals. 

financial  stability  of 

provisions, 

technical 

around 

and 

the 

of 

corporations.  Household 

  The  private  sector  continues  to  shed  debt, 
while  maintaining  positive  credit  flows.  
Most debt continues to be on the books of non-
financial 
debt 
increased  due  to  intensified  mortgage  lending, 
but  still  remains  among  the  lowest  in  the  EU. 
Non-performing  loans  remain  high,  but  have 
been 
steadily  decreasing.  House  prices 
continued to rise, albeit at a slower pace. There 
are  no  signs  of  overheating  in  the  housing 
market, but the recovery should be monitored. 

  The  insolvency  framework  roadmap  was 
adopted  in  June  2019.  The  authorities  are 
preparing follow up steps, including legislative 
changes  and  capacity  building  activities  that 
are crucial to the success of the reform. 

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

  A  major reform is ongoing of the corporate 
state-owned 

framework  of 

governance 

6 

 
Executive summary 

exposures,  using  financial  intelligence  and 
ensuring  effective  supervision.  Measures  to 
mitigate risks  in relation to the  ‘citizenship by 
scheme  have  not  yet  been 
investment’ 
undertaken.  Such 
raised 
schemes  have 
concerns  about  certain  inherent  risks,  also 
linked to money laundering.  

  Inadequately 

environmental 
addressed 
challenges  present  an  obstacle  to  long-term 
sustainable  growth.  Bulgaria  remains  among 
the Member States with the largest incidence of 
pollution-related  deaths,  with  the  number  of 
years of life lost due to air pollution and urban 
population  exposure 
to  micro-particles  the 
highest in the EU. There is limited progress in 
ensuring  compliance  with  urban  wastewater 
collection  and  treatment  obligations.  There  is 
still 
economy 
programme  even  though  the  circular  use  of 
material  is  among  the  lowest  in  the  EU  and 
there are waste management challenges.  

overarching 

circular 

no 

  Bulgaria  remains 

the  most  energy-and 
greenhouse gas-intensive economy in the EU 
by  a  wide  margin.  In  2017,  Bulgaria  needed 
3.8 times more energy and produced 4.4 times 
more  carbon  emissions  per  unit  of  GDP  than 
the  EU  average.  The  high  energy  intensity  of 
the  economy  and  slow  progress  on  reaching 
energy  efficiency  targets  negatively  affects 
productivity  and  competitiveness.  There  is 
scope  for  significant  energy  savings  via 
targeted investments in the industrial, transport 
and  residential  sectors  and  for 
increased 
investments in clean energy infrastructure. The 
Commission’s  proposal  for  a  Just  Transition 
Mechanism  under  the  next  2021-2027  multi-
annual  financial  framework  includes  a  Just 
Transition  Fund,  a  dedicated  just  transition 
scheme  under  InvestEU,  and  a  new  public 
the  European 
facility  with 
sector 
Investment  Bank.  It  is  designed  to  ensure  that 
the  transition  towards  EU  climate  neutrality  is 
fair  by  helping  Bulgaria’s  most  affected 
to  address  social  and  economic 
regions 
consequences. Key priorities for support under 
the  Just  Transition  Fund,  set  up  as  part  of  the 
Just  Transition  Mechanism,  are  identified  in 
Annex D, building on the analysis of transition 
challenges outlined in this report. 

loan 

  Access  to  healthcare  is  limited  due  to  an 
uneven  distribution  of  scarce  resources  and 
low  health 
insurance  coverage.  Public 
expenditure  on  healthcare  remains  very  low, 
with  out-of-pocket  payments (5)  covering 
almost  half  of  healthcare  costs  —  one  of  the 
highest  shares  in  the  EU.  No  details  of  the 
health  insurance  reform  announced  in  July 
2019 have been released. The strategy for long-
term care is under way. 

  The potential for research and innovation to 
support  productivity  remains  underutilised. 
level  of  public  and  business 
The 
low 
investment,  the 
inefficient  and  fragmented 
research  system  and  weak  science-business 
links  remain  key  obstacles  to  an  innovation-
oriented economy.  

in 

and 

improvement 

administration 

to  a  significant 

  Improving  the  business  environment  and 
institutional  quality  remains  a  challenge. 
Public 
e-government 
reforms  are  progressing  slowly  and  have  not 
led 
the 
business  environment.  Despite  some  progress, 
public procurement remains a concern. There is 
a lack of effective coordination between public 
procurement  policy  makers.  The  use  of  the 
electronic  platform,  which  can  increase  the 
transparency of public tenders, remains limited. 
Frequent changes in the legislation continue to 
create regulatory uncertainty and are among the 
main obstacles to investment.  

  Challenges  persist 

in  the  fight  against 
corruption.  While  reforms  will  take  time  to 
show  results,  Bulgaria  still  lacks  a  solid 
criminal  track  record  of  concrete  results  on 
high  level  corruption  cases  that  would  help  to 
build  public  trust.  A  number  of  challenges 
persist, in particular ensuring effective criminal 
the  workload 
rebalancing 
investigations, 
among 
local 
prosecution service  offices.  Bulgaria has taken 
steps  to  strengthen  the  anti-money  laundering 
framework by adopting legislation to complete 
the 
the  forth  anti-money 
laundering  directive  and  to  transpose  the  fifth. 
The  new  legislation  is  yet  to  be  assessed. 
in  analysing  risk 
Challenges  also  remain 

transposition  of 

streamlining 

courts, 

and 

(5)  On-the-spot,  direct  payments  from  patients  to  healthcare 

providers.  

7 

 
                                                           
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

Economic  growth  in  Bulgaria  remained  strong 
in  2018  and  the  first  nine  months  of  2019. 
Private consumption was the main driving force of 
economic  growth  on  the  back  of  rapid  wage 
growth  and  high  employment.  Overall  investment 
growth  was  moderate  except  for  investment  in 
machinery  and  equipment,  which  was  supported 
by  favourable  financing  conditions  and  high 
capacity utilisation. Export growth slowed in 2018, 
mainly  due  to  temporary  one-off  factors  and 
became  volatile  in  the  course  of  2019  as  the 
negative impact of increased economic uncertainty 
abroad  was  partially  offset  by  the  efforts  of 
exporting  firms  to  diversify  across  destination 
markets.  In  2019  export  dynamics  were  also 
influenced by one-off factors. Import continued to 
increase  with  strong  growth  rates 
in  2018 
following  developments  in  domestic  consumption 
and  investment,  but  slowed  in  2019.  Overall,  net 
exports had a sizable negative contribution to GDP 
growth in 2018, while in 2019 the contribution was 
close to zero. 

Graph 1.1: 

Real GDP growth by demand components 

worsened  domestic  growth  prospects.  After 
stagnating in 2019, exports are projected to regain 
modest  growth  rates,  in  line  with  foreign  demand 
developments.  Exporting  firms  are  set  to  preserve 
their 
by  maintaining 
position 
productivity  growth  and  locking  in  non-price 
competitive advantages. Overall, economic growth 
in  Bulgaria  is  set  to  slow  from  3.7%  in  2019  to 
around 3% in 2020 and 2021. 

competitive 

investment  activity  relies 

Potential  GDP  growth  has  strengthened  in 
recent  years,  benefiting  mostly  from  gains  in 
total  factor  productivity.  Capital  accumulation 
has  steadily  supported  potential  growth  in  recent 
years.  In  contrast  to  the  2005-2009  period,  when 
investment  benefited  from  large  FDI  inflows, 
current 
largely  on 
domestic  savings  and  EU  funds  absorption.  This 
implies  a  more  balanced  and  sustainable  growth 
model,  less  dependent  on  typically  more  volatile 
external  sources  of  financing,  and  with  a  more 
moderate role of capital as a production factor. The 
contribution of labour to potential growth is bound 
to  become  negative,  due  to  adverse  demographics 
and  the  exhaustion  of  the  pool  of  unemployed. 
Strong  productivity  gains,  underpinned  by  high 
investment  rates,  human  capital  accumulation  and 
increased  efficiency  are  necessary  to  ensure  a 
healthy pace of real economic convergence. 

Graph 1.2: 

Potential growth breakdown 

2019-2021: Winter forecast 2020 for real GDP growth, 
otherwise Autumn forecast 2019 
Source: European Commission 

scope 

Domestic  demand  is  expected  to  lose  some 
growth  momentum,  but  remain  the  main 
growth  driver.  Limited 
further 
improvement  in  employment  is  set  to  weigh  on 
household consumption dynamics, while real wage 
increases are set to support private spending. In the 
next two years, investment is expected to grow at a 
moderate pace against the backdrop of heightened 
economic  uncertainty  abroad  and  somewhat 

for 

2019-2021: Winter forecast 2020 for real GDP growth, 
otherwise Autumn forecast 2019 
Source: European Commission 

Regional disparities 

There  are  significant  regional  disparities  in 
Bulgaria.  Regional  disparities,  measured  in  terms 

8 

 
  
  
1. Economic situation and outlook 

Central  (-23.1%).  By  comparison,  the  population 
in  the  capital  region  decreased  by  only  1.3% 
during  2010-2017  because  the  natural  population 
change  was offset by an increase  in  net  migration 
(+4.7%) from the other regions. 

The  2019  European  Regional  Competitiveness 
Index  points  to  significant  divergences  across 
regions.  The  capital  region  is  the  only  NUTS2 
region  with  a  substantially  better  performance.  A 
common  pattern  emerged  across  all  regions:  a 
tendency  for  higher  scores  on  the  efficiency 
dimension (higher education and lifelong learning, 
labour  market  efficiency  and  market  size),  but 
lower  scores  on  the  basic  dimension  (institutions, 
infrastructure, health and basic  education) and the 
innovation  dimension  (technological  readiness, 
business sophistication and innovation).  

Investment 

Total investment is estimated to have increased 
only  moderately  in  2019.  Over  the  course  of 
2020-2021,  investment  is  set  to  regain  some 
momentum  but  still  grow  at  a  relatively  moderate 
pace,  against  the  backdrop  of  elevated  economic 
uncertainty abroad and somewhat worsened global 
growth prospects.  

Public  investment  increased  sharply  in  2018 
and its growth is set to be  positive in 2019 and 
beyond.  The  government  has  sped  up 
the 
investment  projects.  EU 
implementation  of 
financed investment is accelerating and is expected 
to  remain  high  in  the  medium  term.  At  the  same 
time, a large share of public investment (more than 
two  thirds)  has  been  financed  by  purely  national 
investment  has  been  mainly 
resources.  This 
channelled  to  road  infrastructure  and  smaller 
construction  projects.  Public 
in 
transport infrastructure and defence is expected to 
increase  in  the  coming  years,  based  on  the 
government  announcing  its  intention  to  finance 
specific projects in these sectors. 

investment 

of variation in GDP per head, have been increasing 
significantly  since  2000,  reaching  a  peak  in  2010 
and stabilising afterwards at a slightly lower level. 
The  main  driver  is  the  concentration  of  economic 
activity in the capital region of Sofia and its rapid 
development  in  2000-2010.  The  capital  region  of 
Sofia  (South-West)  generates  more  than  47%  of 
the  national GDP, and has a per capita GDP level 
that is almost twice that of other Bulgarian regions. 
It  also  attracts  more  than  half  of  foreign  direct 
investment  in  the  non-financial  sector,  which  is 
mostly  concentrated  in  the  capital  itself(6).  The 
poorest  performers  are  the  North-Central  and  in 
particular the North-West region.  

Graph 1.3: 

Evolution of GDP per capita in PPS among 
Bulgarian NUTS2 regions 

Source: European Commission 

2000-2010, 

the  Southwest 

region 
From 
registered  high  increases  in  GDP  per  capita, 
while the other five regions lagged behind. After 
2010, the GDP per capita increases observed in the 
capital  region  became  more  modest,  while  the 
other  NUTS2  regions  continued  their  slower  but 
steadier path to growth (see Graph 1.3). This led to 
the  slight  reduction  in  regional  disparities  that  is 
observable  after  2010.  However,  there  are  still 
persistent  structural  issues  that  affect  productivity 
and  competitiveness  at  regional  level,  which  slow 
down the convergence process.  

Demographic  developments  also 
influence 
regional trends in GDP per capita. The NUTS2 
regions  that  were  most  affected  by  demographic 
changes  are  North-West  (-28.8%)  and  North-

(6)  https://www.nsi.bg/en/content/6196/foreign-direct-

investments-non-financial-enterprises-3112-statistical-
regions-and  

 External position 

The  current  account  balance  is  strengthening 
further. After reaching a surplus of 5.4% of GDP 
in  2018,  the  current  account  balance  continued  to 
improve  throughout  2019,  owing  to  stronger  net 
exports and lower investment income from foreign 
the 
direct 

investment  (FDI).  Going  forward, 

9 

0102030405060708090000102030405060708091011121314151617% of the EU averageNorth-WestNorth-CentralNorth-EastSouth-EastSouth-WestSouth-Central  
                                                           
 
1. Economic situation and outlook 

Graph 1.5:  Net international investment position 

current  account  is  forecast  to  remain  in  surplus, 
reflecting,  among  other  things,  a  positive  saving-
investment  balance  due  to  somewhat  subdued 
investment  outlook  and  a  moderate  consumption 
profile  in  the  context  of  growing  disposable 
income. The current account has been consistently 
in  surplus  since  2013  and  is  above  the  current 
account  norm(7)  of  -1.1%,  reflecting  the  external 
rebalancing process that ensued after 2009. 

Graph 1.4:  Current account developments 

Source: European Commission 

Inflation 

Temporary  and  seasonal  factors 
influence 
inflation. Annual headline inflation settled at 2.5% 
in  2019.  Price  dynamics  have  been  volatile  since 
the  beginning  of  the  year,  accelerating  to  3.1%  in 
April  and  declining  to  1.6%  in  September.  Food 
prices  have  contributed  strongly  to  inflation, 
influenced  by  the  poor  harvest  in  2018  and  the 
spread  of  the  African  swine  fever  beginning  in 
April  2019.  Services  inflation  outpaced  that  of 
total goods on the back of strong wage growth and 
factors specific to catering services, such as a more 
pronounced seasonality and  higher prices of food. 
Unprocessed  food    and    energy    prices    are 
expected to sustain inflation around 2.3% in 2020, 
while the assumed path of oil prices is set to hold 
inflation at 1.9% in 2021. 

Labour market 

(5.2%  against  5.6% 

There  is  a  growing  shortage  of  workers  in  the 
context  of  steady  economic  growth.  The 
unemployment  rate  decreased  further  (see  Graph 
1.6) and at the end of 2018 was below its pre-crisis 
level 
in  2008),  while 
employment  and  activity  rates  continued  to  rise 
and  approach  the  EU  averages  (2018:  72.4%  and 
76.3%; EU 73.2% and 78.4%, respectively). At the 
same  time,  adverse  demographic  trends,  high 
inactivity  rates  for  some  population  groups  (such 
as  Roma,  people  living  in  rural  areas  or  those 
neither  in  employment  nor  in  education  and 
training) coupled with and labour shortages remain 
key challenges to future growth. 

Source: European Commission 

The  negative  Net  International  Investment 
Position  (NIIP)  is  on  a  very  rapidly  decreasing 
path.  Ample  liquidity  in  the  banking  sector  and 
strong  GDP  growth  are  facilitating  fast  NIIP 
contraction. NIIP reached -36.2% of GDP in 2018 
(down  from  -44.2%  in  2017).  Growing  reserve 
assets  at  the  Bulgarian  National  Bank  (BNB)  and 
net  deposits  of  commercial  banks  abroad  account 
for  the  largest  reduction  in  net  external  liabilities. 
Through  the  currency  board  arrangement,  the 
reflects 
expansion  of  BNB’s 
growing  central  bank  liabilities,  i.e.  –  currency  in 
circulation and deposits of commercial banks. Net 
portfolio investment abroad also contributed to the 
the  external  position.  The 
improvement  of 
structure of the net external liabilities is favourable 
for the external sustainability of the economy, as it 
is mostly made up of FDI equity (see Graph 1.5). 

foreign  assets 

(7)  The  benchmark  is  derived  from  reduced-form  regressions 
capturing  the  main  determinants  of  the  saving-investment 
balance, 
(e.g. 
demography, resources), policy factors and global financial 
conditions. See also Coutinho, Turrini and Zeugner (2018).  

fundamental  determinants 

including 

10 

-40-30-20-10010200203040506070809101112131415161718% of GDPCapital accountSecondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+KA)-150-100-500501000203040506070809101112131415161718% 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)NENDI (NIIP excluding non-defaultable instruments)  
                                                           
  
1. Economic situation and outlook 

Graph 1.6: 

Labour market indicators 

Source: European Commission 

Poverty risks are more prominent for children, the 
elderly,  the  low  skilled,  people  with  disabilities, 
and  Roma,  with  differences  across  regions.  The 
in-work  poverty, 
including 
risk  of  poverty, 
continues  to  be  much  higher  among  those  with 
less-than-primary,  primary  and  lower  secondary 
education.  While  poverty  and  social  exclusion 
risks declined by 16.4 pps nationwide since 2010, 
they  decreased  only  by  8.9  pps  in  the  less 
developed North-West region.  

Graph 1.7: 

Employment rate by age group and 
educational attainment level, 2018 

faster 

Strong  wage  growth  continues,  although  not 
evenly across sectors. In 2018, real compensation 
per  employee  grew  by  5.4%, 
than 
productivity,  which  increased  by  3.2%.  While 
public sector wages increased by 10.9%, wages in 
the  private  sector  grew  by  4.2%  (European 
Commission,  2019c).  Private  sector  wage  growth 
was  driven  by  services  (10.8%),  and  in  particular 
the 
technical 
activities”  sector  (11.6%).  Wage  discrepancies 
across regions and sectors remain relatively high.  

“professional, 

scientific 

and 

Integration  into  the 
labour  market  differs 
among  population  groups  and  regions.  The 
positive  economic  developments  of  recent  years 
did not benefit the whole population equally. There 
are  still  noteworthy  discrepancies  in  employment 
and  inactivity  rates  depending  on  age,  education 
levels and across regions (see Graph 1.7). In 2018, 
the  share  of  young  people  aged  15-24  not  in 
(NEET) 
education,  employment  or 
decreased  further,  but  was  still  15.0 %  (EU 
average  10.5%).  Likewise,  15.4%  of  the  low 
skilled  active  population  was  unemployed,  while 
the  share  was  much  lower  for  the  medium  skilled 
(4.4%)  and  high  skilled  populations  (2.4%).  To 
add 
in 
employment  rates  between  the  best  and  the  least 
performing regions are as large as 15 pps.  

these  divergences,  differences 

training 

to 

The  rate  of  people  living  in  poverty  remains 
very  high,  though  it  is  declining.  Despite  a 
continuous  downward  trend  (from  41.3%  in  2015 
to 32.8% in 2018) poverty or social exclusion still 
affect  2.3  million  Bulgarians  (see  Graph  1.8). 

Source: European Commission 

Income inequality started to decrease, driven by 
a steady rise in earnings. In 2018, the income of 
the  richest  20%  of  the  population  was  7.66  times 
higher  than  that  of  the  poorest  20%,  with  the 
impact of social transfers on reducing poverty still 
significantly low (25.4% compared with 33.2% for 
the  EU).  This  reflects  the  low  level  of  social 
spending  and  the  limited  redistributive  effects  of 
the  taxation  system.  Inequality  of  opportunity 
remains  high,  as  shown  for  instance  by  the  high 
poverty  risk  facing  children  whose  parents  have 
primary  or  lower  education.  Between  2010-2019, 
gross  disposable  household  income  per  capita  has 
been increasing at a similar rate to that of the GDP 
per capita, which suggests that increases in income 
have  reached  households  as  well.  However, 
income  distribution  in  the  population  aged  16+ 
points to the importance of economic activity and 
education levels. The average equalised disposable 
income of employed people with higher education 
is 6.3 times higher than that of the unemployed. 

11 

0246810121445505560657075800809101112131415161718% of labour force% of populationUnemployment rate 15-74 (rhs)Activity rate 20-64Employment rate 20-64020406080100120Less than primary, primary and lower secondary education (levels 0-2)Upper secondary and post-secondary non-tertiary education (levels 3-4)Tertiary education (levels 5-8)% of population  
  
1. Economic situation and outlook 

Credit activity strengthened further. In October 
2019,  growth  rates  reached  8.1 %  for  NFCs  and 
10.4 %  for  households.  This  could  support  higher 
private  investment  and  spur  potential  growth.  At 
the  same  time,  mortgage  loans  grew  strongly,  by 
more than 14.8 %  year-on-year in October, owing 
to  the  positive  economic  environment  and  higher 
disposable  incomes(10).  The  access  of  companies 
to  financial  market  funding,  especially  the  use  of 
listed  shares  and  debt  securities,  remains  very 
limited.  Financial 
literacy  attainment  among 
households remains low, limiting capacity to make 
informed choices and to plan for retirement(11). 

House  prices  continued  to  rise,  albeit  at  a 
slower pace. House prices grew by 5.4% y-o-y in 
Q3  2019,  a  deceleration  from  6.6%  in  2018.  The 
largest  rises  have  been  recorded  in  the  second 
biggest city, Plovdiv (12.3%),  while in the  capital 
Sofia,  prices  increased  by  6.8%.  Mortgage  credit 
has  continued  to  grow  at  a  fast  pace,  while  the 
number of issued building permits declined in Q3 
2019,  after  a  period  of  buoyant  growth,  which 
warrants close monitoring of future developments. 
Strong  mortgage  growth  has  continued,  signalling 
that credit could be fuelling the ongoing expansion 
of the real estate market. Meanwhile, construction 
investment  as  a  percentage  of  GDP  remained 
stable in 2018. 

Despite continued increases, housing  prices are 
still  in  line  with  the  fundamentals(12).  The 
is  still  negative  and  has 
overvaluation  gap 
narrowed  from  -14.5%  in  2015  to  -5.6%  in  2018, 
suggesting  that  housing  prices  are  still  recovering 
from  the  post-crisis  slump  (see  Graph  1.9).  The 
price-to-income  ratio  is  still  below  the  historical 
averages  but  it  is  slowly  edging  up,  while  the 
price-to-rent  ratio  has  aligned  with  its  historic 
trends. Although there are no signs of overheating 

(10)  Growth rates of loans are calculated from notional stocks, 
which  reflect  only  changes  that  arise  from  financial 
transactions. 

(11)  According  to  the  S&P  Global  FinLit  Survey  (2014),  only 
35%  of  adults  in  Bulgaria  are  financially  literate  (well 
below the EU average of 52%). In 2017, the share of debt 
and 
securities, 
insurance/pension  products  in  the  households’  financial 
assets in Bulgaria was low as compared to many other EU 
countries. 

shares/units 

investment 

fund 

Graph 1.8:  At-risk-of-poverty or social exclusion rate and 

its components (AROP, SMD, LWI, MSD) 

(1) The Material and Social Deprivation indicator (MSD) is the 
result of a revision of the Material Deprivation indicator (MD). 
It takes into consideration a broader concept of deprivation 
as it also includes items related to social activities. The MSD 
rate is the share of people in the total population lacking at 
least 5 items out of the 13 MSD items.  
Source: European Commission 

Financial sector  

The banking sector maintained high capital and 
liquidity ratios, supported by economic growth. 
The  system-wide  CET1  ratio(8)  was  18.5%  at  the 
end  of  Q2  2019  and  funding  was  comfortable  on 
aggregate, with the loan-to-deposit ratio at 77.4%. 
Total assets in October 2019 were 8.6 % up on one 
year  earlier.  Banks  profitability  slightly  improved 
in 2018 and remained at a high level in 2019, with 
return on equity at 12.1% in Q2.  

Non-performing loans (NPLs) remain relatively 
high, but have been steadily decreasing and the 
secondary  market  has  become  more  dynamic. 
The  NPL  ratio  has  been  on  a  downward  trend 
across individual banks and segments, declining to 
6.9%  at  the  end  of  Q2 2019  (from  9.2%  a  year 
earlier). However, it remains one of the highest in 
the EU (well above the EU average of just below 
3%)(9)(see  Section  3  and  4.2).  NPLs  by  non-
financial  corporations  (NFCs)  also  decreased,  but 
still stood at 11.1% of total loans and advances in 
Q2 2019 (compared with 15.4% a year earlier) and 
were even higher for domestically owned banks (at 
19.4%).  

(8)  The  Common  Equity  Tier  1  (CET1)  ratio  is  the  sum  of 
common shares, retained earnings and other comprehensive 
income,  qualifying  minority 
regulatory 
adjustments, divided by the risk-weighted assets. 

interest  and 

(9)  According to ECB Consolidated Banking data. 

(12)  The  deviation  of  house  prices  from  fundamentals  is 
computed as an average of the price/income, price/rent and 
fundamental model valuation gaps. For more details on the 
methodology, 
(2017), 
https://ec.europa.eu/info/sites/info/files/dp048_en.pdf 

see  Philiponnet  &  Turrini 

12 

01020304050607006070809101112131415161718% of populationAt-risk-of-poverty-or-social-exclusion rateAt-risk-of-poverty rateSevere material deprivationPeople living in low work intensity householdsMaterial and social deprivation (1)  
                                                           
                                                           
1. Economic situation and outlook 

Table 1.1: 

Financial soundness indicators, all banks in Bulgaria 

Source: European Central Bank 

in the  housing  market  yet, the recovery should be 
closely monitored, with special attention to regions 
that are recording the highest growth in prices. 

Graph 1.9:  Overvaluation gap with respect to 

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

(1) Overvaluation gap estimated as an average of the 
price/income, price/rent and fundamental model valuation 
gaps. 
Source: European Commission 

Public finances 

in  2019 

Fiscal  performance  in  Bulgaria  is  robust.  The 
general  government  surplus  is  expected  to  remain 
above  1%  of  GDP 
exceeding 
government’s  projections  for  a  close  to  balance 
budget. Revenues continued increasing at a higher 
pace  than  budgetary  projections,  but  in  line  with 
the 
and 
implemented  measures.  Expenditures  expanded 
fast  mainly  due  to  double-digit  wage  increases, 
higher  social  spending  and  recovering  public 
investment.  

macroeconomic 

developments 

In the medium term, the budget is set to remain 
in  surplus  and  public  debt 
to  continue 
decreasing. Revenue collection is projected to stay 

strong,  in  line  with  macroeconomic  and  labour 
market  developments.  Total  spending  is  set  to 
accelerate  as  a  result  of  public  sector  wage 
increases  already  announced  for  2020  and  further 
increases  in  public  investment  for  both  national 
and  EU  financed  projects.  As  a  result,  the  budget 
surplus  is  forecast  to  slightly  decrease  to  0.9%  of 
GDP  in  2020  and  to  remain  at  the  same  level  in 
2021.  Public  debt  is  expected  to  decrease  in  the 
medium term and reach levels below 20% of GDP 
in  2021.  The  pace  of  debt  reduction  is  set  to  be 
contained  as  the  government  is  planning  to  issue 
some  debt  and  increase  its  fiscal  reserves  to  pre-
finance future debt. 

Sustainable Development Goals 

Bulgaria  is  making  progress  towards  achieving 
the  United  Nations’  Sustainable  Development 
Goals (SDGs). Bulgaria has fared well with labour 
market  indicators  in  SDG  8  “Decent  work  and 
economic  growth”,  with  employment  rates  on  the 
rise  and  the  shares  of  long  term  unemployed  and 
young  people  neither  in  employment  nor  in 
education/training    falling,  both  approaching  the 
EU averages. In terms of levels, Bulgaria is one of 
the  worst  performers  in  the  EU  in  SDG  1  “No 
poverty”,  with  some  sub-indicators  also  recording 
concerning  negative  trends  over  the  last  15  years 
(at  risk  of  poverty  in  work  and  after  social 
transfers).  This  is  further  exacerbated  by  adverse 
developments  in  SDG  10  “Reduced  inequalities” 
and  by  a  relatively  weak  performance  in  SDG  4 
“Quality  education”.  Despite  ongoing  efforts,  the 
challenges of quality and inclusion at all levels of 
the  education  and  training  system  remain.  In  the 
environmental  and  climate  dimension,  Bulgaria  is 
doing  well  with  the  share  of  renewables  in  gross 
final  energy  consumption,  but  more  needs  to  be 
done to improve energy efficiency given that both 
the  final  and  primary  energy  consumption  have 
been moving away from their SDG objectives.  

13 

-60-40-200204060809900010203040506070809101112131415161718% deviation of current priceModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap2014q42015q42016q22016q32016q42017q12017q22017q32017q42018q12018q22018q32018q42019q12019q2Non-performing loans16.014.514.013.712.812.612.111.510.29.49.28.67.77.56.9o/w foreign entities-15.814.413.912.712.211.811.09.58.78.57.76.86.45.7o/w NFC & HH sectors-23.422.422.020.520.419.218.616.415.114.513.612.111.810.5o/w NFC sector20.723.122.422.021.121.219.919.217.316.115.414.512.712.311.1o/w HH sector17.416.915.815.513.913.613.113.011.410.09.99.59.08.88.0Coverage ratio48.950.150.252.151.351.451.653.350.655.055.555.452.752.450.5Return on equity(1)7.28.014.012.511.310.811.910.410.210.011.812.311.89.512.1Return on assets(1)0.91.01.81.71.51.41.51.31.31.21.51.51.61.31.5Total capital ratio21.521.622.222.221.521.822.221.921.820.620.820.120.619.219.5CET 1 ratio19.119.520.320.519.820.120.520.220.219.119.418.719.318.018.5Tier 1 ratio19.619.920.821.020.320.621.020.720.619.619.819.119.718.418.8Loan to deposit ratio82.773.474.374.072.472.873.873.572.674.672.773.975.575.977.4 
  
 
  
 
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. 
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash benefits, expressed as a 
percentage of gross wage earnings 
Source:  Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 2020 for real GDP and HICP, 
Autumn forecast 2019 otherwise) 

14 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)6.71.12.53.53.13.72.93.1Potential growth (y-o-y)5.91.82.53.03.13.02.82.5Private consumption (y-o-y)9.21.01.93.84.4...Public consumption (y-o-y)2.5-0.31.14.35.3...Gross fixed capital formation (y-o-y)16.5-4.2-0.13.25.4...Exports of goods and services (y-o-y)15.02.96.95.81.7...Imports of goods and services (y-o-y) 19.7-1.14.97.45.7...Contribution to GDP growth:Domestic demand (y-o-y)10.5-0.61.33.64.4...Inventories (y-o-y)0.7-0.7-0.10.61.1...Net exports (y-o-y)-4.52.21.2-0.7-2.4...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)1.8-1.00.10.40.30.20.0-0.1Capital accumulation (y-o-y)2.01.70.90.70.70.70.80.8Total factor productivity (y-o-y)2.11.11.62.02.02.02.01.9Output gap1.80.2-1.20.00.00.50.81.1Unemployment rate9.59.310.36.25.24.44.14.0GDP deflator (y-o-y)7.54.11.23.94.04.53.02.6Harmonised index of consumer prices (HICP, y-o-y)6.84.6-0.91.22.62.52.31.9Nominal compensation per employee (y-o-y)8.69.86.410.59.77.86.65.4Labour productivity (real, person employed, y-o-y)3.72.82.31.73.2...Unit labour costs (ULC, whole economy, y-o-y)4.76.84.18.76.34.73.52.3Real unit labour costs (y-o-y)-2.62.62.84.52.20.10.5-0.3Real effective exchange rate (ULC, y-o-y)3.04.53.49.16.11.60.8-0.1Real effective exchange rate (HICP, y-o-y)3.41.6-1.20.73.50.3-0.7-0.3Net savings rate of households (net saving as percentage of net disposable income)-11.9-2.6-1.3-0.8....Private credit flow, consolidated (% of GDP)28.08.41.14.13.9...Private sector debt, consolidated (% of GDP)86.7135.1117.599.095.0...of which household debt, consolidated (% of GDP)18.028.024.322.623.0...of which non-financial corporate debt, consolidated (% of GDP)68.7107.193.276.472.0...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)3.314.714.39.06.8...Corporations, net lending (+) or net borrowing (-) (% of GDP)-8.1-0.66.97.36.910.711.011.5Corporations, gross operating surplus (% of GDP)27.028.729.730.930.931.631.631.6Households, net lending (+) or net borrowing (-) (% of GDP)-7.8-2.8-0.7-1.4-3.7-5.6-5.5-6.1Deflated house price index (y-o-y)24.8-6.82.75.34.5...Residential investment (% of GDP)3.93.41.92.92.7...Current account balance (% of GDP), balance of payments-14.6-6.51.53.55.46.36.26.1Trade balance (% of GDP), balance of payments-15.4-6.71.24.43.0...Terms of trade of goods and services (y-o-y)2.81.21.40.21.22.90.70.5Capital account balance (% of GDP)0.21.12.21.01.1...Net international investment position (% of GDP)-51.2-88.8-64.2-44.2-36.2...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)..16.932.135.4...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)..57.247.643.7...Export performance vs. advanced countries (% change over 5 years)59.125.010.317.111.1...Export market share, goods and services (y-o-y)6.3-0.23.54.80.3-1.50.0-0.4Net FDI flows (% of GDP)-18.5-6.1-2.1-2.5-0.6...General government balance (% of GDP)1.4-1.6-1.91.11.81.10.90.9Structural budget balance (% of GDP)..-0.71.11.81.00.60.6General government gross debt (% of GDP)24.914.824.925.322.321.119.918.6Tax-to-GDP ratio (%) (3)30.727.228.829.429.929.929.929.9Tax rate for a single person earning the average wage (%) (4).21.521.622.022.4...Tax rate for a single person earning 50% of the average wage (%) (4).21.521.622.022.4...forecast 
  
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

72% 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Bulgaria  have 
recorded  at  least  ‘some  progress’(13).  ‘Limited 
progress’ has been made on 28% of these country-
specific recommendations (see Graph 2.1).  

all 

Graph 2.1:  Overall multiannual implementation of 2011- 

2019 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 2020 Country Report 
Source: European Commission 

stagnated 

indicators  have 

progress in the area of education and training, with 
the  impact  of  recent  measures  to  improve  the 
quality  and  inclusiveness  of  education  still  to  be 
and 
seen.  Key 
educational  challenges  remain,  in  particular  for 
Roma.  The  impact  of  measures  undertaken  to 
improve the labour market relevance of vocational 
education  and  training  and  tertiary  education 
seems to be so far limited. New services have been 
introduced  nation-wide  to  support  the  labour 
market  integration  of  specific  groups,  such  as 
family  counselling  or  mobile  labour  offices,  but 
there  is  limited  progress  with  the  provision  of 
sustainable  integrated  support  to  disadvantaged 
groups.  The  postponement  of  entry  into  force  of 
the  law  on  social  services  has  created  additional 
uncertainty  about  the  final  impact  of  the  new 
provisions.  The  adequacy  and  coverage  of  the 
heating allowance as part of the minimum income 
has slightly improved. 

Some  progress  has  been  made  in  addressing 
structural  challenges  in  the  area  of  public 
finances. Bulgaria continues its efforts to improve 
tax collection and reduce the extent of the informal 
economy.  The  government  has  adopted  a 
framework 
the  corporate 
governance framework for state-owned enterprises 
and it is now putting it into effect. 

improve 

law 

to 

economic 

to  a  strong  decline 

ongoing 
recent  policy 

labour  market  continues  to  perform 
The 
growth 
strongly.  The 
reforms  and 
underpinned  by 
measures  contributed 
in 
unemployment and a steady increase in the activity 
rates.  However,  the  decline  in  the  working-age 
population  and  further  labour  market  tightening 
may 
the  scope  for  future  employment 
increases and create labour shortages. While some 
progress  has  been  made  in  strengthening  the 
employability of the  workforce through additional 
education and training opportunities, the inactivity 
rates of specific groups remain a challenge. 

limit 

improving 

Some  progress  has  been  achieved  over  2015-
2019 in strengthening banks and other financial 
the 
sector  undertakings  and 
financial  sector  supervision.  Policy  action  and 
positive  macroeconomic  developments  helped 
strengthen further the balance sheets and to reduce 
macro-financial risks stemming  from the financial 
sector.  The  supervisory  action  plans  have  mostly 
been 
implemented,  with  some  measures  still 
underway.  The  full  implementation  of  reforms  to 
the supervision and governance of banks and other 
financial  corporations  is  crucial  to  consolidate 
these positive developments. 

Challenges related to healthcare, education and 
social  inclusion  remain.  Access  to  healthcare 
services remains limited, especially for the poorest, 
and  measures  to  address  out-of-pocket  payments 
and  shortages  of  healthcare  professionals  have 
limited 
inadequate.  Bulgaria  has  made 
been 

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

past see, in particular, Section 4.  

The authorities have taken steps to address the 
deficiencies  of  the  insolvency  framework.  In 
2018,  Bulgaria  requested  technical  support  to 
advance  the  insolvency  framework  reform.  This 
project  produced  a  roadmap  for  addressing  the 
identified  gaps  in  the  system.  The  government 
adopted the roadmap in June 2019 and commenced 
its  implementation.  It  is  important  to  keep  up  the 

15 

Limited Progress28%Some Progress59%Substantial Progress11%Full Implementation2% 
  
                                                           
2. Progress with country-specific recommendations 

on Corporate Governance of SOEs. In 2019, work 
started  on  providing  support  for  the  Supreme 
Judicial  Council  with  the  aim  of  reforming  the 
payment  process,  improving  the  capacity  of  the 
Inspectorate  to  the  Supreme  Judicial  Council  to 
perform integrity checks, supporting the reform of 
the  public  administration  and  implementing  an  e-
health strategy. 

reform  momentum and to implement the  roadmap 
in a comprehensive and a timely manner.  

in 

the 

2019 

sector 

Bulgaria  has  made  some  (14)  progress 
in 
addressing 
country-specific 
recommendations.  There  has  been  substantial 
progress  in  upgrading  the  State-owned  enterprise 
corporate governance framework,   reinforcing  the 
supervision,  and  effectively 
banking 
enforcing  risk-based  supervision 
the  non-
banking  financial  sector.  Some  progress  has  been 
made in improving tax collection through targeted 
measures  in  areas  such  as  fuel  and  labour  taxes; 
promoting  adequate  valuation  of  assets  in  the 
banking  sector  and  a  secondary  market  for  non-
performing loans; enforcing the  adopted valuation 
guidelines and group-level supervision in the non-
banking  financial  sector;  improving  the  business 
environment; 
strengthening  employability  by 
reinforcing  skills  and  addressing  social  inclusion 
through  more  effective  minimum  income  support. 
There  has  been 
the 
enforcement  of 
laundering 
framework;  reforming  the  insolvency  framework; 
fostering  the  stability  of  the  car  insurance  sector; 
improving  access  to  integrated  employment  and 
social services; reforming education and healthcare 
sectors  and  focusing  investment-related  economic 
policy  on  research  and  innovation,  transport, 
water,  waste and energy infrastructure and energy 
efficiency. 

limited  progress  with 
the 

anti-money 

Upon  request  from  a  Member  State,  the 
Commission  can  provide  tailor-made  expertise 
via the Structural Reform Support Programme 
to  help  design  and 
implement  growth-
enhancing reforms. Since 2016, such support has 
been provided to Bulgaria for 29 projects. In 2019, 
several projects were delivered on the ground. The 
Commission, for example, provided the authorities 
with  an 
review  and 
roadmap.  Furthermore,  support  was  provided  to 
improve the governance of state-owned enterprises 
(SOEs).  As  a  result,  in  September  2019,  Bulgaria 
adopted a new law, based on the OECD Guidelines 

framework 

insolvency 

(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 2019 CSR implementation 

(Continued on the next page) 

17 

 
 
  
 
 
2. Progress with country-specific recommendations 

Table(continued)

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

For CSR 3:  The regulatory framework underpinning the programming of the 2021-2027 EU cohesion policy funds has not yet 
been adopted by the co-legislators, pending inter alia an agreement on the multiannual financial framework (MFF). 

18 

 
 
 
 
  
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes to address the structural challenges and to foster 
growth and competitiveness in Bulgaria  

Bulgaria  is  one  of  the  countries  that  benefits  most  from  the  EU  support.  The  financial 
allocation from the EU Cohesion policy funds (1) for Bulgaria amounts €8.7 billion in the current 
Multiannual Financial Framework 2014-2020, equivalent to around 2.4% of GDP. By the end of 
2019, some €7.4 billion (around 85% of the total amount planned) was allocated to projects, while 
€3.6 billion  was reported as spent by  the selected projects (2)  with implementation levels in  line 
with the EU average. 
EU  Cohesion  policy  funding  significantly  supports  structural  challenges  in  Bulgaria.  The 
Cohesion  Policy  programmes  for  Bulgaria  have  allocated  EU  funding  of  €1.1  billion  for  smart 
growth, €4.1 billion for sustainable growth and sustainable transport and €1.9 billion for inclusive 
growth.  In  2019  following  a  performance  review (3)  €386  million  have  been  made  available  for 
Bulgaria  within  performing  priorities.  In  addition  €126  million  (including  national  co-financing) 
have to be reprogrammed by the authorities within the above priority areas. 
EU  Cohesion  policy  funding  is  contributing  to  important  transformations  of  the  Bulgarian 
economy  by  investing,  among  other  things,  in  research,  technological  development  and 
innovation,  competitiveness  of  enterprises,  sustainable  transport,  education,  employment  and 
social  inclusion.  The  estimated  effect  of  ESI  Funds  boosted  GDP  by  5.5%  and  helped  create 
200,000 new jobs by 2019. ESI Funds alone are responsible for almost 77% of GDP growth in the 
country (4).  Investments  driven  by  EU  Funds  are  helping  to  modernise  439  km  of  roads  by  end 
2019, both at regional level and in connection with the TEN-T network. Almost 5,000 enterprises 
have  already  benefited  from  support.  Private  operators  have  signed  contracts  that  should  deliver 
more  than  €50  million  of  fresh  private  capital  to  the  research  system.  Investments  in  237 
emergency care facilities are giving access to faster and more modern medical aid, including those 
in remote regions. ESF has so far supported over 600,000 people get a job, to receive training or a 
stage, be included in a social service or get counselling and guidance for better educational results. 
and overcoming learning gaps. 
Agricultural and fisheries funds and other EU programmes also contribute to addressing the 
investment  needs.  The  European  Agricultural  Fund  for  Rural  Development  (EARDF)  makes 
available a total of €2.9 billion, and the European Maritime and Fisheries Fund (EMFF) a total of 
€104 million (including the national co-financing for both). Bulgaria also benefits from other EU 
programmes such as the Connecting Europe Facility, which allocated EU funding of €415 million 
to specific projects on strategic transport networks, and Horizon 2020, which allocated EU funding 
of €111 million (including about €24 million to73 SMEs). 
EU funding helps mobilise significant private investment. European Structural and Investment 
funds (5) supported programmes mobilise additional capital by allocating more than €700 million 
in the form of loans, guarantees and equity. This is expected to leverage additional investment at 
the  level  of  financial  intermediaries  exceeding  €1  billion.  At  the  end  of  2018,  14.1%  of  the 
European Structural and Investment funds was paid in the form of financial instrument (based on 
ESIF  Annual  Implementation  Reports  2018).  EU  funds  already  invest  substantial  amounts  on 
actions  in  line  with  the  Sustainable  Development  Goals  (SDGs).  In  Bulgaria  the  European 
Structural and Investment Funds support 13 of the 17 SDGs and up to 96% of the expenditure is 
contributing to those.  

(1)  European  Regional  Development  Fund,  Cohesion  Fund,  European  Social  Fund,  Youth  Employment  Initiative, 

including national co-financing. 

(2)  https://cohesiondata.ec.europa.eu/countries/BG. 
(3)  The performance review is regulated by Article 22 of the Regulation (EU) No 1303/2013. 
(4)  https://www.minfin.bg/bg/1168.  
(5)  European Regional Development Fund, Cohesion Fund, European Social Fund, European Agricultural Fund for Rural 

Development Fund and European Maritime and Fisheries Fund. 

19 

 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

to  assess 

for  Bulgaria 

in-depth  review 

The  2020  Alert  Mechanism  Report  concluded 
should  be 
that  a  new 
undertaken 
the 
persistence  or  unwinding  of  the  imbalances 
(European Commission, 2019d). In spring 2019, 
Bulgaria  was  identified  as  having  macroeconomic 
imbalances  (European  Commission,  2019a).  They 
related  in  particular  to  vulnerabilities  in  the 
financial  sector  coupled  with  high  indebtedness 
and  non-performing  loans  in  the  corporate  sector. 
This  chapter  summarises  the  findings  of  the 
analyses carried out as part of the macroeconomic 
imbalances  procedure  in-depth  review  that  is 
contained in this report (15).  

3.1. 

IMBALANCES AND THEIR GRAVITY 

supervision 

The banking sector is sound overall, but further 
steps  are  necessary  concerning 
individual 
banks.  Capital  and  liquidity  ratios  in  the  banking 
sector  remained  strong,  supported  by  economic 
been 
growth.  Banking 
strengthened, and business practices in banks have 
improved  following  the  2016  asset  quality  review 
and stress test conducted by the Bulgarian National 
Bank. The comprehensive assessment of six banks 
by  the  ECB  in  the  first  half  of  2019  revealed 
capital  shortfalls  in  two  banks  (First  Investment 
Bank  and  Investbank),  which  have  been  asked  to 
implement capital plans by April 2020.  

has 

Insurance  companies  improved  their  financial 
results and the supervision framework has been 
strengthened,  while 
further  measures  on 
outstanding  issues  are  envisaged..  Remaining 
challenges  point  to  the  need  for  implementing 
strong  risk-based  supervision  and  addressing  the 
challenges  faced  by  the  insurance  sector.  These 
include  the  adequacy  of  technical  provisions,  the 
appropriateness  of  the  valuation  of  non-listed 
assets  and  the  effectiveness  of  governance.  Other 
challenges 
liability 
segment  include  the  financial  stability  of  the 
‘Green  Card’  system,  poor  pricing  policies  and 
uncertainty around compensation of victims of car 
accidents.  Group-level  supervision  might  become 
insurance  group, 
relevant  for  one  particular 

the  motor 

third-party 

in 

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

section 4.2 on the financial sector.  

depending  on  the  outcome  of  the  restructuring 
regulation  has 
process.  For  pension 
broadened  the  definition  of  related  parties.  Proper 
implementation will be key. 

funds, 

Non-performing loans (NPL) and private sector 
debt  continued to decline but  remain  high. The 
share  of  non-performing  loans  dropped  further  in 
Q2 2019 to 6.9% overall (11.1% for non-financial 
corporations),  but  still  remains  one  of  the  highest 
in  the  EU.  In  domestically  owned  banks  the  NPL 
ratio  for  loans  to  corporations  is  even  higher 
(19.4%).  In  spite  of  positive  credit  flows,  private 
sector deleveraging continues, facilitated by strong 
economic growth. Most of these liabilities are held 
by non-financial corporations and stood at 72% of 
GDP in 2018, below the prudential benchmark but 
above levels suggested by fundamentals. Although 
to 
growth 
intensified  mortgage 
it  still  remains 
among the lowest in the EU. The ineffectiveness of 
the insolvency framework is slowing the reduction 
in private sector indebtedness and the work-out of 
non-performing loans. 

in  household  debt 

increased  due 

lending, 

3.2. 

EVOLUTION, PROSPECTS AND POLICY 
RESPONSES 

aligning 

Banking 
supervision  and  resolution  have 
improved in terms of resources, governance and 
tools.  Several  measures 
banking 
supervision  with  good 
international  practices 
include  legislation  for  supervising  related-party 
exposures  and  a  framework  for  implementing 
borrower-based  measures.  Provisioning  policies 
were  also  enhanced  and  credit-granting  practices 
have  improved.  Work  on  resolution  plans  has 
advanced and the cycle is expected to be closed in 
early  2020.  The  full  impact  of  the  measures 
adopted  will 
complete 
implementation,  regular  monitoring  and  update 
where necessary.  

depend 

their 

on 

The Bulgarian National Bank received technical 
assistance  from  the  IMF  in  the  preparation  of 
the  2018  Supervisory  Review  and  Evaluation 
Process  (SREP)  manual (IMF,  2019).  Further 
recommendations are that loans granted as a result 
of unsound banking practices should be dealt with 

20 

 
                                                           
3. Summary of the main findings from the MIP in-depth review 

more  robustly  than  other  loans  and  that  business 
model frameworks of some banks need upgrading.  

reinsurance  contract,  but  the  conclusion  has  been 
delayed and is still pending. 

The  private  sector  continues  to  deleverage 
despite positive credit flows. Consolidated private 
sector debt decreased from 99% of GDP in 2017 to 
95% in 2018, while the debt held by non-financial 
corporations  declined  from  76.4%  to  72%.  A 
favourable  economic  cycle,  low  interest  rates, 
increased  lending  activity  and  a  more  dynamic 
secondary  market  contributed  to  a  decline  in  the 
non-performing  loans.  High  liquidity  and  the 
entrance  of  large  international  players  in  the 
market  have  also  bolstered  demand  for  NPL 
portfolios and collateral sales. 

to 

the 

strengthen 

The  authorities  have  started  to  implement  the 
roadmap 
insolvency 
framework.  Gaps  in  the  insolvency  framework 
have  been  identified  in  cooperation  with  the 
European  Commission,  and  a  roadmap  listing  the 
steps  that  will  address  these  gaps  has  been 
approved.  The  authorities  are  now  preparing  a 
follow-up, 
legislative  changes  and 
continued  capacity  building  necessary  to  secure  a 
positive outcome of the reform. 

including 

3.3.  OVERALL ASSESSMENT 

the 

identified 

Further  policy  measures  were  introduced  to 
address 
imbalances,  while 
tackling  some  outstanding  issues  is  still  under 
way.  Reforms 
in  banking  and  non-banking 
supervision  continued,  including  the  adoption  and 
implementation of manuals and rules based on best 
practices.  Existing  gaps 
insolvency 
framework  were  identified  and  future  steps  were 
outlined.  The  authorities’  firm  commitment  to 
complete 
to  Bulgaria’s 
application to ERM II provides further impetus to 
reforms  in  important  economic  areas.  Positive 
effects from the  new policies, their follow-up and 
possible 
are 
expected.. 

the  measures  prior 

improvement 

fine-tuning 

and 

the 

in 

The prospect of close cooperation with the ECB 
and 
the  adoption  of  best  practices  will 
contribute  to  the  quality  and  stability  of  the 
regulatory  environment.  Addressing  the  capital 
shortfalls  identified  in  the  context  of  the  ECB’s 
comprehensive assessment will be key for ensuring 
the  soundness  of  the  sector.  Furthermore,  the 
application  of  harmonised  procedures  and  the 
application common decision process as part of the 
participation in the Single Supervisory Mechanism 
will  be  beneficial  to  the  sector  as  a  whole. 
Important new regulatory guidelines based on best 
practices  were  introduced  in  2019.  The  Bulgarian 
National  Bank  adopted  the  European  Banking 
Authority 
internal 
governance  rules  and  the  management  of  non-
performing and forborne exposures.  

guidelines 

banks’ 

on 

Positive 

developments 

The supervision framework in the non-banking 
financial  sector  has  been 
improved,  while 
further  actions  in  the  insurance  sector  are 
include 
planned. 
establishing  a  proper  risk-based  forward-looking 
supervisory  process  and  legal  and  regulatory 
provisions  to  improve  supervisory  effectiveness 
and  practices  over  valuation  methods  for  the 
insurance  and  pension  funds  sectors,  and  related-
parties  transactions  for  the  pension  funds  sector. 
Notwithstanding  the  progress  achieved,  further 
supervisory measures by the Financial Supervision 
Commission will be necessary to fully address the 
remaining  issues  in  the  insurance  sector.  To 
improve  pricing  policies  in  the  car  insurance 
sector, the government plans to introduce a bonus-
malus  system  in  the  first  half  of  2020.  Close 
monitoring  of  the  new  system  will  be  key.  The 
government also plans to adopt a methodology for 
compensation  of  victims  of  car  accidents,  aiming 
to reduce uncertainty in court rulings and facilitate 
pricing and provisioning. 

The  problems  afflicting  the  Bulgarian  Green 
Card Bureau are still to be fully addressed. The 
failure of one Bulgarian insurer to settle in time the 
cross-border  claims 
third-party 
liability insurance, has put in question the financial 
stability  of  the  Bulgarian  Green  Card  system, 
leading to monitoring by the international Council 
of  Bureaux.  One  of  the  requirements  of  the 
Council  was  that  the  sector  signs  a  sector-wide 

from  motor 

21 

 
3. Summary of the main findings from the MIP in-depth review 

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 is overall sound while further steps are envisaged to ensure the soundness of individual banks. The banking sector maintained strong capital and liquidity ratios (18.5% CET 1 ratio and 50.5% coverage ratio in Q2 2019). Business practices in banks and supervision have been strengthened, following the 2016 AQR/stress test conducted by the BNB. Shortcomings in the asset quality of two banks were identified during the 2019 Comprehensive Assessment and are being addressed. The overall ratio of non-performing loans is still well above the EU average, despite a further decline to 6.9% in 2019 Q2. Non-performing loans by non-financial corporations also dropped further in Q2 2019, but remain high at 11.1% of total loans to NFC. Credit has continued growing. It increased by 7.7% for non-financial corporations and 10.1% for households, year-on-year, in September 2019. The overall financial situation in insurance sector strengthened and the supervision framework has been reformed. Nevertheless, some challenges need to be addressed. These include the adequacy of technical provisions, appropriateness of valuation and governance practices. Other remaining issues in car insurance include the financial stability of the 'Green Card' system, poor pricing policies and uncertainty around compensations of victims of car accidents. Group-level supervision might become relevant for one particular insurance group, depending on the outcome of the restructuring process.  For pension funds, a regulation has broadened the definition of related-parties and proper implementation will be key.  Banking supervision and resolution have improved. The resolution framework has been strengthened and drafting of individual resolution plans is underway. Legislation for supervising related-party exposures was applied, the supervisory review and assessment manual was revised. The framework for implementing borrower-based measures was put in place. The full impact of the measures adopted or announced will depend on their complete implementation and regular monitoring.  The prospect of close cooperation with the European Central Bank (ECB) will contribute to the quality and stability of regulatory environment. The follow-up measures after the ECB’s comprehensive assessment, expected until April 2020, will contribute to the soundness of the sector. The supervision framework in the non-banking financial sector has been improved. The risk-based supervision manuals in the insurance and pension insurance sectors became applicable as of 1 January 2019. The supervisory action plan in the non-banking sector is progressively being implemented and enforced, in close cooperation with EIOPA.  The Bulgarian Green Card Bureau is still under monitoring and the sectoral reinsurance cover is yet to be underwritten.  The BNB adopted a number of EBA guidelines, e.g. regarding banks' internal governance rules and the management of non-performing exposures.  Legal and regulatory provisions to improve supervisory effectiveness and practices over valuation methods for the insurance and pension funds sectors and related-parties transactions for the pension funds sector have been adopted. The government plans to adopt a methodology for compensation of victims of car accidents and introduce a bonus-malus system in the first half of 2020.   
 
 
  
 
3. Summary of the main findings from the MIP in-depth review 

Table (continued) 

Source: European Commission 

23 

Corporate debt and deleveraging The accumulation of private sector debt in the pre-crisis years resulted in deleveraging needs that led to a prolonged period of deleveraging that is still ongoing. Non-performing loans (NPL) ratios have been decreasing but remain among the highest in the EU, in particular for non-financial corporations (NFC).  The ineffectiveness of the insolvency framework is slowing the reduction in private sector indebtedness and the work-out of NPLs. Procedures are lengthy and the recovery rate is low in comparison to EU averages. The private sector continues to deleverage despite the positive credit flows. The consolidated private sector debt decreased from 99% of GDP in 2017 to 95% in 2018. The gradual alleviation of debt burden benefits from the strong economic growth.  Increased lending activity contributed to the NPL decline, amidst favourable cyclical and low interest rate conditions. This development has been supported also by a more dynamic secondary market for NPLs.  The authorities identified existing gaps in the insolvency framework and prepared, in cooperation with the Commission, a roadmap listing the steps that will address these gaps. A follow up including legislative changes and continued capacity building are crucial to secure a positive outcome of the reform.   The Law on Credit Institutions was amended in December 2018, allowing the macroprudential authority to impose borrower-specific constraints and limit over-indebtedness. The government adopted the insolvency framework roadmap on 19 June 2019. 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. There was progress with the efforts to further improve financial sector stability and the regulatory framework. Additional measures to cope with remaining challenges are expected. The implementation of follow-up measures resulting from the Comprehensive Assessment is ongoing and should contribute to the resilience of the financial sector. Several legislative texts have been adopted to tackle a number of issues in the non-banking financial sector, Challenges with proper valuation and business practices in the insurance sector strengthen the need for a strong risk-based forward-looking supervision. The challenges that 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. Non-performing loans for non-financial corporations, especially for domestically-owned banks, remain relatively high but continue to decrease. The insolvency framework reform is ongoing.     Overall, imbalances have abated, while some fragilities in the financial sector are expected to be addressed.   
 
  
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

4.1.1.  TAX POLICY 

The  Bulgarian  tax  system  remains  growth-
friendly,  though  with  a  limited  redistributive 
impact. The tax burden is relatively low (29.9% of 
GDP in 2018). The breakdown of tax revenues for 
2018  as  a  share  of  GDP  shows  that  indirect  taxes 
amount  to  15.2%  of  GDP,  direct  taxes  to  6%  of 
GDP and social contributions to 8.7% of GDP. The 
burden  is  thus  mainly  on  indirect  taxes.  The 
breakdown  of  revenue  per  type  of  tax  shows  a 
bigger  share  coming  from  personal  income  taxes 
(PIT),  while  the  share  of  corporate  tax  revenue  is 
lower. As for the revenue from consumption taxes, 
the  largest  portion  comes  from  value  added  taxes 
(VAT).  Bulgaria  is  one  of  the  few  EU  member 
states with a very broad VAT base, with only one 
reduced VAT rate (on tourist services). 

The tax system is effectively regressive. The Tax 
Policy  in  the  EU  Survey  2020  shows  that  the 
largest burden of PIT and social contributions is on 
low-income  earners,  especially  when  considering 
the  whole 
tax-benefit  picture.  The  effective 
average  tax  rates  on  corporate  income  are  among 
the  lowest  of  all  EU  Member  States  and  the  tax 
system  structure  does  not  promote  redistribution. 
At  the  same  time,  the  relatively  low  tax  revenue 
limits the government’s ability to fund basic public 
education, 
services 
infrastructure, etc.), which could help reduce social 
inequality.  

(healthcare, 

public 

Improving  tax  compliance  could  also  boost 
public  revenue  and  improve  tax  fairness.  A 
number  of  surveys  and  estimates  point  to  a 
relatively  high  share  of  foregone  tax  revenue  in 
Bulgaria relative to other EU countries, due to the 
shadow economy and lack of compliance with tax 
obligations  (see  for  example  CASE,  2019).  The 
situation seems to be challenging for the collection 
of both consumption and  income taxes. The  VAT 
gap,  which  had  been  decreasing  since  2015  (see 
CASE,  2019),  is  projected  to  increase  in  2018  to 
13% from 12.8% in the previous year. At the same 
time,  revenues  from  other  consumption  taxes, 
including  excise  duties,  are  shrinking  both  as  a 
percentage of GDP and as a percentage of private 
consumption. It is also worrisome that estimates on 

wealth held offshore show a 50% increase between 
2015 and 2016 (latest available years)(ECOPA and 
CASE, 2019).  

compliance  programme 

Improving  tax  compliance  is  a  priority  for  the 
tax  authorities.  The  National  Revenue  Agency 
(NRA)  is  implementing  a  comprehensive  risk-
based 
focusing  on 
taxpayers  with  higher  compliance  risks,  such  as 
fuel traders, employers in construction, restaurants, 
retail  and  tourism  and  those  involved  in  e-
commerce. The key priority of the programme is to 
encourage  voluntary  compliance  by  means  of 
awareness  campaigns  and  direct  communication 
with  taxpayers.  According  to  the  authorities, 
timely collection of liabilities is increasing, and the 
size of tax losses in certain categories of taxes such 
as income taxes and social contributions  has been 
contained. At the same time, the Customs Service 
has  promoted  a  number  of  legislative  changes  to 
improve  collection  of  excise  duties,  with  an 
emphasis  on  fuel  products.  As  a  result,  revenues 
from  excise  duties  are  improving,  but  are  still 
lagging  behind  nominal  consumption  growth. 
Apart 
from  voluntary  compliance  measures, 
improved  tax  and  customs  audits  could  also  help 
meet the target of better tax collection. The audits 
seem  to  lack  clear  targeting,  monitoring  and 
follow-up of their outcome. 

for 

companies, 

registration 

Bulgarian  authorities  have  been  undertaking  a 
number of actions to reduce the tax compliance 
burden. These include the possibility of automatic 
VAT 
cashless 
payments  of  tax  liabilities  and  social  security 
contributions,  new  e-services,  as  well  as  the 
upcoming (in 2020) pre-filled personal income tax 
returns (for the financial year 2019). However, the 
positive  trend  (between  2007  and  2012)  has 
reversed,  and  since  2017  the  time  needed  to 
comply  with  tax  obligations  has  increased.  Based 
on  the  latest  available  data,  a  Bulgarian  medium-
sized enterprise needs the highest number of hours 
(441)  in  the  EU  to  comply  with  tax  obligations 
(EU average 171.5; EU lowest Estonia at 50) (see 
Graph  4.1.1). Survey evidence indicates that  most 
of the time is spent on VAT compliance and VAT 
refunds (CASE, 2019). 

24 

 
4.1. Public finances and taxation 

database over the period 2015-2017, there has been 
a clearly improving trend as Bulgaria met eight out 
of its nine rules in 2017. However, the overall high 
number  and  differing  accounting  standards  of  the 
rules would warrant some streamlining.  

4.1.3.  STATE-OWNED ENTERPRISES 

The  performance  of  state-owned  enterprises  in 
Bulgaria remains a source of concern. The state-
owned  enterprises  (SOEs)  under 
the  central 
government — about 220 entities out of more than 
900 state-owned entities countrywide  — represent 
around  90%  of  the  total  state-owned  entities’ 
assets.  They  account  for  more 
than  5%  of 
employment  and  their  turnover  is  more  than  10% 
of GDP. Their liabilities-to-GDP ratio increased to 
20.5% in 2018 from 18.7% in 2017, and their total 
profits  decreased  in  the  same  period  (Ministry  of 
Finance).  About  half  of  liabilities  belong  to  loss-
making  enterprises.  Although 
the  amount  of 
liabilities  guaranteed  by  the  state  is  very  limited, 
very often the state offers support to SOEs in order 
to overcome financial strains. 

in 

State-owned  enterprises  dominate 
the 
systematically  loss-making  and  highly  indebted 
utilities  sector.  Despite  the  severe  economic 
situation  of  some  major  SOEs,  at  this  stage,  there 
are  no  plans  with  the  target  to  improve  their 
financial  and  operational  performance.  Corporate 
governance  framework  of  SOEs  in  Bulgaria  is 
subject  to  vulnerabilities  in  a  broad  set  of  areas, 
including:  weak  ownership  coordination  and 
monitoring;  management  boards 
that  are  not 
always  independent,  qualified  and  transparently 
nominated; limited disclosure of information at the 
level  of  enterprises  and  of  the  state;  instances  of 
lack  of  level  playing  field  with  the  private  sector 
(see OECD, 2019a). 

Bulgaria is implementing a major reform of the 
corporate governance framework of SOEs. The 
initiative was part of the government’s action plan 
to  prepare  for  applying  to  the  Exchange  Rate 
Mechanism  II  (ERM  II).  For  this  purpose,  a 
technical  assistance  project  with  the  European 
Commission  and  the  Organisation  for  Economic 
(OECD)  was 
Cooperation  and  Development 
launched  in  August  2018.  The  reform  so  far  has 
included  (i)  a  review  and  assessment  of  the  legal, 
regulatory  and  operational  framework  for  SOEs 

Graph 4.1.1:  Number of hours needed to comply with taxes 

per year for a medium-sized company, 2018 
data 

Source: World Bank, Doing Business 2020 

level  of 

Bulgaria  has  a  relatively 
large  share  of 
environmental  taxation  as  a  share  of  total  tax 
revenue.  This  is  mainly  due  to  high  consumption 
of  energy,  rather  than  a  strict  environmental  tax 
policy  and  an  appropriate 
taxation. 
Bulgaria  is  the  most  energy-  and  greenhouse  gas-
intensive economy in EU, with coal being the main 
source  of  energy.  The  country  lacks  a  clear 
environmental  tax  policy  orientation,  with  the 
relevant  taxes  being  considered  purely  as  revenue 
generators  rather  than  also  as  tools  to  influence 
incentives  for  firms  and  individuals.  The  implicit 
tax  rate  on  energy  is  the  second  lowest  in  EU. 
Adjustments 
introduce 
incentives  against  environmentally  damaging 
actions,  while  encouraging  smart  and  green 
investment 
2020: 
(European  Commission, 
Taxation Trends Report 2020; 2017 data). 

tax  policy  could 

in 

4.1.2.  FISCAL FRAMEWORK 

Bulgaria’s  fiscal  performance  reflects  also  a 
strong  institutional  framework.  This  includes 
mainly  the  constraints  of  the  currency  board 
arrangement  and  a  complex  set  of  applicable 
numerical rules. Based on the Commission’s Fiscal 
Governance  Database,  Bulgaria  has  in  place  the 
highest  number  of  numerical  constraints  (nine). 
One  third  of  those  concern  the  subnational  and 
two-thirds  the  general  government  level.  At  the 
general government level, four rules are based on a 
Maastricht criteria (on an accrual basis), while the 
other two follow national accounting concepts (on 
a  cash basis). Some recent revisions of the design 
features of the rules sought to improve further the 
compliance  with  EU  fiscal  framework.  Based  on 
the  Commission’s 
compliance 

information 

in 

25 

  
4.1. Public finances and taxation 

and  (ii)  a  revision  and  alignment  of  Bulgaria’s 
legislation with the OECD guidelines on corporate 
governance  of  SOEs.  The  law  overhauling  the 
framework  and  the  principles  for  SOE  corporate 
governance  was adopted in October 2019, but the 
reform  will  only  be  de  facto  completed  when  the 
implementing acts of the law are prepared and put 
into effect.  

The Bulgarian Development Bank was the only 
SOE  exempted  from  the  law.  This  exemption 
was  introduced  in  Parliament  late  in  the  process, 
and  was  questioned  by  some  experts  involved  in 
the  project.  The  position  of  the  legislators  who 
introduced  this  provision  was  that  the  Bank  is 
subject 
to  regulations  and  supervisory  rules 
governing  financial  institutions.  Ensuring  high 
quality  management  and  corporate  governance 
rules in the Bank is of critical importance due to its 
role  in  promoting  investment,  both  as  a  financing 
mechanism for national projects and as a potential 
implementing partner in the context of InvestEU. 

The  new  law  prescribes  the  next  steps  and  the 
timeline  for  completion  of  the  reform.  The  first 
immediate  step  is  to  put  in  place  the  necessary 
rules  of  procedure  for  the  newly  established 
Agency  for  Public  Enterprise  and  Control.  Under 
the  law,  these  rules  must  be  adopted  by  the 
Council  of  Ministers  by  January  2020  (3  months 
from the promulgation of the law). By April 2020 
the agency will have to prepare and the Council of 
Ministers  will  adopt  the  necessary  secondary 
legislation  (implementing  acts).  By  October  2020 
(one  year  from  the  promulgation  of  the  law)  the 
composition  of  the  managements  and  control 
bodies  of  the  SOEs  should  comply  with  the 
provisions of the law. 

26 

4.2.  FINANCIAL SECTOR 

In  July  2018,  Bulgaria  announced  its  intention 
to  join  simultaneously  the  Exchange  Rate 
Mechanism  (ERM  II)  and  the  Banking  Union. 
Bulgaria  announced  at  the  same  time  a  set  of 
commitments to improve the economy’s resilience 
in areas of high relevance for smooth participation 
in  ERM  II,  including  strengthening  the  banking 
the 
and  non-banking 
insolvency 
(Ministry  of  Finance, 
2018). 

financial  sectors  and 

framework 

4.2.1.    BANKING SECTOR 

The banking sector has continued to strengthen 
its  capital  and  liquidity  ratios,  while  follow-up 
measures  are  expected.  Overall,  banks  are 
profitable  and  well  capitalised,  and  the  ratio  of 
non-performing  loans  has  been  on  a  downward 
path. Nonetheless, Bulgaria continues to be among 
the  EU  countries  with  the  highest  rates  of  non-
performing 
loans,  especially  for  non-financial 
corporations  (see  Section  1,  Economic  Outlook) 
and  the  comprehensive  assessment  conducted  by 
the European Central Bank (ECB) of six banks in 
Bulgaria  revealed  the  need  to  increase  capital  in 
two banks (see below).  

Several  important  new  regulatory  guidelines 
were introduced in 2019. The Bulgarian National 
Bank  adopted  a  number  of  European  Banking 
Authority  (EBA)  guidelines,  e.g.  on  banks’ 
internal  governance  rules (BNB,  2019)  and  the 
management  of  non-performing  and  forborne 
exposures (EBA,  2018).  The  Bulgarian  National 
Bank  has  already  communicated  to  the  banks  its 
general  supervisory  expectations  regarding  the 
implementation  of  the  EBA  Guidelines  for  the 
management  of  non-performing  and  restructured 
exposures,  which  entered  into  force  on  30 June 
2019.  Individual  compliance  will  be  assessed 
during  the  forthcoming  Supervisory  Review  and 
Evaluation Process cycle (16).  

Follow-up  action  on  already  adopted  acts  will 
further strengthen the regulatory environment. 
In  Ordinance  37  on  the  internal  exposures  of 
banks,  from  July  2018,  the  BNB  laid  down  the 
forming, 
internal 

rules  and  procedures 

for 

(16)  The  Supervisory  Review  and  Evaluation  Process  (SREP) 
denotes  the  process  of  regularly  assessing  and  measuring 
the risks for each bank by the supervisor.  

calculating,  monitoring  and  reporting 
internal 
exposures  for  banks.  Banks  implemented  the 
internal  rules  and  procedures  within  a  six-month 
period.  Follow-up  steps  encompass  evaluation  of 
the  effectiveness  of  the  amended  framework  and 
the  reporting  requirements  for  related  parties, 
including further fine-tuning of the framework and 
the  reporting  forms.  Continuous  follow-up  and 
assessment  of  banks’ 
the 
adopted regulatory acts will remain key. 

implementation  of 

Progress  is  expected  in  the  coming  months  in 
insolvency  and  resolution  procedures.  The 
application of the definition of default (17) and the 
alignment  of 
the  Single 
its  definition  with 
Supervisory  Mechanism’s  approach  will  require 
amendments  to  BNB  Regulation  7  on  banks’  risk 
management  process.  Work  on  resolution  plans 
has  advanced,  in  particular  regarding  the  analysis 
of  critical  functions,  feasibility  and  credibility  of 
insolvency proceedings and the public interest test, 
and  the  identification  of  preferred  strategy  and 
resolution tools. Formal resolution plans are being 
prepared  in  several  waves  until  early  2020,  based 
on  banks’  total  assets  and  strategy.  While  not  yet 
binding,  the  minimum  requirement  for  own  funds 
and  eligible  liabilities  (MREL)  is  calculated  and 
communicated  to  banks  in  order  to  assist  their 
preparation  and  future  business  decisions (18). 
Looking  ahead,  the  relatively  shallow  capital 
markets  in  Bulgaria  may  render  issuing  MREL 
compliant liabilities more difficult. 

The  application  of  the  International  Financial 
Reporting Standard (IFRS  9) led to changes in 
the  banks’  loan-loss  provisioning  model  and 
capital ratios. The existing credit risk framework 
was enhanced with models for exposure at default 
and loss given default, estimation of present value 
of  the  expected  credit  losses  and  taking  into 
account  the  predefined  macroeconomic  scenarios. 
The transition to IFRS 9 resulted in a limited initial 

(17)  EBA/GL/2016/07,  which  was  notified  to  EBA  in  March 

2017 and will be enforced from 1 January 2021. 

(18)  The  minimum  requirement  for  own  funds  and  eligible 
liabilities  (MREL)  was  introduced  as  part  of  the  EU 
resolution  framework  in  order  to  ensure  that  EU  banks’ 
liabilities  contain  sufficient  buffers  of  bail-in-able  debt  to 
absorb  losses  and,  if  needed,  to  recapitalise  themselves 
exclusively  with  private  funds.  The  main  deadline  is 
January 2024, but longer transition periods can be set based 
on bank-specific circumstances. Resolution authorities also 
have to set an intermediate target for MREL requirements 
by 1 January 2022. 

27 

 
                                                           
                                                           
4.2. Financial sector 

practices  have  been  put  in  place  since  June  2018, 
when  national  standards  became  mandatory  for 
external 
in 
accordance with the Independent Valuers Act (22). 

collateral  valuers, 

independent 

The  countercyclical  capital  buffer  was  set  to 
0.5%  as  of  October  2019  and  its  further 
increases  are  forthcoming.  According  to  several 
subsequent  BNB  decisions,  the  countercyclical 
capital buffer will increase to 1% from April 2020 
and further to 1.5% from January 2021. The value 
of  the  reference  indicator  (deviation  of  the  credit-
to-GDP  ratio  from  the  long-term  trend)  would 
have  corresponded  to  maintaining  the  buffer  at 
zero, but the decision to introduce a positive value 
of the countercyclical capital buffer constituted an 
important  signalling  tool  to  the  banking  system. 
The  aim  of  the  buffer  is  to  safeguard  the  banking 
system  against  potential  losses  during  periods  of 
excessive credit growth, frequently associated with 
the  gradual  accumulation  of  cyclical  risks.  These 
could  materialise  as  borrowers’  debt  servicing 
capacity declines in an economic downturn and/or 
an increase in lending rates. Although not actively 
the  moment,  borrower-based 
employed 
measures,  which  complement  existing  capital-
based  measures,  were  introduced  recently  as  part 
of  the  macro-prudential  toolkit.  In  October  2019, 
identified  eight  banks  as  other 
the  BNB 
systemically  important  institutions  (O-SIIs)  and 
confirmed  higher  buffer  rates  from  the  beginning 
of  2020  as  a  last  stage  of  the  gradual  phase-in  of 
O-SII  buffer,  initiated  in  2016.  The  aim  of  the 
measure is to safeguard the stability of the banking 
sector  by  strengthening  the  capacity  of  O-SIIs  to 
absorb 
the 
contagion  risks  stemming  from  potential  stress 
event  in  a  systemically  important  bank  to  other 
credit  institutions  or  the  banking  system  as  a 
whole.  

losses  and  accordingly 

limit 

to 

at 

The fintech sector offers both opportunities and 
challenges for the banking system. According to 
a  recent  report  (Bulgarian  Fintech  Association, 
2019) (Bulgarian Fintech Association, 2019), there 
are  65  fintech  companies  in  Bulgaria,  making  the 

(22)  The  Bulgarian  Valuation  Standards  are  mandatory  for  all 
independent  valuers  entered  in  the  register  of  independent 
valuers  kept  by  Chamber  of  Independent  Appraisers  in 
Bulgaria,  pursuant  to  the  Independent  Valuers  Act.  See 
Bulgarian  valuation 
standards,  2018,  Chamber  of 
Independent  Appraisers  in  Bulgaria,  http://private.ciab-
bg.com/uploads/common/g31pb9vntkf5q6aw.pdf 

CET1  ratio  reduction  at  the  aggregate  level,  as 
some  banks  decided  to  apply  the  new  standard 
gradually.  At 
IFRS  9 
implementation  coincides  with  a  cyclical  upturn, 
which  could  result  in  underestimation  of  the  risk 
from new unfavourable economic developments. 

the  same 

time, 

the 

their 

establish 

to 
Single 

The  comprehensive  assessment  of  the  banking 
sector by the ECB confirmed that further steps 
are  necessary  to  ensure  the  soundness  of 
individual  players.  As  part  of  Bulgaria’s 
commitments ahead of applying for Exchange Rate 
Mechanism  (ERM  II),  the  authorities  formally 
intention 
notified 
close 
cooperation  with 
Supervisory 
the 
Mechanism on 18 July 2018. The ECB conducted 
a  comprehensive  assessment  —  comprising  an 
asset quality review (AQR) and a stress test  — of 
six  banks  in  Bulgaria.  According  to  the  results 
published on 26 July 2019 (19), based on end-2018 
data,  four  of  the  six  banks  faced  no  capital 
shortfalls (20).  Capital  needs  on  the  basis  of  the 
maximum  shortfalls  in  the  various  components  of 
the exercise amounted to € 262.9 million  for First 
Investment Bank and € 51.8 million for Investbank 
(21).  These  two  banks  are  required  to  implement 
their  capital  plans  by  April  2020.  The  balance 
sheets  of  the  two  banks  were  reviewed  in  the 
context  of  the  AQR/stress  test  conducted  by  the 
BNB  in  2016,  after  which  their  capital  adequacy 
ratios 
fell  significantly  after  balance  sheet 
corrections,  but  remained  above  regulatory  levels 
(BNB, 2016). 

Some uncertainties remain over the valuation of 
collateral. Despite efforts and progress, a range of 
hard-to-value  assets,  such  as  real  estate  collateral 
the  balance  sheets  of  banks. 
still  exist 
in  valuation 
Conditions 

in 
for  harmonisation 

(19)https://www.bankingsupervision.europa.eu/press/pr/date/201

9/html/ssm.pr190726~1b474e3467.en.html. 

(20)  Any need for further strengthening of capital positions was 
identified  using  the  same  threshold  ratios  that  had  been 
applied  in  previous  exercises:  a  Common  Equity  Tier  1 
(CET1)  ratio  of  8%  for  the  AQR  and  the  stress  test’s 
baseline scenario, and a CET1 ratio of 5.5% for the stress 
test’s adverse scenario. 

(21)  Starting  from  an  initial  CET1  ratio  at  15.7%,  First 
Investment  Bank  fell  below  the  8%  CET1  ratio  threshold 
for both the AQR and the stress test’s baseline scenario, as 
well  as  below  the  5.5%  CET1  ratio  threshold  used  in  the 
stress  test’s  adverse  scenario.  While  Investbank  faced  no 
capital  shortfalls  for  the  AQR,  it  fell  below  both  the  8% 
CET1  ratio  threshold  used  in  the  stress  test’s  baseline 
scenario  and  the  5.5%  CET1  ratio  threshold  used  in  the 
stress test’s adverse scenario. 

28 

                                                           
                                                           
4.2. Financial sector 

country  a  leader  in  the  South-eastern  Europe 
region. Approximately a third of Bulgarian fintech 
companies  operate  in  the  field  of  payments. 
Another  third  specialise  in  personal  finance  and 
capital  markets.  Banks  in  Bulgaria  are  already 
cooperating  with  fintech  companies,  which  could 
help with cost reduction and increase efficiency.  

4.2.2.    COMBATING MONEY LAUNDERING 

financial 

(24).  The  Bulgarian 
institutions 
supervisors  still  need  to  take  steps  to  implement 
risk-based  supervision,  building  on  the  national 
risk  assessment.  The  high  risk  of  involvement  in 
money 
laundering  schemes  by  professionals 
providing  company  services  (e.g.  accountants,  tax 
advisers)  points  to  the  need  to  carry  out  adequate 
employee screening, in line with obligations under 
the  EU  AML  provisions,  and  more  effective 
supervision. 

Bulgaria has taken steps to strengthen the anti-
money  laundering  framework.  Bulgaria  notified 
transposition  measures  for  the  4th  Anti-money 
Laundering  Directive  in  April  2018,  December 
2018  and  May  2019,  but  several  gaps  have  been 
identified.  A  new  law  adopted in  November 2019 
these  shortcomings  and 
aims 
to 
5th  Anti-money  Laundering 
transpose 
Directive.  

to  address 

the 

The  national  risk  assessment  was  completed  in 
January  2020  and  highlights  a  number  of 
significant  threats.  The  national  risk  assessment 
points  to  several  systemic  risks  connected  to 
Bulgaria’s  geographical  position  (part  of 
the 
‘Balkan  route’  for  criminals),  significant  shadow 
economy  and  high  levels  of  corruption.  The 
presence  of  organised  crime  groups,  professional 
money 
laundries  and  significant  cross-border 
financial  crimes  (tax  evasion,  VAT  fraud)  play  a 
role  in  exposing  Bulgaria  to  significant  money 
laundering risks.  

to 

financial 

The  use  of 
intelligence  remains 
limited.  As  of  November  2019,  there  was  still  no 
common  database 
identify  and  monitor 
politically exposed persons, despite their high risk 
exposure  to  money  laundering.  The  number  of 
suspicious  transaction  reports  has  increased,  filed 
largely  by  banks.  Based  on  the  2,777  suspicious 
transaction reports received in 2018, the Financial 
Intelligence  Unit  initiated  1,264  operative  files 
which  resulted  in  only  16  transactions  being 
stopped (23),  while  772  were  used  for  analytical 
purposes. The limited use of financial investigation 
and  financial  profiling  hinders  effective  asset 
recovery  in  organised  crime  and  corruption  cases 

(23)  Data received from the Bulgarian authorities in their reply 
to  the  questions  posed  during  the  Commission’s  fact 
finding mission in October 2019 (p.120) 

number 

significant 

The  risk  of  corruption  still  needs  to  be  better 
addressed, as it is a predicate offence to money 
A 
laundering. 
of 
investigations 
into  high-level  corruption  are 
ongoing,  with  high-ranking  officials  charged  or 
brought  to  court.  Several  cases  have  progressed 
through 
in 
trial  phase,  some 
convictions.  Despite  sentences  imposed  at  first 
instance,  very  few  final  convictions  have  been 
adopted  and  enforced (European  Commission, 
2019f).  

resulting 

the 

identification  documents 

There  are  risks  linked  to  the  ‘Citizenship  by 
investment’ scheme. The scheme does not require 
that  an  individual  spend  a  significant  amount  of 
time  in  Bulgaria  to  obtain  Bulgarian  citizenship. 
As  such,  the  new  citizen  might  not  become  a  tax 
resident and their income  would not be  taxable in 
Bulgaria.  This  creates  potential  for  misuse,  as 
personal 
issued  by 
Bulgaria can be used to avoid reporting assets held 
abroad.  Bulgaria’s  government  approved  on 
2 October 2019 draft amendments to the Bulgarian 
Citizenship Act aiming to eliminate the possibility 
for  foreigners  who  have  acquired  permanent 
residence  status 
for  short-term 
in  Bulgaria 
investments  of  subsequently  obtaining  citizenship 
under  significantly  facilitated  conditions.  As  it 
stands,  these  amendments  were  adopted  by  the 
Cabinet,  but  discussions  in  the  Parliament  were 
postponed due to ongoing investigations into cases 
of  unlawful  granting  of  Bulgarian  citizenship. 
Given the inherent money laundering risks of such 
schemes (European  Commission,  2019g), 
an 
adequate understanding of the risks Bulgaria faces 

(24)  For  the  1st  half  of  2019,  findings  of  the  inspection  were 
served  and  administrative  proceedings  initiated  in  relation 
to  only  10  established  infringements.  From  the  beginning 
of  2019  to  18  October  2019  there  were  only  16  on-site 
inspections  of  financial  institutions  (replies  received  from 
the Bulgarian authorities to the questions posed during the 
Commission’s fact finding mission in October 2019) 

29 

                                                           
                                                           
4.2. Financial sector 

banking  sector  and  may  undergo  restructuring.  If 
this  process  is  completed  successfully,  a  new 
procedure of identification of the group  will start, 
which  will  result  in  the  group  being  identified 
either  as  an  insurance  holding  company  (which 
involves  full  group  supervision)  or  a  mixed 
holding  company  (which  involves  a  more  limited 
supervision). 

Motor  third-party  liability  (MTPL)  insurance 
warrants attention. MTPL represents a high share 
in  the  portfolio  of  all  Bulgarian  insurers.  Its 
profitability  had  remained  insufficient  for  a  long 
time due to strong price competition in the sector. 
After  insurance  premiums  increased  substantially 
in 2018, the financial results  of the  MTPL line of 
business  have  improved.  The  solvency  of  some 
players  relies  on  the  validity  of  the  assumptions 
underlying  the  valuation  of  their  assets  and 
liabilities.  The  impact  of  the  introduction  of  the 
announced bonus-malus system, the adoption of a 
forthcoming  methodology  for  compensation  of 
victims  of  car  accidents  and  the  situation  of  the 
Bulgarian  Green  Card  Bureau  will  need  to  be 
monitored. 

The  government  plans  to  introduce  a  bonus-
malus  system  in  the  first  half  of  2020.  A  first 
draft of the bonus-malus system was proposed for 
public consultation in November 2018. Although it 
was  more  robust  than  the  current  version,  it  was 
rejected  by  the  different  stakeholders  for  fairness 
considerations  and  for  deviating  from  common 
practices.  The  new  draft  envisages  that  both  the 
owner and the registered drivers of the vehicle are 
separately  evaluated  under 
the  bonus-malus 
system. The main drivers of the system will be the 
relevant  traffic  offences.  Insurers  would  remain 
free  to  adapt  the  basic  premium  on  the  basis  of 
other  characteristics  of  the  policyholder,  such  as 
the  history  of  claims.  Close  monitoring  of  the 
system  will  be  necessary  to  identify  and  swiftly 
address any potential shortcomings. 

The  government  plans  to  adopt  a  methodology 
for  compensation  of  victims  of  car  accidents. 
The  heterogeneous  court  practices  defining 
compensation of victims of car accidents and their 
families  present  challenges  to  non-life  insurers 
who  need  consistency  and  stability  to  be  able  to 
correctly  estimate  their  technical  provisions  and 
determine  their  premiums.  After  the  National 
Assembly  imposed  temporary  ceilings  on  the 

the  adoption  of  appropriate  mitigating 

and 
measures, remain a challenge.  

4.2.3.    NON-BANKING SECTOR 

in 

Supervision  has  been  enhanced 
in  several 
respects,  while  further  measures  are  expected. 
The  risk-based  supervision  guidelines 
the 
insurance  and  pension  insurance  sectors  became 
applicable  as  of  1 January  2019.  The  new  rules 
may be reviewed in 2020 based on experience and 
new  data  available.  Further  improvements  to  the 
new  approach  may  be  necessary  to  reap  the  full 
benefits  of  the  measure.  Notwithstanding  the 
progress  achieved,  there  are  still  weaknesses 
concerning  the  adequacy  of  technical  provisions, 
appropriateness  of  the  valuation  of  non-listed 
assets,  and  governance  practices  in  the  insurance 
sector.  Further  supervisory  measures  by 
the 
Financial  Supervision  Commission  (FSC)  will  be 
necessary  to  fully  address  the  issues  outlined 
above. 

to 

increase 

legal  and  regulatory  framework  has 
The 
improved. The government amended the Financial 
the  Social 
Supervision  Commission  Act  and 
regulator’s 
Insurance  Code 
the 
and 
independence,  decision-making  process 
effectiveness, as well as the framework applicable 
to  the  pension  funds,  including  in  terms  of  the 
related  parties.  The  Financial 
definition  of 
important 
adopted 
Supervision  Commission 
amendments  to  two  regulations  in  the  field  of 
insurance and pension insurance: Ordinance 53 on 
the  requirements  for  accountability,  valuation  of 
assets  and  liabilities  and  formation  of  technical 
reserves  of  insurers,  reinsurers  and  the  Guarantee 
Fund, and Ordinance 9 laying down detailed rules 
for  valuation  of  the  assets  and  liabilities  of  the 
supplementary  pension  funds  and  the  pension 
insurance company.  

Group-level supervision might become relevant 
for  one  particular  insurance  group,  depending 
on  the  outcome  of  the  restructuring  process. 
The  Financial  Supervision  Commission, 
the 
European  Insurance  and  Occupational  Pensions 
Authority  (EIOPA)  and  a  particular  insurance 
group  have  sought  an  agreement  on  the  kind  of 
group-level  supervision  that  should  apply  to  that 
entity.  The  group  is  currently  taking  steps  to 
acquire  a  major  company  active  outside  the  non-

30 

4.2. Financial sector 

court  designated  two  liquidators.  All  creditors, 
including in Bulgaria, were invited to submit their 
claims.  The  initial  report  of  the  liquidator  should 
provide  more  clarity  on  the  amount  of  claims 
submitted  by  the  creditors  and  the  amount  of 
available  assets.  Discussions  on  the  interpretation 
of  the  existing  convention  between  the  guarantee 
funds  of  the  two  countries  are  ongoing,  with  a 
possibility  of  using  an  arbitration  procedure  to 
resolve  the  issues  before  any  intervention  for 
claims incurred in Bulgaria. 

4.2.4.  PRIVATE INDEBTEDNESS 

The  private  sector  continues  to  deleverage 
despite positive credit flows. Consolidated private 
sector debt fell from 99% of GDP in 2017 to 95% 
in  2018,  supported  by  strong  economic  growth. 
The majority of debt liabilities continues to be on 
the  books  of  non-financial  corporations  (NFCs). 
Their  indebtedness  went  from  76.4%  of  GDP  in 
2017 to 72% in 2018. This is below the prudential 
benchmark,  but  still  well  above  the  fundamentals 
(see  Graph  4.2.1) (26).  Household  debt  grew  more 
rapidly  due  to  intensified  mortgage  lending,  but 
still remains among the lowest in the EU. 

(26)  Fundamentals-based  benchmarks 

are  derived 

from 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
Prudential  thresholds  represent  the  debt  threshold  beyond 
which the probability of a banking crisis is relatively high. 
Methodologies  are  described  in  European  Commission 
(2017)  and  updates  to  the  methodology  have  been 
subsequently proposed in European Commission (2018). 

amounts  of  compensation  in  November  2018,  a 
working  party  was  established  which  drafted  a 
methodology  to  serve  as  guidance  for  judges 
assessing  the  amounts  of  damages.  The  Insurance 
Code envisages that the methodology should be by 
December  2019,  but  the  proposed  ordinance  has 
not been adopted yet. The current version borrows 
some  elements  from  the  Spanish  and  French 
systems of quantification of damages, but has been 
customised 
Bulgarian 
specificities.  

accommodate 

to 

Insurance  branch. 

The Bulgarian Green Card Bureau is still under 
monitoring  and  the  sectoral  reinsurance  cover 
is yet to be underwritten. One Bulgarian insurer 
has  not  been  paying  the  correspondents/claims-
handling  entities  in  time  for  cross-border  MTPL 
claims,  creating  pressure  on  the  financial  stability 
of  the  Bulgarian  Green  Card  system.  The  number 
of  claims  to  the  Bulgarian  Green  Card  Bureau 
spiked  from  354  in  2017  to  5 710  in  2018, 
reaching  €19.6  million,  or  70%  of  total  claims  in 
the system. The number of guarantee calls in 2019 
decreased to 5 058, reaching €18.3 million. Out of 
them 27% (€4.2 million) are related to the Cyprus-
based  Olympic 
In  2019 
guarantee calls for an amount of €4.3 million were 
unpaid.  In  December  2018, 
international 
Council  of  Bureaux  increased  the  bank  guarantee 
required  from  the  Bulgarian  Green  Card  Bureau, 
put  it  under  monitoring  and  requested  sectoral 
reinsurance cover. In September 2019, the General 
Assembly  of  the  bureaux  decided  to  retroactively 
impose  ongoing  fines  on  the  Bulgarian  Bureau  as 
of  15 May  2019.  Meanwhile,  the  competition 
authority  considered  that  concluding  a  general 
reinsurance  would  not 
to  a  breach  of 
competition  law.  The  agreement  on  contributions 
of individual insurers to the scheme will be key for 
the sustainability of the sector. Some undertakings 
may face higher reinsurance  prices under the  new 
conditions,  as  they  have  kept  their  reinsurance 
costs  low  by  contracting  with  reinsurers  with 
subpar ratings(25). 

lead 

the 

The  liquidation  of  the  Cyprus-based  Olympic 
Insurance  is  ongoing.  The  official  liquidation 
procedure  started  on  13 July  2019.  The  Cypriot 

(25)  Commission  for  Protection  of  Competition,  Decision 
number  AKT-1268-21.11.2019  on  a  draft  decision  by  the 
NBBMI on the conclusion of a general reinsurance contract 
for 
abroad 
http://reg.cpc.bg/Decision.aspx?DecID=300056531  

damages 

payment 

incurred 

of 

31 

                                                           
                                                           
 
Graph 4.2.1:  Fundamental-based and prudential 

benchmarks and NFC debt (1) 

4.2. Financial sector 

remains one of the highest in the EU (see Section 
1). The current stock represents mainly the legacy 
of the credit boom before the 2009 recession. The 
quality  of  assets  remains  rather  disparate  across 
institutions, depending on their business model and 
practices (28).  Increased 
lending  activity  with 
reduced new stock contributed to the NPL decline, 
amidst  favourable  cyclical  and  low  interest  rate 
conditions.  This  development  has  been  supported 
also  by  a  more  dynamic  secondary  market  for 
NPLs,  notably 
loans,  with  some 
retail 
improvement in the NFC segment as  well.  Ample 
liquidity  is  generating  demand  for  NPL  portfolios 
and  collateral  sales,  with 
international 
companies also having entered the market. 

large 

for 

(1) Breakdown of the gap between changes nominal NFC 
debt stocks and benchmarks for changes (in %of GDP). 
Source: European Commission 

4.2.5.  INSOLVENCY FRAMEWORK 

The  largest  contribution  to  the  decline  of  NFC 
debt  came from real growth.  A  modest increase 
in inflation as well as valuation changes and write-
offs  also  helped  alleviate  the  debt  burden  (see 
Graph  4.2.2).  At  the  same  time,  in  October  2019 
loans  to  NFCs  increased  by  8.1%  year-on-year, 
decelerating the deleveraging process (27).  

Graph 4.2.2:  Breakdown of annual changes in debt-to-GDP 

ratios of NFC (1) 

Bulgarian  authorities  have  been  working  in 
close  collaboration with  the  Commission  under 
the  Structural  Reform  Support  Programme 
(SRSP)  on  the  reform  of  the 
insolvency 
framework.  The  aim  was  to  identify  the  existing 
gaps in the insolvency framework and to prepare a 
roadmap  listing  the  steps  that  will  address  these 
gaps (29).  This  measure 
the 
is  also  part  of 
commitments 
the  Bulgarian  authorities 
announced  in  view  of  their  intention  to  apply  for 
ERM II accession. T The government adopted the 
insolvency  framework  roadmap  on  19 June  2019 
and  established  a  dedicated  steering  body,  the 
‘Coordinating Council’, which will be in charge of 
the  overall  management  and  coordination  of  the 
roadmap’s implementation.  

that 

Efforts to implement the insolvency framework 
roadmap  have  already  started.  The  Ministry  of 
Justice  has  set  up  a  working  group  to  draft  the 
necessary  legislative  amendments  by  the  end  of 
June 2020. This group will have  wide stakeholder 
the 
participation  with 

representatives 

of 

(1) Consolidated data. Debt of Non-Financial Corporations 
is the sum of loans, debt securities and financial derivatives. 
Source: European Commission 

Non-performing loans (NPLs) remain relatively 
high, but are on a downward path. The share of 
NPLs dropped further in Q2 2019 to 6.9%, but still 

(27)  Growth  rates  of  loans  are  calculated  from  notional  stocks, 
which  reflect  only  changes  that  arise  from  financial 
transactions  

(28)  For  example,  the  published detailed  results  from  the  2019 
ECB Comprehensive assessment for six banks in Bulgaria 
entailed  NPL  ratios  ranging  from  3.5%  for  UniCredit 
Investbank 
21.9% 
Bulbank 
(https://www.bankingsupervision.europa.eu/press/pr/date/2
019/html/index.en.html?skey=ECB%20concludes%20com
prehensive%20assessment%20of%20six%20Bulgarian%20
banks ). 

for 

to 

(29)  For more details, see the 2018 Specific Monitoring Report 

for Bulgaria: 
https://ec.europa.eu/info/sites/info/files/economy-
finance/bg_sm_report_december_2018.pdf 

32 

020406080100120140969800020406081012141618% of GDPNFC debt, consolidated,  % of GDPFundamentals-based benchmark for consolidated NFC debt, %GDPPrudential benchmark for consolidated NFC debt, %GDP-20-100102030400506070809101112131415161718pps.Credit flowReal growthInflationOther changesD/GDP (y-o-y%)  
   
                                                           
                                                           
4.2. Financial sector 

government,  the  judiciary,  law  professionals  and 
academia.  In  addition,  the  Ministry  of  Justice  has 
requested  technical  assistance  from  the  SRSP  for 
the establishment of an early warning tool to detect 
a  deteriorating  business  situation,  as  envisaged  in 
the  roadmap.  The  process  for  conducting  the 
technical feasibility assessment of the Commercial 
Registry is also underway. The  roadmap  will also 
facilitate  the  transposition  of  Directive  2019/1023 
on Restructuring and Discharge of Debt, for which 
the transposition period of 2 years started to run on 
16 July 2019. 

In  addition  to  legislative  changes,  capacity 
building  activities  are  also  included  in  the 
roadmap.  A  session  dedicated  to  training  the 
trainers  of  insolvency  practitioners  took  place  in 
July  2019,  and  six  more  pilot  training  sessions 
have been finalised in the second half of 2019. The 
authorities  have  clarified  that  the  outcomes  of 
these  training  sessions  will  be  taken  into  account 
when  preparing  future  education  programmes  and 
materials.  

33 

4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET 

labour  shortages  and 

Labour  market  developments  remain  positive, 
the  steady 
though 
decrease  in  the  working-age  population  pose 
challenges.  The  employment 
rate  has  been 
increasing  steadily  in  the  past  5  years,  reaching 
72.4% in 2018, and leading to progress on SDG 8 
‘Decent  work  and  economic  growth’.  The 
unemployment rate kept falling and reached 3.8 % 
in Q4-2019, which is significantly lower compared 
to  its  peak  level  after  the  crisis  (13.0%  in  2013). 
Long-term  unemployment  also  went  down  (2.3% 
in  Q3 2019)  and  is  slightly  below  EU  average 
(2.4%)    At  the  same  time,  some  groups  (e.g. 
NEETs, Roma) still have high levels of inactivity, 
and  labour  shortages  remain  a  key  challenge, 
against  the  backdrop  of  a  steadily  decreasing 
working-age population. 

Labour  market  outcomes  differ  significantly 
across  regions.  In  2018,  the  employment  rate  in 
the  capital  city  region  of  South-West  (at  78.3%) 
was  considerably  above  the  national  average 
(72.4%), while it was barely 63.6% in North-West 
and  69.1%  in  North-Central.  Regional  disparities 
do not seem to have been narrowing in this regard 
(30).  While  the  share  of  long-term  unemployment 
as  a  percentage  of  total  unemployment  stood  at 
58.4%  nationwide  in  2018,  in  the  North-West 
region  it  was  76.8%.  Wages  are  increasing  fast 
across  the  country,  while  disparities  remain  high. 
Although  some  regions  are  catching-up  (North-
Central,  North-East),  the  average  wage  in  South-
West  grew  faster  than  the  country  average  in  the 
last  year  (31)  and  is  about  58%  higher  than  in 
North-West, which has the lowest average wage.   

Demographic  developments  strongly  affect  the 
labour  market,  and  may  constrain  future 
economic  growth.  The  population  decreased  by 
50,000 in 2018. Bulgaria’s labour force is expected 
to  decrease  by  10%  by  2030 (32).  The  age  cohort 
25-49  (average  labour  market  participation  of 
86%) is expected to decline the most (by 26.7% by 
jeopardise 
2030).  Such  a 

reduction  might 

(30)  Rather  the  opposite,  with  some  regions  (North-East)  in 
which  employment  stalled  or  decreased  (South  Central), 
between 2017-2018. 

(31)  12.8%  versus  10.7  %  between  Q3  2018  and  Q3  2019, 

National Statistical Institute, November 2019. 

(32)  The  active  population  already  decreased  by  38 000  in  the 

last five years, National Statistical Institute, 2019 

sustainable  future  growth.  Measures  aimed  at 
reducing  the  outflow  of  working-age  population 
(15-64  years),  helping  people  find  jobs  and 
the  upskilling  and  productivity  of 
fostering 
workforce, could bear positive results.  

Graph 4.3.1:  Population change and migration balances, 

2013-18 

Source: European Commission, National Statistical Institute 

Labour shortages are on the rise, though trends 
vary  significantly  across  sectors.  Shortages 
increased  rapidly  in  the  building  and  services 
sectors,  while  they  stalled  and  even  slightly 
decreased  in  furniture,  repair  and  installation  of 
machinery and  wood  manufacturing sectors in the 
first  three  quarters  of  2019  (see  Graph  4.3.2). 
Regarding  future  shortages,  current  predictions 
point to the education and healthcare sectors as the 
most  problematic  in  15  years’  time  (33),  in 
particular  in  small  localities,  where  the  provision 
of basic social services could become increasingly 
challenging. 

Upskilling  measures  can  be  instrumental  in 
preparing  the  workforce  to  changes  in  labour 
market needs. The low skilled represent 17.4% of 
the  working-age  population  (or  677,000  people), 
which  is  twice  the  number  of  jobs  available  that 
require  only  basic  skills  (357,000).  Compared  to 
the  overall  employment 
the 
employment  rate  (20-64)  of  the  low-skilled (34) 
stood at a much lower level (46.0% in 2018).  

(72.4%), 

rate 

(33)  Medium-term and long-term forecasts for the development 
of  the  labour  market  in  Bulgaria,  Ministry  of  Labour  and 
Social Policy, June 2019. 

(34)  Level of qualification ranging from (pre-) primary to lower 

secondary education (ISCED 0-2). 

34 

-80,000-60,000-40,000-20,000 - 20,000 40,000Population changeMigration (cumulated balance) 
                                                           
  
                                                           
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 twenty essential principles 
and rights in the areas of equal opportunities and access to the labour market, fair working conditions and 
social protection and inclusion.  

has 

rate 

contributed 

increase  and 

average.  The 

employment 
to 

The  Social  Scoreboard  supporting 
the  European  Pillar  of  Social 
Rights  points  to  a  number  of 
employment  and  social  challenges 
in  Bulgaria.  Steady  economic 
to 
growth 
improved labour market outcomes. 
has 
The 
continued 
the 
gender  employment  gap  is  at  the 
EU 
long-term 
unemployment rate is now close to 
the  EU  average.  Labour  market 
participation  of  certain  groups 
remains a challenge, however. The 
shares  of  young  people  neither  in 
employment  nor  in  education  or 
training  (NEET)  and  of  early 
school  leavers  remain  high  (at 
19.1%  and  12.7%,  respectively,  in 
2018). The level of digital skills is 
low,  with  only  29%  of 
the 
population  (16-74)  reporting  basic 
or  above  basic  levels  of  digital 
skills, compared to 57% in the EU. 

social 

The  share  of  people  at  risk  of 
poverty  or 
exclusion 
incomes, 
remains  high.  Low 
particularly for those on the lowest 
incomes  (e.g.,  the  elderly,  the  low 
skilled,  people  with  disabilities 
and  Roma)  contribute  to  the  still 
high,  though  decreasing,  income 
inequality,  with  strong  regional 
disparities.  The  capacity  of  social 
transfers  (excluding  pensions)  to 
reduce  poverty  is  limited.  More 
positively,  the  gross  disposable 
household 
income  (GDHI)  per 
capita  keeps  increasing,  with  a 
growth  rate  among  the  best  in  the 
EU.  

There is  scope for greater  coverage of early childhood education and care in Bulgaria.  Good quality 
early  childhood  education  and  care  plays  a  key  role  in  creating  equal  opportunities,  improving  cognitive 
skills  and  reducing  early  school  leaving  and  the  risk  of  under-achievement  at  later  stage.  In  Bulgaria,  the 

35 

Social Scoreboard for BULGARIA SOCIAL SCOREBOARD SDGs Equal opportunities and access to the labour market Early leavers from education and training (% of population aged 18-24)      Youth NEET (% of total population aged 15-24) Gender employment gap Income quintile ratio (S80/S20) At risk of poverty or social exclusion (in %) Dynamic labour markets and fair working conditions Employment rate (% population aged 20-64)  Unemployment rate (% population aged 15-74) Long-term unemployment rate (population aged 15-74) GDHI per capita growth  Net earnings of a full-time single worker earning AW Social protection and inclusion Impact of social transfers (other than pensions) on poverty reduction   Children aged less than 3 years in formal childcare Self-reported unmet need for medical care Individuals' level of digital skills Critical situation To watch Weak but improving Good but to monitor On average Better than average Best performers Members States are classified on the Social Scoreboard according to a statistical methodology agreed with the EMCO and SPC Committees. It looks jointly at levels and changes of the indicators in comparison with the respective EU averages and classifies Member States in seven categories. For methodological details, please consult the draft Joint Employment Report 2019, COM (2018)761 final; NEET: neither in employment nor in education and training; GDHI: gross disposable household income.  
4.3. Labour market, education and social policies 

enrolment rate of children aged less than 3 years of age in formal care is much lower than the EU average 
(16.2%;  EU  average  33.2%),  particularly  in  some  regions  and  among  vulnerable  children.  The  lack  of 
facilities is limiting participation, particularly in big cities.  

The  Bulgarian  authorities  have  taken  measures  to  improve  the  adequacy  and  the  coverage  of  the 
heating allowance as part of  minimum income support. In 2019, changes in the access criteria and the 
24.5% increase in the allowance led to almost 250,000 applications being submitted by the end of October 
2019, an 18% increase on 2018.  

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 

rate  of 

the  employment 

recent 
Meanwhile, 
graduates  with  medium  (ISCED  3-4)  and  high 
(ISCED  5-8)  skills  was  67.8%  and  84.5%, 
respectively.  Despite  the  need  for  substantial 
upskilling  and  reskilling  of  the  population  in  the 
view of expected labour market changes caused by 
digitalisation  and  climate  change  adaptation 
(European  Commission,  2019a),  only  2.5%  of 
adults  (25-64)  have  had  a  learning  experience  in 
the preceding 4 weeks, based on the Labour Force 
Survey  (much  lower  than  the  EU  average  of 
11.1%).  Consolidating  the  outcomes  of  existing 
surveys and projection tools could prove beneficial 
to  anticipate  the  future  skills  needs  of  the  labour 
market (35). 

of 

the 

The  labour  market  integration  of  vulnerable 
groups remains low. The overall inactivity rate in 
Bulgaria decreased to the EU average of 25.8% in 
Q3-2019, but young people aged 20-24, Roma and 
people  living  in  rural  areas  show  much  higher 
levels 
overall 
inactivity.  While 
unemployment  rate  of  Roma  is  55%,  it  is  even 
higher (65%) for young Roma aged 16-24 (36). The 
employment  rate  of  people  with  disabilities 
remains  one  of  the  lowest  in  the  EU  (39.5%;  EU 
average  50.7%),  with  a  very  high  gap  relative  to 
people  without  disabilities  (34.2 pps;  EU  average 
24.2 pps)(37).  Several  measures 
being 
implemented  to  reach  out  to  these  vulnerable 
groups, including the ‘youth mediators’ and ‘Roma 
mediators’  services,  as  well  as  the  ‘mobile  labour 
offices’  for  rural  and  remote  areas.  Employment 
quotas  have  been  set  to  boost  employment  of 
people  with  disabilities,  and  dedicated  support  is 
being 
co-financed 
operations (38). 

through  ESF 

provided 

are 

Although decreasing, the number of people not 
in education, employment or training (NEET) is 
still  high.  In  2018,  the  NEET  rate  for  young 
people aged 15-24 was 15.0%, well above the EU 
rate  of  10.5%.  Almost  half  (47.0%)  of  those 
leaving the Youth Guarantee scheme in 2018 were 
either  in  employment  or  training  within  the  target 
of  4  months.  However,  as  approximately  80%  of 
NEETs  are  inactive,  only  1  in  10  (10.6%)  is 
covered  by  the  Youth  Guarantee.  According  to  a 
recent study (39), 73% of NEETs aged 15-34 live in 
small  towns  and  rural  areas,  57%  have  lower 

(36)  European  Commission,  Report  on  the  Implementation  of 
the National Roma Integration Strategies, 2019. FRA 2016.  
(37)  Academic  Network  of  European  Disability  Experts 

(35)  The main tools are a regular business survey conducted by 
the PES twice a year and a macroeconomic model designed 
in 2013 and updated in 2019 for the Ministry of Labour and 
Social Policy.  

(ANED) calculations based on Eurostat data.  
and  Employment’ 

(38)  ‘Training 

and 

‘Training 

and 

Employment of Young People’. 

(39)  Assessment of NEETs in Bulgaria and policy measures to 

effectively address their integration. IME, 2019. 

36 

0510152025303540455007080910111213141516171819%buildingindustryservicestotal 
  
                                                           
 
                                                           
4.3. Labour market, education and social policies 

The involvement of the social partners in policy 
development  has  improved,  but  there  is  still 
scope  for  further  strengthening  of  cooperation. 
In recent years, the social partners and civil society 
organisations  have  participated  in  the  formulation 
and  discussion  of  national  policies  in  relevant 
economic and social areas in Bulgaria, such as the  
‘Persons  with  Disabilities  Act’,  the  new  Act  on 
‘Social Services’ or the design of policies to tackle 
the  informal  economy  (41).  However,  there  is  still 
scope for more active engagement in consultations 
within the  working groups for the preparation and 
the  National  Reform 
implementation 
Programme.  The  social  partners  have  also 
developed  operations  in  areas  such  as  training, 
prevention  of  undeclared  work  or  promotion  of 
longer  working  lives,  supported  by  European 
Social Fund. Despite efforts, negotiations between 
the  social  partners  to  agree  on  a  transparent  and 
objective  minimum  wage  setting  mechanism 
appear  to  be  in  stalemate,  although  proposals  for 
creating  minimum  wages  by  sector  or  by  level  of 
education are under discussion. 

of 

tackle 

Despite positive developments, undeclared work 
remains  high.  Evidence  suggests 
that  some 
practices  such  as 
false  part-time  work  or 
underreporting  of  wages  remain  widespread (42). 
Undeclared  work  is  affecting  several  economic 
sectors, such as wholesale trade and retail, tourism, 
construction  and  agriculture.  To 
this 
challenge,  Bulgaria  has  adopted  a  comprehensive 
set  of  policy  measures  over  recent  years.  One  of 
the  most  recent  initiatives  is  the  introduction  of 
half-day contracts in the agriculture sector, besides 
the  one-day  contracts  already  in  force.  These 
measures  have 
funding, 
strengthened  enforcement  from  public  authorities 
and  increased  support  from  the  social  partners. 
However,  challenges  remain 
in  strengthening 
labour  inspectorates,  including  cooperation  across 
key enforcement bodies and  early risk assessment 
measures. (see Section 4.1). 

counted  on  EU 

(41)  With  the  support  of  the  European  Social  Fund,  Bulgaria 
launched  the  consultation  portal  ‘strategy.bg’,  where  it 
makes available all new legislative and policy documents. 
(42)  According  to  a  Eurobarometer  survey  carried  out  in 
September  2019,  38%  of  respondents  in  Bulgaria  know 
people who work without declaring part of their income to 
tax or social security authorities. 

secondary  education  or  below,  55%  are  women 
and  38%  of  them  are  Roma.  The  region  with  the 
largest  share  of  NEETs 
the  North-West, 
although  in  absolute  figures  the  South  Central 
region has the highest number. 

is 

There  is  still  room  for  improvement  in  the 
effectiveness  of  active  labour  market  policies. 
Despite  the  need  to  strengthen  the  labour  market 
participation  of  some  groups  and  support  skills 
acquisition in the workforce, expenditure on active 
labour  market  policies  has  stagnated  in  recent 
years and  still relies strongly  on external funding, 
in  particular  the  ESF.  Current  monitoring  and 
evaluation  methods  of  these  policies  seem  mostly 
quantitative,  and  do  not  usually  include  a  follow-
the 
up  of  participants  after  conclusion  of 
programmes.  Better  coordination  between  public 
employment 
institutions 
services  and  other 
working with the unemployed (e.g. social workers, 
non-governmental 
health 
organisations) 
further 
improvement  of  the  effectiveness  of  these  efforts. 
Since  2019,  new  services  are  provided  for  the 
unemployed  and  the  inactive,  such  as  ‘family 
labour  adviser’,  ‘mobile  labour  office’  and  ‘post-
employment counselling and mentoring’, and they 
are  being  extended  to  all  labour  offices  nation-
wide. 

and 
contribute 

institutions 

could 

to 

Strong  wage  growth  continues,  although  in 
some  occupations,  even  if  demand  is  high, 
salaries  did  not  increase  accordingly.  Nominal 
compensation  per  employee  increased  by  9.7%  in 
2018 and is estimated to have increased by 7.8% in 
2019. Public sector wages increased (10.9%) more 
rapidly  than  those  in  the  private  sector  (4.2%)  in 
2018 (40). In both 2018 and 2019, real wages grew 
faster  than  labour productivity.  However, in some 
low skilled occupations low  wages appear to be  a 
major cause of shortages. In some industries where 
there  is  a  reportedly  severe  shortage  of  skilled 
workers  —such  as  metal  product  manufacture, 
electrical appliances, machinery and equipment — 
average  wages  do  not  seem  to  offer  a  discernible 
premium  compared  to  the  ongoing  rate  of  pay  in 
the  overall  economy.  Meanwhile,  on  01  January 
2020  the  Government  increased  the  minimum 
wage  by  administrative  decision  to  BGN  610 
(€312), from BGN 560 (€287) in 2019. 

(40)  European  Commission,  Labour  market  and  wage 

developments: Annual Review 2020. 

37 

                                                           
                                                           
4.3. Labour market, education and social policies 

4.3.2.  EDUCATION  

Quality  and  inclusiveness  of  education  remain 
major  challenges,  despite  the  ongoing  reforms. 
Bulgarian  average  pupil  performance  in  reading, 
maths  and  science  has  not  improved  compared  to 
2015 data and remains significantly below the EU 
average. The country has among the highest shares 
of low-achievers in all three domains in the EU (43) 
(OECD,  2019b).  Bulgaria  is  also  among  the 
Member  States 
socio-economic 
in  which 
background has the strongest influence on learning 
outcomes (44)  and  where  spatial  and  social 
segregation  is  the  most  pronounced:  the  mean 
reading  score  of  pupils  in  schools  located  in  rural 
areas  is  115  points  lower  than  those  in  cities,  the 
equivalent  of  3  years  of  schooling.  Bulgarian 
pupils tend to be clustered in terms of whether they 
are  underachieving  or  high-achieving,  as  well  as 
their  socio-economic  status (45). 
according 
Bulgaria  has  put  in  place  a  series  of  measures  to 
address  challenges  related  to  quality  and  equity 
leading  to  progress  towards  SDG  4  ‘Quality 
education’, but their results are yet to be seen. The 
to 
coverage  of 
kindergartens  and  schools  (in  place  since  2018) 
with  at  least  20%  of  children  from  vulnerable 
groups (46)  has  been  expanded  to  secondary  and 
professional schools. Roma inclusion in education 
remains  a  challenge,  however,  due  to  several 
factors,  including  school  segregation  and  barriers 
induced  by  severe  poverty,  with  34%  of  Roma 
completing only primary education and 44% lower 
secondary (FRA, 2016). 

the  state  subsidy  allocated 

to 

Participation  in  early  childhood  education  and 
care  is  low,  and  declining.  This  is  a  particularly 
concerning  development  in  certain  regions  and 
among  vulnerable  children.  Good  quality  early 

(43)  47.1%  of  students  are  low  achievers  in  reading  (EU 
average  21.7%),  44.4%  are  low  achievers  in  maths  (EU 
average 22.4%) and 46.5% in science (EU average 21.6%). 
(44)  The  difference  between  the  share  of  underachievers  in 
reading  in  the  socio-economic  bottom  quarter  and  in  the 
top one is 44.9 pps, the highest gap in the EU. 

(45)  Bulgaria  has  among  the  highest  PISA  isolation  indexes 
(which  measure  whether  pupils  are  more  concentrated  in 
some schools) in the EU when it comes to high achievers, 
underachievers  and  disadvantaged  pupils  (OECD,  2019, 
PISA results). 

(46)  Vulnerable  groups  are  defined  as  children  whose  parents 
have lower than secondary education. Overall, 940 schools 
and around 400 kindergartens with at least 20% of children 
from  vulnerable  groups  received  this  additional  financing 
in 2018. 

childhood  education  and  care  plays  a  key  role  in 
creating  equal  opportunities,  improving  cognitive 
skills  and  possibly  reducing 
the  chance  of 
underachievement and early school leaving. At the 
same time, some big cities are affected by a lack of 
facilities. The participation rate for children aged 4 
years  to  compulsory  school  age  stands  at  83.9%, 
significantly  below  the  EU  average  of  95.4%  and 
on  a  downward  trend  since  2014.  Only  60%  of 
Roma  children  between  4  years  and 
the 
compulsory  school  age  attend  kindergarten.  To 
improve participation, an ESF co-financed project 
(47) provides support for more comprehensive early 
intervention 
care-related 
kindergarten fees.  

measures 

and 

leaving 

In  spite of ongoing efforts,  early school leaving 
is  still  significant  in  some  rural  areas.  In  2018, 
the  rate  of  early  leavers  from  education  and 
training  (18-24  age  group  with  at  most  a  lower 
secondary  education  and  no  further  education  or 
training)  was  12.7%,  still  above  Bulgaria’s 
national  Europe  2020  target  of  11%  and  the  EU 
average  of  10.6%.  Early  school 
is 
particularly  high  in  rural  areas (48)  and  among 
Roma (49).  The  inter-institutional  mechanism  that 
aims  to  identify  out-of-school  children  and  return 
them to education is bearing some fruit, and in the 
2019-2020  school  year  it  has  been  refocused  to 
prevention of drop-out and daily work to keep the 
interest  of  children  in  the  classroom.  Retention 
measures  are  also  being  supported  by  the  ESF, 
such  as  overcoming  learning  gaps  and  increasing 
students’  motivation, 
through  better 
engagement of the parents. The impact of a recent 
modified  measure  that  links  social  assistance  to 
school attendance is still to be analysed, as it does 
not address the root causes of early school leaving.  

including 

the  years, 

increasing  over 

Although 
the 
education  budget  lacks  targeting  and  result 
orientation. Although increasing, public spending 
on  education  is  among  the  lowest  in  the  EU,  at 
3.6%  of  GDP  (EU  average  4.6%).  Since  2018, 
financing  of  rural  schools  and  schools  that  work 
with  vulnerable  children  has  been  strengthened. 

(47)  Project  ‘Active  inclusion  in  the  system  of  pre-school 
education’ co-financed by the ESF with a budget of €41.5 
million. 

(48)  26.2% in rural areas, 12.2% in towns, 5.9% in cities. 
(49)  67%  of  Roma  are  early  school  leavers  (aged  18-24  years 
old  with  at  most  a  lower  secondary  education  and  no 
further education or training) (FRA 2016, Roma). 

38 

                                                           
                                                           
4.3. Labour market, education and social policies 

list  of  professions 

facing 
occupations  and 
shortages  was  promulgated  and  updated 
in 
December  2018,  and  includes  43  state-protected 
VET  professions  and  57  other  qualifications  with 
expected  shortages.  Supplementary  funding  was 
allocated to all these qualifications, while learners 
receive  additional  individual  scholarships,  which 
has  contributed  to  an  increase  in  enrolment  of 
students (55).  However, 
the 
curriculum  is  outdated  (56),  which  (together  with 
the  shortage  of  qualified  teachers  with  up-to-date 
knowledge  and  necessary  training  facilities)  leads 
to  graduates  with  skills  not  corresponding  to  the 
needs  of  companies  undergoing  fast  technological 
change.  Moreover,  the  employment  rate  of  VET 
graduates,  at  66.4%  in  2018,  although  increasing, 
remains  significantly  below  the  EU  average  of 
79.5%.  Another  issue  is  the  low  rate  of  students 
receiving 
after 
graduating from a VET school.  

a  professional  qualification 

in  some  cases, 

Dual vocational education and training is being 
rolled  out  but  challenges  remain.  In 
the 
2019/2020  school  year,  a  substantial  increase  was 
registered in students enrolled in dual professional 
education, to 5,261 students (from 353 students in 
2016,  when  the  legislative  amendments  providing 
for dual training opportunities were introduced and 
the  Swiss-supported  Domino  project  piloted  the 
dual  VET  in  Bulgaria).  Still,  the  total  share  of 
schools(57)  with  Dual  VET 
students 
programmes  is  relatively  low.  An  ESF  co-funded 
project  will  further  strengthen  the  dual  training 
systems  and  the  link  with  employers  and  will 
support 
in 
companies (58).  

teachers  and  mentors 

students, 

and 

Ongoing  higher  education  reform  is  still  to 
produce  tangible  results.  Tertiary  education 
attainment  of  those  aged  30-34  reached  33.7%  in 
2018, but it is still below the national Europe 2020 
target  (36%).  In  2017,  8.1%  of  upper  secondary 

(55)  In the 2019/20 school year 3,554 students were enrolled in 
professions  experiencing  shortages  on  the  labour  market 
and 1,936 in protected profession fields. 

(56)  From  2019  onwards,  VET  programmes  and  structure  are 
expected  to  be  updated  at  least  every  5  years,  and 
employers and employer organisations have been invited to 
take part in the planning process. 

(57)  In the 2017/18 school year, only 120, or about a quarter, of 

all VET schools offered dual VET programmes. 

(58)  An ESF co-financed project ‘Support for the dual training 
system’ with a budget of €12.5 million aims to increase the 
students in dual VET to 9,800. 

profession 

Plans  are  underway  to  double  teacher  salaries  by 
2021  compared  with  their  2017  level  (bringing 
salaries to 120% of the average salary in Bulgaria). 
The low status of the teaching profession persists, 
and  there  are  still  teacher  shortages  in  some  big 
cities  and  specific  areas.  Only  17.7%  of  teachers 
believe  that  their  profession  is  valued  by  society 
and only 60% of teaching graduates actually enter 
the 
is 
problematic,  as  almost  half  of  teachers  are  older 
than  50.  An  obligation  to  undertake  continuing 
professional  development  (CPD)  was  introduced 
and  was  linked  to  career  progression.  However, 
Bulgarian teachers report one of the highest needs 
of  CPD  in  the  EU(50),  which  suggests  a  need  to 
strengthen  delivery  and  better  monitor  and 
evaluate  the  quality  and  effectiveness  of  the 
training (51).  

2019c).  This 

(OECD, 

low  among 

Digital  skills  are 
the  young 
population.  Only  53%  of  young  people  aged  16-
19  assess  their  level  of  digital  skills  as  basic  or 
above  basic,  compared  to  an EU  average  of  83%. 
The  usage  of  Information  and  Communications 
Technologies (ICTs) in schools is not optimal (52). 
Despite the  support of  some  national programmes 
(53),  the  weak  general  performance  in  digital 
education  remains.  A  large-scale,  recently  started 
ESF  project  aims  to  include  2,000  schools  and 
kindergartens 
introducing 
activities 
innovative teaching methods using ICT(54). 

for 

in 

training 

(VET) 
Vocational  education  and 
reforms  continue,  although  at  a  slow  pace  and 
with  a  time  lag.  Available  data  show  a  slight 
decline in total enrolment in upper secondary VET 
(132,932 students or 50.7% in 2017, still above the 
EU  average  of  47.8%).  The  list  of  protected 

(50)  They  report  a  need  in  CPD  in  knowledge  of  their  subject 
field  (19%,  EU-23  6%),  knowledge  of  the  curriculum 
(20%, EU-23 5%), pedagogical competences (17%, EU-23 
8%) and ICT skills (23%, EU-23 16%). (OECD, 2019b). 
(51)  A  large  scale  ESF  co-financed  project  ‘Qualification  of 
Pedagogical  Specialists’  is  currently  running  and  aims  to 
provide  training  to  52,900  teachers,  with  a  view  to 
acquiring  qualification  levels  1-3,  and  training  to  48,000 
teachers with a view to acquiring qualification levels 4-5. 
(52)  31%  of  pupils  at  lower  secondary  level  attended  highly 
digitally equipped and connected schools in the school year 
2017/18 (52% in the EU), 37% (72%) in upper secondary 
level (European Commission, 2019, 2nd survey of schools: 
ICT in education). 

(53)  e.g.  ‘Training  for  IT  career’,  ‘Modernisation  of  the 
educational environment’, and Innovation in action’. 
(54)  Project  ‘Education  for  Tomorrow’  co-funded  by  the  ESF 

with a budget of €53.6 million. 

39 

                                                           
                                                           
4.3. Labour market, education and social policies 

share of the total population that still cannot afford 
basic  goods  or  services  only  decreased  to  20.9%, 
remaining  almost  four  times  the  EU  average  and 
monetary poverty remains stable.  

situation  differs 

The 
significantly  across 
regions. The at-risk-of-poverty or social exclusion 
rate  in  the  North-West  region  (44.4%)  is  almost 
double  the  rate  in  the  South-West  capital  region 
(23.0%). At the same time, regions such as North-
Central,  with  the  highest  poverty  rate  in  2010 
(58.7%),  managed  to  reduce  it  almost  by  half  in 
2018. The rural population continues to be largely 
affected  by  poverty  risks  and  low  access  to 
services.  Real  median 
rural 
dwellers  is  61%  of  that  of  urban  households  (EU 
average  84%).  There  are  also  twice  as  many 
households  with  very  low  work  intensity  in  rural 
areas than in cities. The European Programme  for 
Aid to the most Deprived continued to be the most 
for  mitigating  extreme 
important 
poverty.  In  2018,  the  support  covered  more  than 
530,000 people, including around 140,000 children 
and 
a  growing  number  of  people  with 
disabilities (61).  

income  among 

instrument 

Despite  growing  wages,  in-work  poverty  is  not 
abating  and  social  protection  of  workers 
remains  a  challenge.  The  share  of  people 
experiencing in-work poverty slightly increased to 
10.1%  in  2018,  reaching  its  second  highest  level 
since  2006.  Households  with  medium  and  low 
work  intensity  face  significantly  higher  in-work 
poverty  rates  compared  to  the  EU  average.  The 
situation  of  young  workers 
is  particularly 
worrying,  with  15.4%  of  them  experiencing  in-
work  poverty,  which  is  a  continuous  deterioration 
since 2013 (62). Contrary to the overall trend in the 
EU, since 2016 the self-employed in Bulgaria have 
than 
had  a 
employees,  but  do  not  have 
to 
and 
unemployment 
occupational injury insurance. 

in-work  poverty  rate (63) 

accident 

benefits 

access 

lower 

or 

(61)  More  than  200  municipalities  distributed  on  a  daily  basis 
hot lunches to the more than 50,000 beneficiaries, and the 
compulsory accompanying social inclusion measures. 
(62)  In-work  poverty  for  the  Youth  age  group  was  6.5%  in 

2013. 

(63)  The in-work poverty rate for the self-employed in Bulgaria 
was  8.8%  in  2017,  much  lower  than  the  EU  average 
(22.2%),  however  with  high  volatility  between  one  year 
and the next. 

finalised 

in  Bulgaria  had 

graduates 
tertiary 
education  abroad,  well  above  the  number  of 
international students in the country. The  share  of 
graduates  in  Science,  Technology,  Engineering 
and  Mathematics  (STEM)  is  still  low  (20.5%  in 
2017;  EU  average  25.8%) (59).  There  are  still 
significant  gender  gaps,  with  only  37%  of  the 
STEM  graduates  being  female,  compared  to  a 
female graduation rate of 61% overall. The lack of 
attractiveness  of  the  STEM  field  can  be  partially 
attributed  to  the  low  performance  of  Bulgarian 
pupils  in  maths  and  sciences (60),  limited  career 
guidance and gender imbalances in these fields.  

some  measures 

Despite 
taken,  Bulgaria 
continues to have one of the lowest participation 
rates in adult learning in the EU. Participation in 
adult learning stood at a low level of 2.5% in 2018, 
significantly  below  the  EU  average  of  11.1%. 
Importantly, participation rates in adult learning by 
low  skilled  adults  stand  at  around  one  quarter  of 
that for the general population. The quality of adult 
training  provision  and  capacity  constraints  to 
effectively  monitor  quality  represent  a  bottleneck 
to  more  effective  adult  participation  in  learning. 
The  fact  that  many  adult  learning  initiatives 
continue  to  be  project-based  calls  into  question 
their  sustainability  and  strategic  approach.  In  the 
demographic 
unfavourable 
context 
developments  and  changing  labour  market  needs, 
upskilling and reskilling of the workforce remains 
a  priority, 
the  creation  of  a 
comprehensive  tool  linking  skills  forecasting  with 
education and training systems. 

together  with 

of 

4.3.3.  SOCIAL POLICIES 

Although  on  the  decline,  the  share  of  the 
population  living  at  risk  of  poverty  or  social 
exclusion  remains  very  high.  Despite  a 
continuous decline (from 41.3% in 2015 to 32.8% 
in  2018),  some  2.3  million  Bulgarians  are  still  at 
risk  of  poverty  or  social  exclusion.  Thanks  to 
positive 
the 
proportion  of  people  living  in  low  work  intensity 
households  continued  to  decline  to  9%  in  2018, 
and  is  now  at  the  EU  average.  Nevertheless,  the 

labour  market 

developments, 

(59)  This  represents  14.3  graduates  in  STEM  for  every  1,000 

Bulgarians aged 20-29 and is among the lowest in the EU. 

(60)  PISA  2018  results  show  second  lowest  mean  score  in  the 
EU in mathematics for Bulgaria, and the lowest mean score 
in science (OECD, 2019). 

40 

                                                           
                                                           
4.3. Labour market, education and social policies 

Energy poverty remains a widespread problem 
in  Bulgaria, 
in  most  regions  and  across 
demographic groups. While the share has steadily 
decreased  since  2011,  36.5%  of  households  were 
unable  to  keep  their  home  adequately  warm  in 
2017, while 31.1% were in arrears on utility bills, 
placing  Bulgaria  among  the  Member  States  with 
the  highest  energy  poverty  rates  in  the  EU (64).  
Relatively 
low  coverage  of  social  assistance 
benefits  and  low  energy  inefficiency  exacerbate 
the  problem.  Policies  on  energy  poverty  have 
mainly 
financial  assistance  or 
renovation and retrofitting of residential buildings. 
In the context of liberalising the electricity market 
for  residential  customers,  the  government  has 
indicated  that  a  mechanism  for  the  protection  of 
vulnerable  electricity  customers  will  be  put  in 
place (65).  

focused  on 

high.  The  risk  of  poverty  or  social  exclusion 
among  those  aged  65+  remains  high,  standing  at 
45.1% in 2018. Despite the indexation of pensions 
in recent years (66), as of July 2020, the minimum 
pension  in  2020  will  be  250  BGN  (€125)  per 
month,  still  31%  below  the  at-risk-of-poverty 
threshold  of  363  BGN  (€182),  affecting  around 
800,000 pensioners. In addition, the benefit system 
still makes a relatively low contribution to poverty 
reduction:  25.4%  in  Bulgaria  compared  to  33.2% 
for  the  EU  (see  Graph  4.3.3).  This  also  results 
from a low level of overall social investment (67).. 
The  highest  decrease  in  the  rate  of  poverty  was 
achieved  by  the  ‘Sickness  and  disability  benefits’ 
function,  but  even  in  this  case  the  effect  in  2017 
was lower than in 2008. 

Graph 4.3.3:  Impact of social transfers (excluding pensions) 

on poverty reduction (1) 

and 

less-than-primary,  primary 

Qualification levels and family background are 
the  main  determinants  of  poverty  risks.  People 
with 
lower 
secondary  education  are  heavily  overrepresented 
among  those  at  risk  of  poverty,  as  well  as  among 
the  working  poor.  Children  of  low-skilled  parents 
continue  to  face  a  substantially  higher  risk  of 
poverty than those of high skilled parents; a gap of 
65.2  pps  in  2018,  well  above  the  EU  average  of 
43.3  pps.  Households  with  a  single  parent,  with 
more than one child and households in which only 
one of the parents is employed are also more likely 
to  face  poverty  risks.  In  2018,  33.7%  of  children 
(aged  0-17)  were  at  risk  of  poverty  or  social 
exclusion.  

Inequality  of  opportunity  for  children  remains 
high.  The  latest  PISA  results  show  that  the 
percentage  of  students  aged  15  with  a  low  socio-
economic  background  who  underperform 
in 
reading is 44.9 pps higher than for those of a high 
socio-economic  background.  Implementation  of 
these  challenges  would 
measures 
contribute  to  addressing  SDGs  1  ‘No  poverty’,  4 
‘Quality education’ and 10 ‘Reduced inequalities’. 

tackle 

to 

Though  decreasing,  the  at-risk  of  poverty  or 
social  exclusion  rate  of  elderly  people  remains 

(64)  European Commission (2019). Member State Report of the 
EU  Energy  Poverty  Observatory  (EPOV)  —  Bulgaria, 
available  at:  https://www.energypoverty.eu/observatory-
documents/bulgaria. 

(65)  In accordance with Directive 2009/72, revised by Directive 

2019/944 on the internal market for electricity. 

(1) Measured as reduction in percentage of the risk of 
poverty rate due to social transfers. 
Source: European Commission 

Income  inequality  has  started  to  narrow,  but 
remains  high.  In  2018,  the  income  share  of  the 
richest  20%  (S80/S20)  of  the  population  was 
almost eight times that of the poorest 20%, which 
is the highest in the EU, where the average ratio is 

(66)  The increase of pensions is done indiscriminately, with an 
equal  percentage  to  all  —  in  2018  by  3.8%,  in  2019  by 
5.7%.  The  planned  increase  in  July  2020  is  6.7%.  From 
1 July 2019, the minimum monthly pension increased from 
207.60 BGN (€103.8) to 219.43 BGN (€109.7). The social 
pension  changed  from  125.58  BGN  (€62.79)  to  132.74 
BGN (€66.37).  

(67)  Following  the data  recorded  in  ESSPROS  the  expenditure 
‘Old  age  pension’, 
on  social  protection, 
‘Disability’, 
‘Sickness/Healthcare’, 
‘Unemployment’  and  ‘Housing  and  Social  inclusion’ 
functions accounted for only 17% of GDP in 2017. 

including 
‘Family/Children, 

41 

101520253035404550101112131415161718Percentage of the risk of poverty rateEUBulgaria                                                           
  
                                                           
4.3. Labour market, education and social policies 

Graph 4.3.4:  Adequacy of minimum income benefits 2017 

5.17 (68). The still low levels of minimum income 
and old age pensions contribute to this result. The 
capacity  of  the  tax  and  benefit  system  to  reduce 
income inequalities is one of the weaker in the EU: 
measured  by  the  S80/S20  ratio,  taxes  reduce 
income  inequality  by  only  4%  (13%  for  the  EU) 
and benefits by 28% (35% in the EU) (see Graph 
4.3.3).  

The  overall  adequacy  and  coverage (69)  of  the 
minimum  income  scheme  remains  low,  and  no 
indexation  is  anticipated  (see  Graph  4.3.4).  The 
core  of  Bulgarian  minimum  income  support  is  a 
monthly  social  benefit  and  ‘heating  allowances’. 
Both  base  their  eligibility  criteria  on  the  official 
guaranteed  minimum  income  (GMI).  After  the 
administrative increase of the GMI in 2018 from a 
monthly BGN 65 (€33.32) to BGN 75 (€38.35), no 
updates  were 
implemented  and  no  objective 
criteria for indexation are anticipated. The poverty 
line  from  January  2020 (70)  will  be  used  to 
determine the monthly support only for the people 
with  disabilities (71).  The  number  of  registered 
beneficiaries  for  the  monthly  minimum  income 
support continued to decline in 2019 to 26,000, as 
reported 
(covering 
approximately 2% of the at-risk-of-poverty group). 
The  overall  low  amount  of  the  support,  the 
relatively restrictive eligibility criteria and the lack 
of  mechanisms  for  a  smooth  transfer  from  social 
assistance  to  employment,  with  the  right  mix  of 
active labour market policies and support services, 
make the support ineffective and unattractive. The 
eligibility  criteria  for  minimum  income  benefits 
have  no  income  disregard  with  the  exception  of 
one-day  contracts,  which  affects  transitions  to  the 
primary labour market. On the other hand, for the 
heating  allowance,  changes  to  the  access  criteria 
(72) carried out in 2019, and the 24.5% increase in 
the  amounts,  led  to  21 %  more  people  covered 
compared to 2018. 

government 

the 

by 

(68)  The S80/S20 indicator declined from 8.2 in 2017 to 7.66 in 

2018. 

(69)  Benchmarking  Framework 

Incomes 
conducted  within  the  Social  Protection  Committee  (SPC). 
For  details,  see  Proposal  for  a  Joint  Employment  Report 
2020. 

on  Minimum 

(70)  In  September  2019,  the  government  adopted  in  a  new 
methodology for the definition of the national poverty line, 
based largely on the EU-SICL methodology. 

(71)  Poverty  line  of  BGN  363  (€185.5)  subject  to  annual 

indexation.  

(72)  The overall amount of the heating allowance is BGN 93.18 
(€46) per month or BGN 465.90 (€233) per heating season. 

Source: European Commission 

The  high  staff  turnover  and  difficult  working 
conditions  have  an  impact  on  the  quality  of 
social  services.  This  is  also  due  to  relatively  low 
wages  and  limited  training  opportunities.  Recent 
wage  increases  in  the  education  sector  resulted  in 
an  additional  staff  outflow  from  the  social  sector. 
As  of  2020,  social  workers  will  receive  a  15% 
increase.  However,  the  majority  of  them  are  still 
living with wages close to the minimum wage (73).  

the 

chronic 

underfinancing 

The  pace  of  the  social  services  reform  is  slow 
and  it  has  been  further  delayed.  The  entry  into 
force of the new law on social services, adopted at 
the  beginning  of  2019,  was  postponed  by  six 
months  at  the  end  of  the  year,  creating  further 
uncertainty.  The  new  provisions 
envisage 
by 
addressing 
introducing  rules  for  more  accurate  determination 
of  standards  for  financing  of  social  services.  A 
National  Map  of  Social  Services,  to  be  prepared 
jointly  with  municipalities,  will  aim  at  addressing 
the  uneven  territorial  distribution  and  insufficient 
coverage  and  quality  of  services.  A  new 
Agency (74) that will have an oversight function is 
envisaged  to  be  created.  A  dedicated  ESF  project 
will  support  the  setting  up  of  the  methodological 
framework, the update of the quality standards and 
the  qualification  of  the  staff  of  the  Agency. 
However, the postponement of the entry into force 

(73)  European Commission calculations (2019). 
(74)  Social  Services  Agency  will 

licence  social  service 
providers,  develop  common  quality  standards,  ensure  that 
consumer  rights  are  respected,  carry  out  ex-post  control 
and monitor the quality of social services at municipal level 
provided by both municipalities and other service providers 
and assess their efficiency.  

42 

ATBEBGCYCZDEDKEEELESFIFRHRHUIEITLTLULVMTNLPLPTROSESISKUKEU0%20%40%60%80%100%120%0%20%40%60%80%100%120%Reference to income of a low wage earnerReference to poverty line (3 year moving average)                                                           
  
                                                           
4.3. Labour market, education and social policies 

adequacy  of  support (77),  depending  on  their  level 
of  disability  and  individual  needs.  The  Bulgarian 
authorities  report  a  30%  increase  in  recipients  of 
support after the new methodology for determining 
and  updating  the  monthly  assistance (78)  was 
enforced.  In  addition,  a  new  state  agency  will  be 
created in 2021 to coordinate the policy on people 
with  disabilities,  based  on  individual  assessments 
and  support.  Addressing  different  support  needs 
and 
accessible 
alternatives 
environments would allow people with disabilities 
to participate in the community. 

providing 

and 

institutions 

New  services  and  comprehensive  support  for 
children  are  still  under  consolidation  after  the 
initial  de-institutionalisation  process  was 
institutions  for 
accomplished.  All  specialised 
children  with  disabilities  have  been  closed  down. 
The  number  of  children  in  specialised  institutions 
fell from 7,587 in 2010 to 495 in 2019 (93%). Of 
identified  for 
the  137 
closure (79)  in  2009,  only  21  remained.  The 
number  of  social  services  for  the  support  of 
children  and  families  in  the  community,  with 
consultative  and  day-care  alternatives  including 
foster care services, has increased threefold in this 
period,  largely  piloted  with  the  ESF.  There  is 
scope  in  the  local  and  national  budgets  to  better 
ensure  the  sustainability,  quality  and  accessibility 
of services for all users.  

that  were 

for 

services 

Demand 
is 
long-term  care 
increasing  and  new  infrastructure  and  services 
are  under  development.  In  2016  the  reported 
unmet need for homecare services was the highest 
in  the  EU,  at  65.1%,  while  the  number  of  long-
term  care  workers  remains  well  below  the  EU 
average (80).  With 
the  main  objective  of 
developing long-term care services for people with 
disabilities  and 
the  government 
the  elderly, 
adopted a national strategy for long-term care and 
an action plan for 2018-2021. Still, the process of 
reforming the system and restructuring and closing 
the current 161 specialised institutions with 11,000 
adults  is  in  its  first  phase,  and  is  planned  to  run 

(77)  People  with  Disabilities  Act and  Personal  Assistance  Law 

adopted in December 2018. 

(78)  Depending  on  the  degree  of  disability,  the  monthly 
assistance  ranges  from  7%  to  57%  of  the  poverty  line, 
which is BGN 348 in 2019. 

(79)  National  Strategy  ‘Vision  for  De-institutionalisation  of 

Children in Bulgaria till 2025’. 

(80)  OECD (2019). Ensuring an adequate LTC workforce. 

of  the  reform  creates  uncertainties  about  the 
impact of the new provisions.  

Roma  continue  to  face  serious  challenges.  The 
at-risk  of  poverty  rate  (86%)  remains  very  high. 
65% of Roma still live in accommodation lacking 
basic  sanitation  amenities,  while  only  13%  report 
being able afford a  week’s holiday (75). The  share 
of  Roma  living  in  neighbourhoods  where  all  or 
most  of  their  neighbours  are  of  the  same  ethnic 
background  is  the  highest  (83%)  among  the 
European  Union  Agency  for  Fundamental  Rights 
surveyed  countries,  with  direct  impact  on  school 
segregation.  New  measures  seek 
improve 
participation in education and reduce early school 
leaving (see  section 4.3.3). Several projects are in 
through 
place 
integrated  measures,  supported  by  the  European 
Social  Fund.  The  National  Council  on  Ethnic  and 
Demographic  Issues  resumed  its  activity  in  2019 
with a coordination and monitoring role. However, 
the  working  programme  and  specific  actions  are 
still to be implemented. 

to  promote  Roma 

inclusion 

to 

High  levels  of  housing  deprivation  hamper 
social  inclusion.  Severe  housing  deprivation  in 
2018  was  10  times  the  EU  average,  while  every 
second  Bulgarian  at  risk  of  poverty  is  living  in  a 
household  overburdened  by  housing  costs.  Social 
housing  policies  are  decentralised,  without  a 
strategic  framework,  and  housing  benefits  are  a 
negligible proportion of total benefits. There are no 
specific measures to prevent homelessness or with 
specific  focus  on  the  social  reintegration  of 
homeless 
temporary 
accommodation centres and shelters which are full 
to capacity in the  winter season (76). The new  law 
to  address 
on  social  services 
homelessness with a new service from 2021. 

is  expected 

people, 

except 

for 

People  with  disabilities  still  face  difficulties  in 
achieving  independent  living.  In  2018,  their  at-
risk  of  poverty  or  social  exclusion  rate  stood  at 
49.5%,  19.5 pps  higher  than  for  people  without 
disabilities  and  20.7 pps  above  the  EU  average. 
New  legislation  strives  to  improve  coverage  and 

(75)  Report  on 

the 

implementation  of  National  Roma 

Integration Strategies. 
on 

repot 

(76)  ESPN 

temporary 
accommodations and 2 shelters exist in the country, with a 
capacity of 617 and 70 places respectively. 

homelessness: 

13 

43 

                                                           
                                                           
4.3. Labour market, education and social policies 

the 

these 

reforming  of 

until  2034 (81).  The  European  Structural  Funds 
support 
institutions, 
implementing  a  map  of  infrastructure  and  the 
development of new services such as community-
based  support  in  day-care  centres  and  integrated 
health  and  social  mobile  support  in  the  home 
environment. 

4.3.4.  HEALTH POLICIES 

to  be  14%  of 

the  obligation  for 

On average, one person in ten in Bulgaria does 
not  have  health  insurance  and  therefore  has 
limited access to the public  health care system. 
The  real  proportion  of  non-insured  Bulgarians  is 
estimated 
the  population 
(OECD/European  Observatory  on  Health  Systems 
and Policies, 2019). In groups like  Roma or long-
term  unemployed  the  rate  is  much  higher.  This  is 
because  of 
long-term 
unemployed  to  cover  health  insurance  premiums 
using  their  own  means,  and  a  lack  of  trust  in  the 
public  system  (abstention  from  paying  insurance 
premiums) 
In  general,  people  without 
insurance  have partial free access to services, like 
emergency  care  or  care  during  pregnancy.  They 
need  to  cover  all  other  costs  on  their  own.  The 
measures  to  improve  access  to  health  care  would 
lead  to  further  progress  towards  SDG  3  ‘Good 
health and well-being’. 

(82). 

the 

is 

care 

Health 
especially 
affordability 
challenging  for  the  poorest.  Despite  general 
improvement  —  the  percentage  of  Bulgarians 
reporting  unmet  medical  needs  in  2018  was 
slightly  lower  than  the  EU  average  —  the  gap  in 
access  between  the  poorest  and  the  wealthiest 
Bulgarians  is  almost  twice  that  of  all  Member 
In 
States  combined 
households  below  60%  of  median  equalised 
income,  96%  of  people  experience  a  high  or 
moderate burden in obtaining medical care, against 
the much lower EU average of 52%. 

(4.8 pps;  EU  2.6 pps). 

specialist  physicians 

There  are  more 
in 
Bulgaria  than  in  many  other  Member  States, 
while the number of nurses is the second lowest. 
The  ratio  of  general  practitioners  to  all  medical 
doctors  is  15.5%  (EU  average  27.3%).  This 
weakens the position of primary care in the health 
care  system.  The  number  of  nurses  per  1,000 
inhabitants  in  Bulgaria  is  4.4  (EU  average  8.5). 
The  profession  remains  unattractive  due  to  low 
salaries,  lack  of  recognition  of  the  profession’s 
significance and heavy workload. The distribution 
of  the  health  workforce  is  uneven  in  the  country, 
e.g.  districts  that  have  the  greatest  proportion  of 
doctors  per  head  of  population  are  those  where 
there  are  medical  universities.  The  system  faces 
to 
challenges 
establish in other locations. 

in  encouraging  medical  staff 

Out-of-pocket  payments  in  Bulgaria  are  the 
highest  in  the  EU.  They  cover  46.6%  of  current 
health care expenditure, against an EU average of 
15.8%.  Public  expenditure  is  very  low,  covering 
only  52.1%  of  total  health  spending,  which  is 
second  lowest  in  the  EU  and  well  below  the  EU 
average  of  79.3%.  In  Bulgaria,  70%  of  out-of-
pocket  payments  cover  costs  of  pharmaceuticals 
and  medical  devices  (EU  average  35%).  Patients 
need  to  co-pay  for  many  services  in  the  public 
system,  and  the  health  insurance  does  not  protect 
many  of  them  from  additional  financial  burden 
caused  by  health  problems.  Moreover,  general 
practitioners have monthly quotas of referrals they 
can  issue.  Some  patients,  who  do  not  want  or 
cannot  wait  for  the  referrals  until  the  next  month, 
go directly to specialists and pay for visits. 

(81) Only five homes for people  with psychiatric disorders and 
five for people with mental disabilities have been prepared 
for closure. 

(82) State of Health in the EU Bulgaria Country Health Profile.  

The  Bulgarian  health  care  system  remains 
hospital-centred.  Despite  an  average  length  of 
hospital stay below  the EU average (5.3 days; EU 
average 7.9), the number of hospital discharges per 
100,000 population is almost twice the EU average 
(see  Graph  4.3.5).  This  may  suggest  that  many 
patients are admitted to hospitals only for tests and 
check-ups  that  in  Bulgaria,  unlike  in  many  other 
Member  States,  cannot  be  provided  in  outpatient 
care.  Overall,  the  number  of  beds  in  Bulgaria  is 
high  (7.5  per  1,000  population;  EU  5.0)  and  has 
increased  since 2005, counter to the  general trend 
in the European Union. This is driven by the large 
growth of the private  sector, where the number of 
hospitals  increased  six-fold  and  the  bed  capacity 
36  times  between  2000  and  2016.  At  the  same 
time,  numbers  for  public  entities  dropped.  Only 
started 
recently, 
licensing 
their  ownership 
hospitals, 
structure  (public  or  private),  using  the  National 
Health Map. Selective contracting by the National 
Health  Insurance  Fund  that  uses  the  National 

the  government 
independently  of 

44 

                                                           
4.3. Labour market, education and social policies 

Health  Map  should  also  counteract  the  hospital 
sector’s growth.  

Graph 4.3.5:  Outpatient use vs inpatient use, 2017 

The  effectiveness  of  the  health  care  system  in 
Bulgaria  remains  low  in  comparison  to  other 
Member  States. Preventable (83) and treatable (84) 
mortality  in  2016  were  much  higher  than  the  EU 
average.  Both  types  of  death  were  mainly  the 
result of non-communicable diseases: lung cancer, 
stroke,  ischaemic  heart  disease  and  hypertension. 
Tobacco  use  —  the  highest  in  the  EU  —  with 
heavy  alcohol  consumption  and  obesity  rates 
teenage  boys  and  children 
increasing  among 
respectively are partially behind this. Inappropriate 
use  of  antibiotics  (e.g.  prescribing  them  against 
viral diseases) and a high number of antimicrobial 
indicate  an  antimicrobial 
resistant 
resistance  problem  in  Bulgaria,  which  increases 
morbidity  and  mortality.  According  to  OECD 
estimates,  this  problem  can  be  tackled  with  very 
results (85).  The 
and  good 
low 
tuberculosis notification rate in Bulgaria is falling, 
but  still  is  almost  twice  the  EU  average.  Between 
2016 and 2017, the measles notification rate grew 
enormously  from  0.1  per  1  million  inhabitants  to 
23.2.  Moreover,  vaccination  rates  among  children 
are below the EU average, notably against hepatitis 
B  (85%  in  Bulgaria  vs.  93%  in  the  EU)  and  the 
95%  rate,  which  according  to  the  World  Health 
Organisation ensures herd immunity.  

infections 

financing 

Source: European Commission, OECD Health Statistics 2018 
(data refer to 2017 or the nearest year, no data for UK) 

There  are  plans  for  reforms  in  the  health  care 
system.  A  new  framework  contract  signed  by  the 
Ministry  of  Health, 
the  public  payer  and 
physicians,  designed  to  regulate  provision  of 
health care, entered into force in January 2020 for 
3 years. Previously the contracts were signed for 1 
year  and  were  binding  as  of  April 1st.  The 
government  proposed  introducing  competition  in 
health  insurance,  enabling  private  companies  to 
play  a  role  as  purchasers  of  services.  An  insurer 
based  on  the  currently  existing  National  Health 
Insurance Fund would remain in the system. Public 
consultations  initiated  in  summer  2019  are  to 
decide on the details of the proposed measures. 

(83)  Preventable mortality is defined as death that can be mainly 
avoided  through  public  health  and  primary  preventive 
interventions. 

(84)  Mortality from treatable (or amenable) causes is defined as 
death  that  can  be  mainly  avoided  through  health  care 
interventions, including screening and treatment. 

(85)  Antimicrobial  resistance:  tackling  the  burden  in  the 
European  Union.  Briefing  note  for  EU/EEA  Countries. 
OECD and ECDC. 2019. 

45 

ATBEBG, 2017CYCZDKEEESFIFRHRDEELSK, HUITLTLUMTNLPLPTBG, 2014ROSESI050100150200250300350024681012Discharges per 1000 residentsDoctor consultations per residentEU average: 171EU average: 7,3                                                           
  
 
 
4.4. COMPETITIVENESS, REFORMS AND INVESTMENT 

euro, the dynamics of nominal effective exchange 
rate  (NEER)  are  determined  by  the  price  of  the 
euro  vis-à-vis  the  currencies  of  major  trade 
partners.  The  high  share  of  exports  and  imports 
outside the euro area, 51% and 55% respectively in 
2018,  suggest  that  there  might  be  significant 
effects on external competitiveness. In 2013-2018, 
the  appreciation  of  NEER  has  harmed  price 
competitiveness,  contributing  four  pps  to  the  real 
effective  exchange  rate  increase  in  2018  (see 
Graph  4.4.2). The nominal appreciation of the lev 
in  2018  was 
the 
depreciation  of  the  Turkish  lira  by  38.5%  against 
the  euro.  Turkey  is  the  most  important  trading 
partner  for  Bulgaria  outside  the  EU,  with  8%  of 
total exports and 6% of total imports.  

influenced  by 

strongly 

Graph 4.4.2:  Breakdown of rate of change of REER 

4.4.1.  COMPETITIVENESS 

low 

Aggregate  unit  labour  costs  (ULCs)  are  on  an 
upward path. ULCs for the whole economy have 
been  increasing  for  more  than  10  years,  and  this 
trend  has  continued  in  2018  and  the  first  half  of 
2019.  The  comparatively 
levels, 
structural changes and the process of nominal and 
real convergence are among the factors behind this 
long-term development. Cyclical factors have also 
played  a  role,  fuelling  rapid  ULC  growth  in  the 
booming years before the 2009 crisis and limiting 
the  pace  of  ULC  increase  afterwards.  Tentative 
evidence suggests that unit labour costs react with 
a lag to the evolution of output gap. 

initial 

their 

to  keep 

Manufacturing  sector  and  tradable  services 
maintain their competitive position. Since 2018, 
both 
the  manufacturing  sector  and  services 
(including  trade,  transport,  hotels  and  restaurants) 
labour  cost 
have  managed 
developments in line with productivity (see Graph 
4.4.1). The two sectors achieved ULC moderation 
through 
faster 
manufacturing 
productivity 
accommodated  wage  increases,  wage  moderation 
helped  to  keep  ULCs  constant  in  the  tradable 
services.  In  the  construction  sector,  unit  labour 
costs exhibit  strong  upward dynamics driven by a 
high growth in compensation per employee as well 
as stagnant productivity gains. 

channels.  While 

different 

gains 

in 

Graph 4.4.1:  Evolution of unit labour costs 

Source: European Commission 

external 

Several  stylised  facts  point  to  the  conclusion 
that 
competitiveness  has  been 
preserved so far. Since 2000, export market share 
more  than  doubled,  although  gains  were  uneven 
across  years.  Nominal  exports  have  been  growing 
consistently 
since  2010.  Productivity  gains, 
expansion in production capacity and improvement 
in  product  sophistication  indicate  that  non-price 
competitiveness factors compensated for price and 
cost  increases  (see  Graph  4.4.3).  Moreover,  the 
labour  share  in  manufacturing (86)  has  remained 
almost  constant  throughout  the  years,  suggesting 
that the wage growth was accommodated by either 
productivity or price increases.  

Source: European Commission 

External factors, such as nominal exchange rate 
fluctuations, also influenced Bulgaria’s external 
competitiveness. Given that the lev is fixed to the 

(86)  Measured  as  share  in  gross  value  added  of  manufacturing 

that accrues to labour as a factor of production 

46 

90100110120130140150160Index, 2015=100TotalManufacturingConstructionTrade, transport, hotel and restaurant-6-4-2024681012040506070809101112131415161718pps.NEER IC-42relative HICP (-)REER (HICP) IC-42 (y-o-y%)REER (ULC) IC-37 (y-o-y%) 
   
  
                                                           
4.4. Competitiveness, reforms and investment 

Graph 4.4.3:  Exports of products by R&D activity intensity 

Graph 4.4.4:  Labour share and nominal productivity growth 
of manufacturing industries (1) 

Source: OECD 

Aggregate  competitiveness  developments 
in 
manufacturing  mask  different  trends  across 
production  sectors.  Notwithstanding  the  overall 
the  tradable  sector, 
in 
positive  developments 
competitiveness  dynamics  have  been  uneven 
across  industries.  The  labour  share  exhibited 
different  dynamics  across  sectors,  largely  driven 
by  fundamental  factors,  such  as  productivity  and 
price  developments  Industries  that  were  able  to 
achieve  productivity  gains  or  were  able  to  charge 
higher prices (due to quality improvements and/or 
less price competition, for example) also managed 
to  supress  the  labour  share,  while  labour  share 
increased  in  the  rest  of  the  manufacturing  sectors 
(see  Graph  4.4.4).  This  suggests  that  the  more 
dynamic  sectors  were  able  to  accommodate  cost 
increases,  while  other  industries  suffered  cost 
competitiveness losses. 

of 

the 

economy.  The 

Apart from unit labour costs, other  factors are 
also  important  for  assessing  the  competitive 
position 
gradual 
sophistication  of  exports  benefits  from  the  high 
and  increasing  trade  openness  and  the  integration 
of domestic producers into the global value chains. 
The  increase  in  total  factor  productivity  in  recent 
years  also  suggest  that  the  adoption  of  new 
technologies 
factor  behind 
competitiveness  gains.  The  build-up  of  new 
productive  capacity  also  facilitates  the  transfer  of 
advanced 
the  new 
machinery  and  equipment.  In  this  respect,  the 
increasing  share  of  imported  machinery  in  total 
exports  since  2015  is  also  a  positive  sign  for  the 
future competitiveness outlook of the economy. 

technologies  embodied 

important 

is  an 

in 

Source: (1) Size of the bubbles represents the share of 
manufacturing industries in the total gross value added of 
the manufacturing sector. The industries with the biggest 
share: 1) food; 2) metal products; 3) clothes; 4) machinery 
and equipment 5) basic metals  
(2) Base year: Average value of 2000-2002 levels 
Source: European Commission 

Business  environment 
improvements  could 
stimulate faster technological advancement. The 
low  number  of  registered  patents  and  licenses 
hampers  faster  convergence  in  technology.  The 
quality  and  coverage  of  existing  infrastructure, 
including  also  overall  business  environment,  need 
further  improvement  to  stimulate  more  dynamic 
competitiveness  gains,  including  through  inflows 
of foreign direct investments. 

4.4.2.  INVESTMENT AND PRODUCTIVITY 

Investment activity 

Although  investment  picked  up  in  2018,  it 
remains  well  below  the  EU  average.  The 
investment  to  GDP  ratio  at  18.6%  remains  lower 
compared  to  those  of  most  of  the  regional  peers, 
the  EU  average  of  21%.  The 
and  below 
manufacturing  sector  attracts  the  largest  share  of 
investment,  although  it  registered  a  slight  decline 
in 2018. The observed increase in total investment 
was driven by increases across all asset types (see 
significant 
Graph 
contribution 
and 
equipment.  The  positive  trend  of  investment  in 
level 
intellectual  property  continued,  but 
remains  low.  Gross  fixed  capital  formation  in 
information 
technology 
equipment remained relatively weak, reflecting the 

the  most 
from  machinery 

4.4.5),  with 
coming 

communication 

and 

its 

47 

025507510000020406081012141618% of total goods exportsHighMedium-highMediumMedium-lowLowUnallocatedHigh and medium-high13524y = -0,001x + 0,118R² = 0,4373-60%-50%-40%-30%-20%-10%0%10%20%0200400600800Labour share growth from the base year (2) to 2018 (%)Nominal productivity growth from the base year (2) to 2018 (%)  
  
4.4. Competitiveness, reforms and investment 

still  low  digital  uptake  in  both  private  and  public 
sectors.  The  European  Structural  and  Investment 
Funds remain pivotal for the investment activity. 

trans-border  infrastructure,  to  support  economic 
development and human well-being. 

Graph 4.4.5:  Investment by asset type 

Business environment 

in 

significant 
of 

The  business  environment  remains  weak.  The 
slow  pace  of  improvement  and  the  lack  of 
substantial  reforms  dragged  Bulgaria  down  from 
50th  place  in  2017  to  61st  place  in  the  ‘Ease  of 
Doing  Business’  ranking  (World  Bank,  2019). 
With  few  exceptions,  such  as  in  ‘trading  across 
borders’  and  ‘protecting  minority  shareholder 
for 
room 
rights’,  Bulgaria  has 
improvement 
categories.  The 
all 
implementation  of  the  action  plan  for  removing 
obstacles  to  investment  has  not  yet  led  to  visible 
results.  The  country  is  still  losing  position  in  key 
areas 
‘getting 
electricity’.  Protection  of  intellectual  property 
rights is  weak, and obtaining  construction permits 
is  costly  and  complicated.  Labour  and  skills 
shortages  and  institutional  shortcomings  continue 
to be among the main barriers to investment and to 
negatively  impact  growth  prospects  of  businesses 
(see sections 4.3 and 4.4.4). 

‘starting  a  business’  or 

like 

of 

the 

particularly 

Small  and  medium-sized  business  (SMEs)  still 
face  many difficulties.  Bulgaria scores below the 
EU  average  in  the  implementation  of  the  Small 
Business  Act (87).  The  country  underperforms  in 
most 
in 
categories, 
‘entrepreneurship’  and  ‘skills  & 
innovation’, 
where it has one of the  weakest scores in the  EU. 
Moreover,  measures  in  support  of  SME  policies 
have  had  only  a  limited  effect.  On  the  positive 
side,  according  to  the  2019  SAFE  survey  (ECB, 
2019), only 6% of  SMEs categorised financing as 
their  most  important  problem.  This  share  has 
halved  compared  to  the  2009-2013  levels.  The 
most  popular  sources  of  financing  are  still  credit 
lines, leasing and bank loans.  

Bulgaria 
is  actively  using  EU  support  to 
improve  financing  further.  In  terms  of  triggered 
European  Fund  for  Strategic  Investments  (EFSI)-
related  investment  relative  to  GDP,  Bulgaria  is 
among the best performers among Member States. 
Total  funding  under  the  EFSI  amounts  to  €472 
million and it is expected to generate an additional 
€2.4 billion of investment. Bulgaria is also one of 

(87)  The  Small  Business  Act  is  an  overarching  framework  for 
the EU policy on small and medium-sized enterprises. 

Source: European Commission 

significant 
remains 

investment 
subdued.  The 

needs, 
Despite 
investment 
2019 
European  Investment  Bank  Investment  Survey 
(EIB,  2019)  indicates  that  Bulgarian  firms  invest 
less than the EU average (67%; EU average 86%), 
and  that  there  is  a  lack  of  ambitious  investment 
plans. Most of the companies  that are planning  to 
the  manufacturing  and 
spend  more  are 
infrastructure  sectors.  At  the  same  time,  many 
firms  report  investment  gaps,  and  the  share  of 
firms  operating  above  capacity 
(54%)  has 
increased across most sectors. The largest share of 
companies  report  that  the  main  obstacles  to 
investment  are  the  lack  of  skilled  staff,  economic 
and regulatory uncertainty, and energy costs.  

in 

More  investment  is  also  needed  to  improve  the 
low  quality  of  infrastructure.  This  pertains  to 
both  energy  and  water  infrastructure,  as  well  as 
weak transport connections, especially in the north 
of  the  country.  Robust  transport  and  energy 
networks  would  help  companies  to  connect  with 
global  markets  and  suppliers  and  to  boost  their 
productivity.  Countries  with  strong  infrastructure 
foreign  direct 
are  also  more  attractive 
investment, which can support an economy’s shift 
to  the  production  of  higher  value-added  goods. 
Improvements  in  infrastructure  are  also  needed  to 
advance  on  SDG  9  ‘Industry,  innovation  and 
infrastructure’. It calls for reliable, sustainable and 
including  regional  and 
resilient  infrastructure, 

to 

48 

05101520253009101112131415161718% of GDPIntellectual property products (gross)Cultivated biological resources (gross)Machinery and equipment and weapons systems (gross)Total Construction (gross)Total fixed assets (gross)  
                                                           
4.4. Competitiveness, reforms and investment 

Total factor productivity picked up. Whereas in 
the  first  post-crisis  years 
labour  productivity 
growth was mostly driven by capital accumulation, 
in  recent  years  total  factor  productivity  has  also 
picked up and it has outperformed the EU average 
(see  Graph  4.4.6). This  might  come  as  a  result  of 
productive 
in  previous  years. 
the  gap  remains  wide  and  faster 
However, 
productivity  growth 
to  have  a 
substantial catching up impact. 

is  necessary 

investments 

Graph 4.4.6:  Total factor productivity and labour 

productivity developments 

Source: European Commission 

Weaknesses 
in  the  drivers  of  productivity 
growth  persist.  The  business  environment  is  not 
fully  supportive  of  investment,  and  institutional 
quality  is  a  challenge  (see  Section  4.4.4).  The 
stock and quality of physical infrastructure remains 
inadequate.  Business  R&D  and,  more  generally, 
intangible  investment  has  increased  over  the  past 
10  years  but  is  low  in  terms  of  GDP.  Uptake  of 
digital  technologies  is  slow  in  both  public  and 
to 
private  sectors.  Skills  mismatches  relative 
labour  market  needs  are  declining,  but  are  still 
high  compared  to  the  rest  of  the  EU  (see  Section 
skills  mismatches  affect 
4.3.1).  The  way 
companies 
spending  on 
employee  training,  loss  of  competitiveness  and 
innovation  capacity  and 
recruitment 
processes (89).  

includes  additional 

slower 

largest  beneficiaries  of 

the 
the  European 
Investment  Bank’s  advisory  services.  In  addition, 
the COSME Loan Guarantee Facility is one of the 
most  used  centrally  managed  banking  instruments 
of the Investment Plan for Europe, with more than 
5,000  transactions  to  final  recipients  and  €460 
million  committed.  Finally,  in  2019  a  new  €60 
million  instrument  was  launched  in  cooperation 
with  the  European  Investment  Fund:  InvestBG 
Equity,  which  targets  equity  financing  of  high-
growth and innovative SMEs. 

Venture  capital  investment  got  an  additional 
boost  but  remains  below  the  EU  average  (88). 
New  instruments  for  equity  and  quasi-equity 
investments  were  introduced  in  2019.  The  Fund 
Manager  of  Financial  Instruments  in  Bulgaria  has 
selected  financial  intermediaries  for  early-stage, 
venture and mezzanine funds amounting to €110.7 
million.  A  tendering  procedure  for  a  Technology 
Transfer  Fund  with  a  budget  of  €30  million  was 
also launched in 2019. Attracting large private and 
institutional 
remains  a  challenge, 
partially due to the still low levels of initiatives for 
improving  investor  confidence  and  the  small  size 
of  the  market.  A  vibrant  start-up  eco-system  has 
started  to  emerge  in  the  capital  and  it  would 
benefit  from  an  improved  legislative  framework, 
its  consistent  enforcement  and  strengthened 
institutional capacity. 

investors 

Productivity 

in 

increase 

Labour  productivity  growth  accelerated,  but 
Bulgaria  still  has  the  lowest  level  in  the  EU.  In 
2018, 
labour  productivity  per  hour  worked 
increased  by  more  than  3%  and  reached  47%  of 
labour 
the  EU  average.  The 
productivity  growth  in  2018  was  broad-based 
across  sectors,  and  it  helped  slightly  narrow  the 
gap with the rest of the EU (see Graph 4.4.6). This 
higher labour productivity  growth, coupled  with a 
somewhat 
employee 
compensation, helped cool unit labour cost growth 
(close to its minimum over the decade). The labour 
productivity of large companies was twice as high 
as  that  of  micro-companies,  and  the  gap  between 
them  keeps  increasing.  This  can  be  explained  by 
the  relatively  small  resources  of  micro-firms  for 
upgrades, 
investment 
development and innovation, skills, and marketing. 

technological 

growth 

lower 

in 

in 

(88) European Innovation Scoreboard 2019.  

(89)  http://europa.eu/!dM96Ft. 

49 

9011013015017019021023025027029031000020406081012141618Labour productivity in Manufacturing (2000=100)9011013015017019021023000020406081012141618Labour productivity in Market Services (2000=100)9011013015017019021023025027000020406081012141618Labour productivity, whole economy (2000=100)809010011012013014015016017018000020406081012141618Total Factor Productivity (2000=100)BGHUCZROEU28                                                           
  
 
                                                           
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  at  18.6%  (compared  to  the  EU  average  of  21%),  although 
investment needs remain high in a number of areas. Private investment has been volatile and subdued in 
the aftermath of the crisis. Public investment increased sharply in 2018 and it is set to continue growing in 
2019 with the progressive implementation of projects financed by both EU funds and national sources.  

Section 2. Assessment of barriers to investment and ongoing reforms 

Public administration reform and the introduction of e-government are not progressing as envisaged 
(see  Section  4.4.5).  Labour  shortages  continue  to  be  among  the  key  obstacles  to  investment  (see  Section 
4.3).  Reform  of  the  insolvency  framework  is  ongoing.  Efforts  to  implement  the  insolvency  framework 
roadmap have already started, but proper implementation will be key (see Section 4.2.4). The effectiveness 
of  the  justice  system  has  improved,  but  challenges  remain.  These  include  the  effectiveness  of  criminal 
investigations, the efficiency and accessibility of the judiciary through e-justice tools and low public trust in 
anti-corruption institutions (see Section 4.4.5).  

Non-performing loans and private sector debt continued to decline but remain high  (see Section 4.2.3). 
Venture  capital  and  the  other  forms  of  non-banking  financing  are  still  limited,  although  there  have  been 
improvements such as new equity and quasi-equity instruments on the market (see Section 4.4.2). Bulgaria 
is actively using all possibilities provided by EU funding to improve financing conditions for companies. 

The  EU  supports  investment  in  Bulgaria  also  via  the  European  Fund  for  Strategic  Investments 
(EFSI). By October 2019, total financing under the EFSI amounted to €546 million, intended to trigger €2.7 
million  in  additional  investments  (1).  By  the  end  of  2020,  EFSI  and  other  EU  financial  instruments  will 
come  under  the  auspices  of  the  new  InvestEU  programme  that  promotes  a  more  coherent  approach  to 
financing  EU  policy  objectives,  and  increases  the  choice  of  policy  implementation  options  and 
implementing  partners  to  tackle  country  specific  market  failures  and  investment  gaps.  In  addition,  under 
InvestEU, Member States can set up a national compartment by allocating up to 5% of their structural funds 
to underpin additional guarantee instruments supporting the financing of investments with a higher degree of 
adaptation to local conditions. InvestEU will be policy-driven and focus on four main areas, all relevant for 
Bulgaria:  Sustainable  Infrastructure,  Research,  Innovation,  and  Digitisation,  Small  Businesses,  and  Social 
Investment and Skills. Bulgaria has two national promotional institution that have signalled their interest in 
becoming implementing partners under InvestEU.  

(1)https://ec.europa.eu/commission/strategy/priorities-2019-2024/jobs-growth-and-investment/investment-plan-europe-

juncker-plan/investment-plan-results/investment-plan-bulgaria_en  

50 

Regulatory/ administrative burdenTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&IInsolvency frameworkCSRBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomEducation, skills, lifelong learning CSREnergyTransportPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
 
 
 
 
 
 
 
4.4. Competitiveness, reforms and investment 

research 

institutes (91).  This 

High fragmentation of the research and  higher 
education system is a key obstacle to improving 
its performance. The small public research budget 
is  distributed  over  a  large  number  of  universities 
and 
situation 
exacerbates  the  consequences  of  the  very  low 
public  R&D  expenditure: 
the  quality  of  the 
Bulgarian  science  base  (measured  by  the  share  of 
highly  cited  scientific  publications  in  all  national 
publications) is the lowest among all EU countries 
(92).  Bulgaria  has  introduced  an  update  of  the 
Research  Performance  Assessment  procedure (93), 
but the structural reform of the research landscape 
that  was  essential  to  tackle  its  fragmentation  and 
increase performance has not been carried out. The 
proposed  creation  of  a 
for 
to  ensure 
Innovations  and  Applied  Research 
stronger  governance  and  ownership  of  the  R&I 
policies could lead to positive developments. 

state  Agency 

Research and innovation 

of 

faces 

innovation  (R&I) 
Bulgaria’s  research  and 
system 
structural 
a  number 
shortcomings.  In  particular,  these  include  low 
levels  of  public  and  private  R&I  investment, 
fragmentation of the public science base, lack and 
ageing  of  skilled  human  resources,  weak  science-
business  links  and  inefficient  governance.  All 
these  deficiencies  are  holding  back  the  potential 
contribution of  R&I to productivity and economic 
growth  and  will  strongly  limit  the  capacity  for 
upwards  convergence  in  the  midterm.  Addressing 
these  bottlenecks  would  help  Bulgaria  in  making 
progress  towards  achieving  SDG  9  ‘Industry, 
innovation and infrastructure’. Currently, Bulgaria 
(‘modest’ 
the  worst  performers 
is  among 
innovator) in the European Innovation Scoreboard 
(90),  with  an  overall  level  still  below  50%  of  the 
EU average.  

R&D  spending  remains  very  low  both  in  the 
public  and  in  private  sectors.  R&D  intensity  is 
very  low:  0.75%  of  GDP  in  2018,  far  below  the 
national  target  of  1.5%  (see  Graph  4.4.7).  The 
extremely  low  public  R&D  intensity  (0.21%  of 
GDP  in  2018)  is  particularly  concerning,  also 
given  that  it  has  been  on  a  mostly  decreasing 
trajectory  since  2000.  This  hinders  the  required 
capacity  building,  as  research  infrastructure  is 
outdated  and  low  wages  act  as  deterrents  to 
attracting  and  retaining  young  talent.  Business 
R&D  intensity  (0.54%  of  GDP  in  2018)  is  on  a 
decreasing  path  as  well.  Investment  in  research 
remains fragmented and concentrated in the capital 
region and multinational companies.  

Graph 4.4.7:  Intramural R&D expenditure by sectors of 

performance 

Source: European Commission 

to 

the 

support 

Bulgaria  announced  its  intention  to  gradually 
increase  public  R&D  spending.  By  2025  it 
should  reach  to  1%  of  GDP.  The  authorities  also 
announced  a  doubling  of  the  budget  for  research 
for 
programmes 
development  of  scientific  research  2017-2030.  In 
addition, the government has approved 11 national 
scientific  programmes  for  2018-2022,  with  a 
budget  of  more  than  €30  million.  On  the  other 
hand, the Smart Growth Council that was set up in 
2015 
robust  and 
coordinated  management  of  national  and  EU 
funding is under-utilised. 

independent, 

to  provide 

strategy 

(90)  European  Commission,  Innovation  Scoreboard  2019, 
https://ec.europa.eu/growth/industry/innovation/facts-
figures/scoreboards_en. 

Links between academia and businesses are still 
insufficiently  developed  to  support  knowledge 
and technology transfer. This is also reflected in 
the  low  share  of  public-private  scientific  co-
initiatives 
publications.  Several 
to 
promote 
transfer  and 
science-business  links  are  slowly  progressing, 
the  ESIF.  The  future  regional 
supported  by 

innovation,  knowledge 

relevant 

(91)  51  Universities  (state  and  private  financing),  42  Institutes 
of the Bulgarian Academy of Sciences (BAS), 17 Institutes 
of the Agrarian Academy (AA). 

(92)  In 2016, 3.1% of Bulgarian publications were highly cited, 

compared to the EU average of 10.3%. 

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

51 

0.00.51.01.52.02.509101112131415161718% of GDPBG Private non-profit sectorBG Higher education sectorBG Government sectorBG Business enterprise sectorEU All sectorsBG All sectors                                                           
  
                                                           
4.4. Competitiveness, reforms and investment 

of the EU-harmonised spectrum, including the 5 G 
pioneer  bands,  is  made  available  in  good  time  to 
all  relevant  market  players,  to  achieve  the  gigabit 
connectivity goals.  

Transport 

in 

of 

quality 

railway 

perceived 

infrastructure, 

Bulgaria  is  among  the  Member  States  with  the 
lowest 
transport 
a  decade  of  EU 
infrastructure.  Despite 
investments 
its 
modernisation has been slow and satisfaction with 
the  rail  infrastructure  remains  low.  The  railway 
infrastructure  fluidity,  internal  railway  network 
interconnecting  strategic  points,  and  multimodal 
platform  networks  remain  underdeveloped.  The 
Bulgarian  share  of  the  Trans-European  Transport 
Core  Network  is  complete  for  inland  waterways. 
On road and rail, the country is still lagging behind 
(97). This results in a declining traffic intensity for 
both  freight  and  passenger  rail  transport (World 
Economic  Forum,  2019).  The  EU-Turkey 
agreement  for  a  high-speed  train  linking  Istanbul 
to the Bulgarian border crossing point  would be a 
positive  development.  Finally,  the  logistics  sector 
scored  low  in  the  World  Bank’s  2018  Logistics 
Performance  Indicator  due  to  the  poor  quality  of 
infrastructure, and absence of multimodal logistics 
platforms. 

Connectivity  with  neighbouring 
countries 
remains  a  challenge.  The  implementation  of  the 
Trans-European  Transport  Network  policy  on  the 
construction  of  road  and  rail 
infrastructure, 
building  the  links  to  the  Western  Balkans  and 
exploiting  the  potential  of  the  Black  Sea  and  the 
Danube,  would  allow  Bulgaria  to  benefit  from 
being  a  transit  country  on  the  future  Alpine-West 
Balkans Rail Freight Corridor. The priority is still 
to  develop  the  corridors  ‘Orient/East-Med’  and 
‘Rhine-Danube’,  as  well  as  connections  with 
Western Balkan countries.  

The  ongoing  construction  of  a  national 
motorway is a step towards modernisation, but 
this  process  is  still  slow.  Higher  revenues  from 
the  electronic  vignette  system  should  enable 
investment 
road 
in  a  modern  and 
infrastructure,  completion  of  missing  network 
sections, faster deployment of intelligent transport 

safer 

(97)   DG  MOVE  TENTec  (statistics  reflect  the  official  maps 
contained in Annex I of Regulation (EU) No 1315/2013). 

innovation  centres,  as  well  as  the  Centres  for 
Competence and Centres of Excellence, will serve 
as  a  link  between  science  and  business  and 
local/national  authorities (94).  Participation  of 
Bulgarian  scientists  and  innovation  entrepreneurs 
in  European  programmes,  as  well  as  synergies 
between national and operational programmes and 
other  Commission  programmes  such  as  Horizon 
2020, are limited.  

Digitalisation 

in 

the  European 
Bulgaria’s  performance 
Commission’s  Digital  Economy  and  Society 
Index  (2019)  is  very  low.  Bulgaria  scores  well 
below  the  average  in  the  human  capital  category, 
with  the  overall  level  of  digital  skills  in  the 
population being among the lowest in the EU (see 
Section  4.3.3).  Bulgarian  companies  also  struggle 
to take  full advantage of  the  opportunities offered 
by new digital technologies: only 6% of SMEs sell 
online (EU average 17%), 3% of SMEs sell cross-
border  and  only  2%  of  their  turnover  comes  from 
the  online  segment.  Bulgaria  performs  relatively 
well  in  the  connectivity  dimension,  especially 
regarding  the  wide  availability  of  ultrafast  and 
mobile broadband networks.  

The  authorities  have  taken  some  steps  to  drive 
forward  the  country’s  digital  transformation. 
Bulgaria  has  a  national  programme  ‘Digital 
Bulgaria  2025’(95)  dealing  with  national  ICT 
related  problems  in  the  economic  and  social 
sectors.  Another  high  level  policy  document  is 
under  development  to  cover  all  aspects  of  digital 
transformation  of  Bulgaria,  including  the  digital 
transformation  of  the  economy.  The  Bulgarian 
SME promotional agency  will  manage a  cohesion 
policy  project 
to  set  up  a  voucher  scheme 
benefiting  up  to  450  SMEs  that  are  willing  to 
acquire  digital  infrastructure.  Bulgaria  also  has  a 
National Centre for Supercomputing Applications, 
whose its activities could be stepped up to benefit 
SMEs.  Finally,  the  5 G (96)  strategy  will  soon  be 
incorporated  in  the  National  Broadband  Plan. 
Bulgaria  would  benefit  from  making  sure  that  all 

(94)  14  Centres  of  Excellence 

(CoE)  and  Centres  of 
Competence (CoC) financed by OP ‘Science and Education 
for Smart Growth’ 2014-2020. 

(95) https://www.mtitc.government.bg/bg/category/85  
(96)   5G  is the 5th  generation  mobile  network  that  will  deliver 
multi-Gbps peak rates, ultra-low latency, massive capacity, 
and more uniform user experience. . 

52 

                                                           
                                                           
4.4. Competitiveness, reforms and investment 

treatment, 

indicators. Indicators on exposure to air pollution, 
wastewater 
resource  productivity, 
circular use of materials and waste recycling under 
the  SDG  11  ‘Sustainable  cities  and  communities’ 
and  SDG  12  ‘Responsible  consumption  and 
production’  have  been  improving.  However,  this 
should be analysed in the context of Bulgaria’s low 
starting  levels compared to EU averages. In  some 
of the areas Bulgaria is still to reach the objectives 
of the EU environmental and climate law.  

Bulgaria  was  among  the  worst  performing 
Member  States  in  the  2018  Eco-innovation 
index (101).  The  main  challenges  include  boosting 
domestic  and  foreign  investment  opportunities  in 
eco-innovation 
economy, 
the 
and 
through 
promoting  efficient  use  of  resources 
increasing  energy  efficiency,  further  developing 
renewable 
improving 
sustainability practices within the transport sector.  

sources, 

circular 

energy 

and 

Bulgaria still lacks a circular economy strategy. 
The  circular  (secondary)  use  of  material 
is 
significantly  lower  than  the  EU  average (102). 
Bulgaria also has the EU’s lowest rate of resource 
productivity (103). 
municipal 
demonstration  projects,  projects  for  composting 
and  separate  collection  of  bio-waste  and  the  good 
practice  of  circular  use  of  material  in  some 
industrial sites should be pursued and developed.  

Ongoing 

Waste management continues to be a challenge. 
The  recycling  rate  of  municipal  waste  at  36%  in 
2018 (104)  is  considerably  lower  than  the  EU 
average  of  47%,  putting  Bulgaria  at  risk  of  not 
meeting  the  EU  recycling  target  (50%  by  2020). 
The  ‘pay-as-you-throw’  principle  will  only  be 
enforced  as  of  2022,  and  in  the  meantime,  the 
unfair  practice  of  not  calculating  waste  collection 
fees on the basis of waste generation will continue.  

There  are  large  investment  needs  in  the  water 
sector. To address the weaknesses in the planning 
and  management  of  water  supply  and  sanitation 
projects, Bulgaria has started a structural reform to 

(101) European Commission, Eco-innovation scoreboard. 
(102) European  Commission,  Circular  material  use  rate.  The 
circular  material  use  rate  measures,  in  percentages,  the 
share of material recovered and fed back into the economy 
in the overall material use. 

(103) Eurostat,  Resource  productivity  is  measured  as  GDP 

divided by domestic material consumption. 
(104) Eurostat, Recycling rate of municipal waste. 

systems  and  interfaces  with  other  modes  of 
transport.  The  transport  infrastructure  in  the  north 
of  the  country  remains  generally  underdeveloped 
and  road  infrastructure  development  to  improve 
connectivity  between  the  north  and  south  has  not 
addressed the existing regional imbalances.  

The  poor  road  safety  record  warrants  urgent 
implementation  of  more  effective  measures. 
There  were  96  deaths  per  million  inhabitants  in 
2017 (EU average 49). A very old vehicle fleet and 
an  underdeveloped  road  network  help  to  explain 
this.  While  the  quality  of  road  infrastructure  has 
been 
increasing  slightly,  following  significant 
investments  supported  by  ESIF,  the  quality  of 
roads  is  still  poor.  There  are  also  major  road 
tunnels  that  require  urgent  safety  improvements 
(98). Bulgaria is one of the beneficiaries of the EU 
Road Safety Exchange programme,  with twinning 
activities (99) focusing on infrastructure safety and 
effective  enforcement  of  traffic  rules.  A  road 
safety action under the Connecting Europe Facility 
should  help 
registered 
improve 
blackspots  on  the  Bulgarian  road  network  of  the 
Improving 
Orient/East-Med 
Bulgaria’s  track  record  on  road  accidents  would 
also advance its progress towards SDG 3 that calls 
for  halving  the  number  of  global  deaths  and 
injuries from road traffic accidents. 

Corridor (100). 

the  25 

to 

The share of renewable energy in transport has 
increased.  The  main  support  scheme  is  a  quota 
system obliging companies importing or producing 
petrol  or  diesel  to  ensure  that  biofuels  make  up  a 
defined  percentage  of  their  annual  fuel  sales. 
Furthermore,  biofuels  are  supported  through  a 
fiscal  regulation  mechanism.  The  number  of 
electric  charging  points  has  been  increasing  since 
2016, in line with the increase in the market share 
of  electric  vehicles  in  2018.  Despite  this,  the 
penetration  rate  of  alternative-fuelled  passenger 
cars is still low.  

Environment and climate 

Bulgaria has been making progress in reaching 
environment  and  climate  related  targets  in 
some  of  the  Sustainable  Development  Goals 

(98)  Letter of Formal Notice sent in October 2019. 
(99)  Partners: Austria and the Netherlands. 
(100) The  Orient/East-Med  Corridor  connects  large  parts  of 
Central  Europe  with  ports  of  the  North, Baltic, Black and 
Mediterranean Seas. 

53 

                                                           
                                                           
infrastructure 

consolidate the sector. Nearly €1.2 billion from the 
ESIF  have  been  allocated  to  put  in  place  the 
necessary 
and 
treatment  of  urban  wastewater  and  to  increase 
compliance  with  water  and  urban  wastewater 
directives. So far, little progress has been observed 
on the ground. 

collection 

for 

Air  quality  in  Bulgaria  continues  to  give  cause 
for  severe  concern.  Bulgaria  bears  a  significant 
health  burden  due  to  poor  air  quality,  with  the 
highest  rate  of  years  of  life  loss  per  100,000 
inhabitants,  attributable  to  fine  particulate  matter 
(PM2.5)  concentrations  that  are  the  highest  in  the 
EU  (EEA,  2019a).  The  main  causes  of  pollution 
with  particular  matter  (dust)  are  the  domestic 
heating sector using solid fuels and transport. The 
lignite-fired  power  plants  are 
the  cause  of 
excessive  sulphur  dioxide  pollution.  Bulgaria  has 
launched pilot projects with EU funding to address 
air quality issues due to the residential heating and 
transport sectors but it is too early to assess results.  

the 

sites, 

together  with 

ineffective  management 

Major  threats  to  nature  and  biodiversity 
remain.  The  causes  are  the  poor  enforcement  of 
laws  and  environmental 
nature  conservation 
regulations 
absence  of 
conservation  objectives  and  measures  for  Natura 
and 
2000 
administration  of  protected  sites,  and  insufficient 
financing  or  inefficient  spending  of  the  available 
financing.  These  factors  continue  to  be  major 
threats  to  unique  nature  and  biodiversity  and 
present an untapped potential for economic growth 
based on the development of sustainable and niche 
tourism  and  the  recreational  sector.  Measures  to 
reduce  the  number  of  people  affected  by  natural 
disasters  and  to  decrease  the  associated  direct 
economic  losses  are  inadequate.  According  to 
estimates  (EEA,  2019b),  Bulgaria  has  suffered 
€2.5  billion  of  damage  from  extreme  weather 
incidents between 1980 and 2017, with 205 deaths.  

In  terms  of  climate  change-related  economic 
risks, Bulgaria is among the EU countries most 
vulnerable  to  climate  impacts.  This  includes 
temperature  increase,  soil  drought,  and  extreme 
rainfall,  which  are  worsened  by  the  high  poverty 
rates  and  relatively  poor  adaptation  measures 

4.4. Competitiveness, reforms and investment 

(105)(106).  In  1980-2017,  economic  losses  incurred 
due to the impact of extreme weather and climate-
related  events  amounted  to  €2.4  billion  (EEA, 
2019b).  The  sectors  most  threatened  by  climate 
impacts are agriculture, tourism and water supply. 

is 

to 

climate 

impacts 

Bulgaria’s  current  level  of  preparedness  for 
low. 
responding 
Consequently,  80%  of  the  forests  destroyed  by 
forest  fires  in  the  past  5  years  have  not  yet  been 
restored (107).  Nature-based  solutions  are  a  cost-
effective  means  of  tackling  climate  change  and 
supporting  climate  adaptation  strategies.  In  2013-
2016,  around  €13.2  million  were  allocated  for 
afforestation,  also  leading  to  significant  emission 
savings.  Finally,  the  adoption  of  the  national 
climate change adaptation strategy and action plan 
until 2030 was a welcome development.  

4.4.3.  FUNCTIONING OF THE MARKETS 

Energy 

Bulgaria  has  achieved  important  milestones  in 
the  energy  sector  over  the  past  2  years.  This 
reform  momentum  needs  to  continue  to  ensure  a 
competitive  and  sustainable  supply  of  energy  to 
businesses  and  society  as  a  whole.  Bulgarian 
power  futures  contracts  started  trading  on  the 
European  Energy  Exchange 
in  June  2019, 
providing  potential  support  to  energy  traders  and 
much-needed liquidity. The Independent Bulgarian 
Energy  Exchange  (IBEX)  joined  the  European 
Single Intraday Coupling in November 2019 and is 
now a part of a platform for continuous trading of 
intraday 
covering  21  European 
countries.  This  would  allow  IBEX  to  pull  more 
liquidity  on 
intraday  segment.  However, 
lingering  problems  with  the  liquidity  of  the  day-
ahead  market  and  contracts  on  the  forward  curve 
have created tensions and prompted allegations of 
market manipulations on the centralised market for 
bilateral contracts. This was especially pronounced 
in periods during the summer of 2019, when prices 

electricity 

the 

(105)https://unfccc.int/files/national_reports/annex_i_natcom/sub
mitted_natcom/application/pdf/0917254_bulgaria-nc7-br3-
1-vii_nc_bulgaria_2018.pdf. 

(106)https://ec.europa.eu/jrc/sites/jrcsh/files/jrc_091125_newsrel

ease_peseta_en.pdf. 

(107)https://unfccc.int/files/national_reports/annex_i_natcom/sub
mitted_natcom/application/pdf/0917254_bulgaria-nc7-br3-
1-vii_nc_bulgaria_2018.pdf. 

54 

                                                           
4.4. Competitiveness, reforms and investment 

spiked  above  many  European  references.  The 
IBEX  still  lacks  an  operational  clearing  house  to 
act  as  a  central  counterparty  to  transactions,  to 
reduce risk and improve the credibility of its price 
discovery mechanism. 

trade  with  market 

The  Energy  Act  was  amended  to  remove  fees 
levied on electricity exports. This lifted obstacles 
to 
from 
neighbouring systems. Bulgaria is also working on 
market  coupling  projects  with  North  Macedonia, 
Croatia  and  Serbia.  Progress  on  market  coupling 
with Romania and Greece has stalled. 

participants 

Bulgaria is planning to introduce market-based 
elements  in  the  formation  of  retail  prices  for 
electricity  by  July  2020.  In  the  meantime,  retail 
markets remain regulated and linked on a cost-plus 
basis  to  a  non-market  segment  of  wholesale 
supply. Consumers’ access to competitive offers is 
limited  and  the  perceived  quality  of  service 
received  is  deemed  to  be  poor  and  among  the 
lowest  recorded  in  the  EU  for  those  markets.  The 
draft  National  Energy  and  Climate  Plan  sets  the 
the  Bulgarian  social  assistance 
principle 
system  will  ensure  adequate  protection  of 
vulnerable consumers against energy poverty but it 
does  not  spell  out  concrete  measures,  beyond  a 
targeted heating allowance. SDG 7 on ‘Affordable 
and clean energy’ notes a decrease in the share of 
population  unable  to keep  home  adequately  warm 
but it is still significantly above the EU average.  

that 

in  October  2019  to 

Important amendments to the Energy Act were 
adopted 
improve  the 
functioning  of  the  gas  market.  This  includes 
rules  on  gas  balancing  and  the  setting  up  of  an 
organised  trading  point,  as  well  as  rules  on  a  gas 
release  programme  for  the  public  supplier.  The 
rules  will  allow  for  gradual  transition  from  a 
regulated  to  an  organised  natural  gas  market  at 
freely  negotiated  prices.  In  January  2019,  the 
Bulgarian  gas 
transmission  system  operator, 
registered  a  subsidiary  called  Balkan  Gas  Hub 
ЕAD that is set to run the gas exchange, including 
a segment for bilateral trade. Trading has started in 
January  2020.  So  far  it  remains  unclear  what 
measures 
the 
operational  independence  of  the  subsidiary  and 
how the prevention of potential conflict of interest 
with  other  companies  in  the  Bulgarian  Energy 
Holding would work in practice. 

envisaged 

safeguard 

are 

to 

of 

the 

the 

final 

effect 

Bulgaria  advanced  with  its  plan  to  modernise 
and  reinforce  its  high-pressure  gas  network. 
However, 
grid 
reinforcements on the financial situation of the gas 
transmission  system  operator,  and  on  the  retail 
prices, remains unclear at this stage. In September 
2019,  the  Bulgarian  gas  transmission  system 
operator  signed  a  €1.1  billion  contract  with  a 
consortium led by Saudi Arkad Engineering for the 
construction  of  a  gas  pipeline  which  will  connect 
the  country’s  existing  gas  transmission  system 
with  Serbia  and  carry  gas  from  TurkStream (108). 
In  October  2019,  the  Bulgarian  gas  transmission 
system  operator  also 
inaugurated  a  metering 
station  and  an  11  km  pipeline  from  the  Turkish 
border to the compressor station Strandzha. 

Construction  work  on  the  gas  interconnector 
between  Greece  and  Bulgaria  has  started  in 
May  2019.  This  project  is  important  in  terms  of 
enhancing  security  of  supply  and  ensuring  the 
diversification of gas supplies. It benefited from a 
€45  million  grant  from  the  European  Energy 
Programme  for  Recovery  and  a  €39  million 
European  Regional 
allocation 
Development  Fund.  The  project 
company 
advanced with the certification process to establish 
an  independent  gas  transmission  operator,  after 
national  regulators  from  Greece  and  Bulgaria 
approved the draft network and tariff codes.  

from 

the 

Investor  protection,  regulatory  certainty  and 
foreign 
treatment  of  domestic  and 
equal 
investors  are 
shaping 
factors 
important 
investment  decisions.  Potential  investors  in  the 
sector  are  closely  observing  developments  in  the 
negotiation  of  the  compensation  mechanisms  for 
the interruption of the power purchase agreements 
held by two operators of thermal power plants. The 
effort of an international power company to divest 
from  its  portfolio  of  power  assets  in  Bulgaria  is 
also  on  the  investors’  watch  list.  The  way  these 
situations unfold will point to the intentions of the 
Bulgarian  authorities  in  terms  of  keeping  an 
investor-friendly environment.  

The  motor  fuel  market  and  its  functioning 
remain  problematic.  Following  the  adoption  of 

(108) Gas  pipeline  stretching  from  Russia  to Turkey  across  the 
Black  Sea.  The  first  string  of the  pipeline  is intended  for 
Turkish consumers, while the second string will deliver gas 
to southern and south-eastern Europe. 

55 

                                                           
4.4. Competitiveness, reforms and investment 

notifications of national technical regulations (110), 
creating  risks  for  barriers  to  trade  and  to  the 
overall functioning of the Single Market. 

to 

compete.  Bulgaria’s 

Insufficient  resources  still  pose  a  challenge  to 
different market surveillance authorities. While 
there  is  some  cooperation  between  them,  there  is 
little  overall  coordination.  Market  surveillance  of 
the  single  market  for  goods  is  essential  to  protect 
consumers  and  to  ensure  a  level  playing  field  for 
businesses 
limited 
resources for market surveillance of product safety 
and  compliance  continue  to  affect  its  capacity  to 
carry  out  effective  surveillance,  including  product 
testing across a broad range of product sectors and 
sharing  results  of  investigations  with  other  EU 
Member  States.  In  addition,  cooperation  between 
authorities, both at a national level, including with 
customs  authorities,  and  with  the  EU  partners, 
through  active  participation  in  joint  activities,  is 
not  yet  optimal.  This  affects  the  effective  sharing 
of 
the  European  market 
information 
surveillance database. 

through 

4.4.4.   

INSTITUTIONAL QUALITY AND 

GOVERNANCE  

to  major  challenges 

Shortcomings  in  the  functioning  of  institutions 
are  a  significant  obstacle  to  the  economic  and 
social  potential  of  the  country.  International 
indices  still  point 
in 
governance.  Bulgaria  ranks  low  in  the  World 
Bank’s Worldwide Governance Indicators and the 
European  Quality  of  Government  Index.  While 
some  progress  in  political  stability  has  been 
achieved,  Bulgaria  did  not  improve  its  standing 
concerning  the  rule  of  law  and  the  control  of 
corruption  and  still  ranks  among  the  worst  in  the 
EU.  In  addition,  institutions  remain  among  the 
least 
the  Global 
areas 
Regional 
Competitiveness 
development  is  also  negatively  affected  by  the 
quality  of  the  institutional  framework.  According 
the  2017  European  Quality  of  Governance  Index 
(111),  Bulgarian  regions  are  among  the  lowest 

in 
2019. 

performing 

Index 

(110) Member States are obliged to notify the Commission about 
all draft technical regulations on products and information 
society services before they are adopted in national law to 
ensure that these texts are compatible with EU law and the 
single market principles. 

(111) This  index  evaluates  the  quality  of  government  through 
three  dimensions:  quality  of  services,  impartiality  in 

an  Act  on 
the  administrative  regulation  of 
economic  activities  related  to  oil  and  petroleum 
products in 2018, the reform process faced hurdles. 
In  February  2019,  Parliament  amended  the  Act, 
adding  rules  related  to  registration  and  special 
requirements for certain types of motor fuel selling 
points, with the intention to eliminate unauthorised 
and  undeclared  transactions.  In  January  2020,  the 
Parliament  amended  the  Act  again,  scaling  down 
on  the  requirements  introduced  less  than  a  year 
ago,  this  time  with  the  intention  to  solve  the 
problems faced by SMEs in the motor fuel market 
and  ensuring  a  healthy  competitive  environment. 
The entry into force of an implementing act setting 
requirements on cash registers at motor fuel selling 
points (109)  has  been  postponed  on  several 
occasions.  In  the  meantime,  the  major  challenges 
facing  the  sector  —  such  as  issues  related  to  low 
fuel quality, access to tax warehouses, unregulated 
trades  at  selling  points  not  connected  to  the 
the  National 
National  Customs  Agency  and 
Revenue Agency, VAT evasion, and enforcing fair 
competition — remain unchanged. 

Single market for goods and services  

Bulgaria is well integrated in the Single Market. 
Around  63%  of  the  exported  goods  go  to  EU 
Member States and approximately 61% of imports 
comes from the EU. This integration has deepened 
in recent years, driven by stronger participation of 
Bulgaria  in  European  value  chains,  especially  in 
the automotive sector. Intra-EU export of services 
is even higher, reaching 65% of the total exports in 
2018, with the largest share in travel and transport 
services (almost 70%).  

Despite  its  relatively  good  performance  in  the 
Single  Market,  some  challenges  still  prevent 
Bulgaria  from  unlocking 
its  full  potential. 
Bulgaria  significantly  decreased  its  transposition 
deficit  for  Single  Market  legislation,  reaching  the 
EU  average,  but  the  relatively  long  transposition 
delays  and  incorrect  transposition  of  a  number  of 
directives  suggest 
insufficient 
administrative capacity in some areas. The sectors 
with  the  highest  numbers  of  complaints  and 
infringements  are 
justice,  environment  and 
taxation.  In  addition,  over  the  past  few  years 
Bulgaria  has  had  an  abnormally  low  level  of 

there 

that 

is 

(109) Ordinance H-18. 

56 

                                                           
                                                           
4.4. Competitiveness, reforms and investment 

scoring  NUTS2  regions  in  the  EU,  with  the 
Northwest,  Southeast  and  the  capital  region  of 
Southwest ranking respectively at 200th, 199th and 
195th place out of the 202 represented regions.  

in 

improvements 

Tangible 
public 
administration  and  e-government  are  still 
limited  and  broadly  dependent  on  EU  support. 
Although  achieving  key  2018  milestones  of  the 
Operational  Programme  Good  Governance, 
continuous delays and the lack of capacity in some 
of  the  beneficiaries  of  key  ESF  projects  call  into 
question the successful implementation of reforms. 
Important  projects  like  the  establishment  of  the 
National  Health 
the 
introduction of the national e-identity scheme and 
new  identity  documents  that  provide  electronic 
identification  are  significantly  delayed  and  have 
shown  very  little  progress  during  the  past  year. 
The  lack  of  a  comprehensive  evaluation  of  the 
achievements of previous operations, especially for 
the  same  activities  provided 
the  same 
beneficiaries,  hinders  the  performance  of  ESF 
measures.  

Information  System, 

to 

important 

Despite  significant  investment,  Bulgaria  is  still 
lagging behind in e-government. The creation of 
the  State  e-Government  Agency  was  a  positive 
step  forward.  The  updated  e-government  strategy 
and the action plan for 2019-2023 tackle a number 
of 
issues.  However,  some  major 
problems  have  not  been  fully  addressed,  such  as 
cybersecurity and security of critical infrastructure. 
There  is  some  progress  with  the  provision  of  e-
services,  in  particular  to  businesses.  At  the  same 
time,  many  of  the  e-services  remain  limited  to 
delivery  of 
information.  The  number  of  e-
government  users  has  also  increased  since  2018. 
Despite  some  recent  improvements,  the  outdated 
legislation  for  the  provision  of  specific  services 
remains  an  obstacle  to  the  widespread  use  of  e-
the 
services.  A 
sustainability  of  the  e-government  development  is 
the  difficulty  of  the  public  sector  to  attract  and 
retain  IT  specialists.  Some  recently  adopted 
legislative  changes  are  trying  to  address  the 
remuneration  and  flexibility  of  IT  specialists 
working in the public sector.  

constraint  on 

significant 

is 

services 

Provision  of  public 
slightly 
improving, but quality varies widely. Bulgaria is 
among  the  poorest  performing  Member  States 
concerning  quality  and  user  friendliness  of  public 
services.  In  2019,  standardisation  of  the  most 
widely  used  municipal  services  was  launched.  In 
addition,  50  pilot  administrations 
introduced 
integrated  administrative  services.  The  registry 
information  exchange  system  was  upgraded, 
linking  65  base  registers  maintained  by  25 
administrations 
the  central  system.  The 
implementation of a set of around 1,500 measures 
to improve administrative services is ongoing, and 
legislative  amendments  facilitating  the  process 
were 
in 
administrations  varies  largely.  The  introduced 
checks  with 
service  delivery  performance 
recommendations  are  a  positive  step  in  policy 
monitoring and control.  

However, 

prepared. 

progress 

to 

Bulgaria  underperforms  in  policy  planning, 
development  and  coordination.  Despite  some 
improvements, 
policymaking 
evidence-based 
continues  to  suffer  from  limited  administrative 
capacity  and  insufficient  data  availability.  The 
number  of  completed  full  impact  assessments 
increased  to  14  in  2018,  but  deficiencies  in  their 
preparation persist. In 2019, new guidelines for ex 
ante  impact  assessment  were  adopted.  Public 
consultations  improved,  also  with  the  elaboration 
of  new  standards  in  2019.  However,  frequent 
changes 
its 
implementation  continue  to  be  challenges  and 
major  obstacles 
investment.  The  public 
procurement  law  alone  was  amended  11  times  in 
2018 (Council of Ministers, 2019) (112).  

legislation  and  control  over 

to 

to 

the  public 
important  reforms 

sector  has 
Transparency  of 
improved,  but 
the 
in 
recruitment  process  have  stalled.  A  new  portal 
for access to public information was launched and 
the  existing  open  data  portal  was  upgraded,  also 
with  new  datasets  that  have  been  provided  in 
machine-readable  formats.  On  the  other  hand,  the 
introduction  of  a  centrally  managed  competition 
staff  was 
process 
unexpectedly  abolished  in  December  2019.  This 
backtracking on the public sector reform also puts 
in  question  the  sustainability  of  EU  funding 
investments in the field.  

recruitment  of 

the 

for 

treatment and perceptions and experiences with corruption. 
Lower  scores  suggest  unfavourable  framework  conditions 
for  entrepreneurship, 
job  creation  and  attraction  of 
investments. 

(112) Council  of  Ministers  Administration  (2019),  Impact 

Assessment Annual Report 2018. 

57 

                                                                                   
                                                           
4.4. Competitiveness, reforms and investment 

procedures  for  framework  agreements.  There  has 
not  been  any  significant  progress  in  the  use  of 
aggregated purchases at local level.  

Fight against corruption  

shows 

to 
survey 

in  Bulgaria  and  74%  say 

Corruption remains an area of serious concern 
and  has  a  negative  impact  on  investment. 
Various  surveys  and  studies  by 
independent 
this.  A  2019  business 
observers  point 
Eurobarometer 
that  51%  of 
businesses  consider  corruption  to  be  a  serious 
problem,  and  57%  consider  patronage  and 
nepotism  as  major  obstacles  to  doing  business. 
Overall, 85% of businesses think that corruption is 
widespread 
is 
widespread  in  public  procurement.  70%  of  the 
respondents  find  it  unlikely  that  those  engaged  in 
corruption  will  face  charges  and  go  to  court,  and 
77%  do  not  believe  that  they  would  be  fined  or 
imprisoned  (worst  in  the  EU).  Bulgaria’s  position 
on  the  control  of  corruption  index  of  the  World 
Governance Indicators has stagnated over the past 
three editions and remains among the worst in the 
EU(World  Bank,  2019).  However,  SDG  16  on 
‘Peace,  Justice  and  strong  institutions’  records 
some improvements in corruption perceptions.  

it 

Consolidation  of  the  legal  and  institutional 
framework has taken place in recent years. This 
was  noted  in  the  Commission’s  2019  report  on 
Bulgaria’s  progress  under  the  Cooperation  and 
Verification  Mechanism (113).  Reforms  will  take 
some time to have an impact and Bulgaria is still to 
see  a  solid  track  record  of  concrete  results  in  the 
investigation  and  prosecution  of  high-level 
corruption.  The  report  emphasized  the  need  to 
continue improving the anti-corruption framework, 
and 
the 
implementation of the anti-corruption strategy and 
the  definition  of  future  priorities.  More  generally, 
it  was  noted  that  anti-corruption  institutions  need 
to  build  public  trust  and  gain  a  reputation  for 
independence 
professionalism.  Recent 
allegations  involving  high-ranking  public  officials 
and politicians have further highlighted challenges 
in this area (114).  

engaging  with 

stakeholders 

and 

on 

Public procurement 

Regulatory  changes  have  not  yet  brought 
tangible  results  to  the  public  procurement 
landscape.  A  majority  of  measures  announced  in 
the  national  procurement  strategy  have  been 
adopted,  but 
implementation 
their  effective 
remains  problematic.  In  2017-2019,  the  World 
Bank  carried  out  an  independent  review  of  the 
public  procurement  system  which  will  feed  into  a 
new  national  public  procurement  strategy  for 
2021-2027.  The 
review  had  a  number  of 
recommendations  for  increasing  the  operational 
capacity  of  Public  Procurement  Agency  and 
strengthening 
the  public 
the  efficiency  of 
procurement system. There are considerable delays 
in the full uptake of electronic procurement. The e-
procurement  platform  was  launched  in  March 
2019, but its use remained limited until the end of 
the year.  

There is room for developing the proactive role 
of  public  procurement  policymakers  and 
expertise  of  public  procurement  specialists. 
Coordination  of  all  actors  involved  in  preparing 
regulatory  measures  as  well  as  policy  orientation 
for  public  contracts  and  concessions  needs  to 
become  effective.  Sharing  data,  promoting  best 
practices,  and  deterring  wrongdoing  in  public 
procurement  should  also  be  strengthened.  A 
training  programme  on  public  procurement  was 
developed by the Institute of Public Administration 
with  a  number  of  training  sessions  taking  place. 
Projects  aiming  at  boosting  professionalisation  in 
the  field  of  concessions,  co-financed  by  the  EU, 
are also being implemented. 

for 

introduced 

to  bring  results.  Since 

limiting  abusive 
Measures 
complaints  in  the  public  procurement  system 
have  started 
the 
amendments  to  rules  on  the  review  procedure  in 
2018, the review body has experienced a decrease 
in  the  number  of  abusive  complaints  despite 
increases in the number of complaints. Mandatory 
electronic  communication  within 
review 
procedure would further improve the effectiveness 
of the process. 

the 

Development  of  aggregated  purchases  has 
progressed. The number of contracting authorities 
using the central purchasing body is growing. The 
central  purchasing  body  for  the  health  sector  has 
launch  public  procurement 
finally  started 

to 

(113) Adopted on 22 October 2019. 
(114) In  2019,  the  head  of  the  anti-corruption  agency  had  to 
resign  amidst  public  allegations  of  irregularities  in  his 
declaration  of  personal  property  and 
interests.  This 
followed  the  resignations  of  the  Minister  of  Justice  and 

58 

                                                           
4.4. Competitiveness, reforms and investment 

efficiency  of  the  justice  system.  While  courts 
appear  to  perform  efficiently  in  general  terms,  no 
specific  data  are  available  for  litigious  civil  and 
commercial  cases  at  first  and  second  instance 
courts (2020 EU Justice Scoreboard).  

Justice system 

noted 

improving 

the  Commission 

further  commitments 

Bulgaria  has  made  further  progress  in  its 
reform  efforts  aimed  at 
the 
effectiveness  of  its  justice  system.  In  its  2019 
Cooperation and Verification Mechanism progress 
positive 
report, 
developments  and 
for 
continued  reform.  In  particular,  a  significant 
number  of  appointments  of  court  chairs  went 
through  without  creating  controversy.  A  project 
supported  by  EU  funds  is  ongoing  to  strengthen 
the capacity of the Judicial Inspectorate as regards 
disciplinary  proceedings.  In  addition,  a  new 
coordination  council  with  monitoring  functions  is 
going  to  be  established  and  measures  have  been 
taken  to  rebalance  the  workload  between  courts 
and  to  streamline  local  offices  of  the  prosecution 
service.  A  number  of  key  challenges  remain: 
effectiveness of criminal investigations, low public 
trust  in  anti-corruption  institutions,  and,  despite 
and 
some 
accessibility  of 
through 
electronic tools.  

justice  system 

improvements, 

efficiency 

the 

the 

to 

continues 
low 

Perceptions  among  the  public  and  businesses 
about  the  judicial  independence  continued  to 
improve. Bulgaria continued to improve compared 
to  the  previous  year,  although  the  perception  of 
at 
independence 
comparatively 
in 
particular  concerns  that  judges  are  perceived  to 
face  interference  in  their  work  or  pressure  from 
economic  interests  as  well  as  the  government  and 
politicians (2020 EU Justice Scoreboard). Positive 
developments in judicial independence perceptions 
are  also  captured  by  SDG  16  on  ‘Peace,  Justice 
and strong institutions’. 

remain 
reflects 

levels.  This 

In terms of the quality of the justice system, the 
results  are  mixed.  The  2020  EU  Justice 
Scoreboard  shows  that  there  are  some  positive 
developments,  such  as  further  improvements  in 
online  accessibility  of  published  judgments,  as 
well  as  promotion  and 
incentives  for  using 
alternative  dispute  resolution  methods.  However, 
the  continued  lack  of  a  reliable  evaluation  system 
is hindering the improvement of the justice system. 
for  a 
Persisting  data  gaps  do  not  allow 
overall 
the 
comprehensive 

assessment 

of 

several  other  high-ranking  officials  in  the  context  of 
allegations  focusing  on  the  acquisition  of  real  estate  at 
below market prices. 

59 

                                                                                   
4.5.  ENVIRONMENTAL SUSTAINABILITY 

relevance 

This  section  analyses  the  main  environmental 
challenges  of  macro-economic 
in 
Bulgaria,  looking  closely  at  synergies  and  trade-
offs  between  environmental,  social  and  economic 
objectives.  Other  environmental  sustainability 
issues  linked  to  the  circular  economy,  waste  and 
water  management  and  threats  to  nature  and 
biodiversity are discussed in Section 4.4.2.  

The  high  carbon  and  energy 
intensity  of 
Bulgaria’s economy and its high dependence on 
coal power call for significant transition efforts, 
in  view  of  the  EU’s  emission  reduction  targets. 
Bulgaria  has one of the  most energy- and carbon-
intensive  economies  in  the  EU  (see  Graph  4.5.1). 
In  2017,  Bulgaria  needed  3.8  times  more  energy 
and had 4.4 times more carbon emissions per unit 
of  GDP  than  the  EU  average.  About  48%  of 
electricity  is  produced  by  coal-fired  power  plants 
using  predominantly  lignite  coal (draft  NECP, 
2019)115.  Solid  fossil  fuels  also  play  a  significant 
role  in  household  energy  consumption:  Bulgaria 
being  among  the  Member  States  with  the  highest 
share  of  solid  fossil  fuels 
in  final  energy 
consumption for households in 2017 (116).  

for 

challenges 

The current overreliance on fossil fuels and the 
inefficient use of energy are creating a number 
sustainability.  These 
of 
inefficiencies  are  weighing  on  competitiveness  by 
limiting  business  opportunities  arising 
from 
relatively  low  retail  energy  prices.  Despite  recent 
progress  in  decoupling  GDP  growth  from  energy 
consumption  and  greenhouse  gas  emissions, 
Bulgaria  has  difficulties  in  catching  up  with  the 
EU  and  is  actually  moving  further  away  from  the 
EU  averages.  According  to  the  latest  national 
projections,  Bulgaria  is  expected  to  achieve  its 
2020  emission  target  for  sectors  outside  the  EU 
Emissions  Trading  System.  However,  the  2030 
target (emissions at levels no higher than in 2005) 
could  be  missed  if  no  additional  measures  are 
taken.  Finally,  Bulgaria  remains  among 
the 
Member  States  with  the  most  pollution-related 
deaths, number of years of life lost associated with 
air  pollution,  and  urban  population  exposure  to 
micro-particles. The main causes of pollution with 

115 The Commission will assess, in the course of 2020, the final 
National  Energy  and  Climate  Plan.  Bulgaria  has  not  yet 
submitted its final Plan, 

(116)  https://ec.europa.eu/eurostat/statistics-

explained/index.php?title=File:Fuels_in_the_final_energy_
consumption_in_the_households_2017.png. 

particular  matter  (dust)  are  the  domestic  heating 
sector using solid fuels, transport and lignite-fired 
power plants (see Section 4.4.2.). 

Graph 4.5.1:  Greenhouse gas intensity (1) 

(1) This indicator represents Member States' emissions relative 
to Gross Domestic Product. A lower value indicates that a 
particular economy is less carbon intensive. 
Source: European Environment Agency 

have 

pressures 

Economic costs of emissions are expected to rise 
and affect Bulgaria’s competitiveness, as global 
and  EU-wide  efforts  to  tackle  climate  change 
intensify.  Economic 
been 
increasing  in  the  energy  sector  due  to  higher 
carbon  prices,  particularly  in  power  generation 
from solid fossil fuels. With an average age of 30-
50  years  and  efficiency  of  around  34%,  the 
majority of Bulgaria’s coal power plants could be 
decommissioned  by  2030,  driven  by  post-2020 
greenhouse  gas  emission  requirements  and  targets 
(JRC,  2018).  According 
to  projections,  even 
without  active  decarbonisation  measures,  coal 
capacities will be phased out almost completely by 
2050 (117).  

Bulgaria is on track to achieve its 2020 emission 
target  for  sectors  outside  the  EU  Emissions 
Trading  System.  However,  2017  is  the  first  year 
in  which  reported  emissions  exceeded  Bulgaria’s 
Effort  Sharing  target.  The  gap  to  target  was  close 
to  3pps  (EEA,  2019c).  Provisional  inventories 
indicate that the 2018 target has also not been met, 
with  the  gap  estimated  to  be  in  the  same  range. 

(117) In-depth  analysis 

in 

support  of 

the  Commission 
Communication COM(2018) 773 ‘A Clean Planet for all A 
European  long-term  strategic  vision  for  a  prosperous, 
modern,  competitive  and  climate  neutral  economy’: 
https://ec.europa.eu/clima/sites/clima/files/docs/pages/com
_2018_733_analysis_in_support_en_0.pdf. 

60 

05001000150020002500300035004000EU28BGEEPLCZROLTHUHRSKELCYLVSIPTDEESBENLFIITMTATLUUKIEFRDKSEt CO2eq /Million EUR 2010 prices199020052017 
                                                           
  
                                                           
4.5. Environmental sustainability 

the 

coal 

is  still  working  to  fulfil  those  for  2030,  which 
would  create  new  economic  and  employment 
opportunities in the renewables sector, some in the 
transition. 
affected  by 
regions  most 
Additionally, 
require 
significant  recultivation  and  restoration  efforts  in 
the  lands  and  degraded  areas  affected  by  mining 
transformation  would  also 
operations.  This 
contribute to decreasing pollution levels, which in 
turn  would  reduce  associated  health  risks  (see 
section 4.4.2 and Box 4.5.1).  

transition  would 

Bulgaria  has  a  huge  energy  saving  and  carbon 
reducing  potential.  This  can  be  unlocked  by 
targeted  measures  in  industrial,  transportation  and 
residential  sectors,  as  well  as  by  putting  in  place 
appropriate  mechanisms  in  line  with  the  EU’s 
‘Smart Finance for Smart Buildings Initiative’, and 
by  facilitating  access  to  mechanisms  that  are 
already  in  place  at  European,  national  or  regional 
levels. Proper access to financing mechanisms can 
support  the  renovation  of  the  national  stock  of 
residential 
buildings. 
Investments  in  R&D  of  low-carbon  technologies 
are  rather  low  but  increasing.  They  are  driven 
primarily  by  the  private  sector.  A  key  role  in  the 
development  and  deployment  of 
low-carbon 
technologies  will  be  played  by  the  ‘Innovation 
Strategy  for  Smart  Specialisation  2021-2027’, 
which is currently being updated.  

non-residential 

and 

Internalising  external  and  infrastructure  costs 
in  transport  through  taxes  and  charges  is 
important for social fairness. It would help offset 
the  costs  of  negative  externalities  in  the  sector 
(such  as  accidents,  congestion,  air  pollution, 
climate change, noise and habitat damage) that are 
estimated  to  reach  about  €7  billion  annually  for 
road,  rail  and  inland  waterways (118).  Road  users 
generate the overwhelming majority of such costs, 
also  because  of  the  high  share  of  road  transport 
activity compared to other modes. Currently, taxes 
and  charges  linked  to  transport  do  not  cover  the 
generated  costs:  total  revenue  from  all  transport 
land  modes  amounts  to  about  €4  billion.  In  road 
transport, taxes and charges cover 66% and 46% of 
the  total  external  and  infrastructure  costs  for 
passengers and freight, respectively. 

Looking  ahead  to  2030,  projections  suggest  that 
the target of keeping emissions no higher than their 
2005  level  will  be  missed  by  about  8pps  (EEA, 
2019c).  Therefore  it  is  important  to  ensure  that 
adequate additional measures are planned and fully 
implemented to bridge the gap to the 2030 targets 
and 
long-term 
decarbonisation ambitions.  

to  comply  with 

the  EU’s 

in  2018 

No  progress  has  been  made  towards  reaching 
the  2020  indicative  national  target  for  energy 
efficiency.  Based  on  preliminary  data,  Bulgaria’s 
increased 
final  energy  consumption 
slightly,  remaining  above  the  linear  trajectory  by 
11pps 
(EEA,  2019d).  Moreover,  Bulgaria’s 
primary  energy  consumption  in  2018  has  also 
stayed  above  the  linear  trajectory,  putting  at  risk 
the fulfilment of its obligation by 2020. There are 
outstanding  compliance  issues  with  the  legal 
requirements.  The  current 
framework 
provides  insufficient  incentives  for  the  obliged 
parties  to  invest  more  in  energy  savings.  On  the 
positive  side,  provisional  inventories  show  that  in 
2018  Bulgaria  has  already  surpassed  its  2020 
target  for  renewable  energy  shares  by  2.7  pps. 
However,  the  share  of  renewables  in  transport  at 
7.99%, remains below the 2020 target of 10%. 

legal 

of 

the 

process 

effective 

There  are  serious  social  challenges  associated 
with 
energy 
transformation,  such  as  job  losses  and  falling 
life  quality  standards.  A  significant  number  of 
workers will be negatively affected by the closure 
of  coal  power  plants  and  mines,  giving  rise  to 
serious  needs  for  requalification  and  the  creation 
of new jobs. The concentration of the vast majority 
of  coal  production  in  only  a  few  areas,  like  the 
Stara Zagora and Kyustendil provinces, is likely to 
lead  to  significant  socio-economic  and  territorial 
disparities.  Energy  and  job  alternatives  to  those 
directly employed in the coal industry are unlikely 
to be found in the same areas. This would require 
important 
the 
workforce,  as  well  as  sectoral  and  geographic 
mobility  support 
losses 
(European Commission, 2019b). There will also be 
a significant effect on indirect jobs (e.g. suppliers, 
caterers, service providers) and the families of the 
affected workforce (see Box 4.5.1).  

re-skilling  of 

reduce  net 

investments 

job 

in 

to 

Some  transformation  opportunities  lie  in  the 
environment  and  health  sectors.  Bulgaria  has 
already met its 2020 renewable energy targets but 

(118) https://ec.europa.eu/transport/themes/sustainable-

transport/internalisation-transport-external-costs_en. 

61 

                                                           
4.5. Environmental sustainability 

installations  have  applied 

and  many 
for  a 
derogation  from  the  rules  set  in  the  Industrial 
Emissions Directive. Moreover, Bulgaria has filed 
an application  for compliance  with  State aid rules 
for a planned recapitalisation of the Maritsa East 2 
Thermal Power Plant, and there are plans to set up 
a  capacity  mechanism  in  which  thermal  power 
plants can participate.  

To  support  the  security  of  supply  objectives  of 
the  Energy  Union,  Bulgaria  is  planning  to  rely 
on  the  use  of  indigenous  energy  resources.  The 
operational  licence  of  the  Unit  6  reactor  of  the 
Kozloduy Nuclear Power Plant was extended until 
2029,  following  a  recent  similar  extension  of  the 
licence  for  Unit  5  in  2017.  While  both  the 
continued  operation  of  the  Kozloduy  Nuclear 
Power Plant and the usage of lignite feedstock as a 
source  of  power  generation  in  the  next  60  years 
were  mentioned  explicitly  in  the  National  Energy 
and Climate Plan, the potential of other indigenous 
sources  such  as  renewable  energy  has  not  been 
sufficiently explored. 

The  effective  use  of  resources  has  a  strategic 
importance  for  the  decarbonisation  of  the 
economy. In the coming  years, the EU Emissions 
Trading  System  will  mobilise  substantial  funding 
for  climate  action  and  low-carbon  investment.  In 
the next decade, Bulgaria will receive close to 6% 
of  the  Modernisation  Fund  (about  €400  million, 
depending  on  the  carbon  price),  dedicated  to 
supporting energy efficiency and modernisation of 
energy  systems  in  lower  income  Member  States. 
Moreover, due to a higher carbon price, Bulgaria’s 
auction  revenues  from  the  EU  Emissions  Trading 
System  have  almost  tripled  in  2018  compared  to 
2017, amounting to €368 million. These increased 
resources  present  an  ongoing  opportunity 
to 
channel 
and 
for 
decarbonisation. The New Green Deal for Europe, 
with the Just Transition Fund, can also help speed 
up  the  improvement  of  carbon  footprint  and  the 
state of the environment in the region.  

sustainability 

support 

encompassing 

national/regional 
social, 

To  facilitate  a  just  transition  towards  a  low-
carbon  economy,  significant  investments  in  the 
fields  of  climate  and  energy  are  required. 
transition 
Comprehensive 
strategies 
economic, 
environmental  and  technological  considerations 
are  needed  to  ensure  an  efficient  phasing  out 
process  and  a  transformation  of  the  coal-based 
economy, especially in the most vulnerable regions 
(see  Box  4.5.1).  However,  up  until  now, 
transformation  measures  have  barely  started. 
Bulgaria  has  not  yet  finalised  its  energy  strategy 
beyond 2020 and a coal phase-out is currently not 
being  discussed.  In  fact,  the  continued  use  of 
lignite coal resources is anticipated in the medium 
and long term.  

Bulgaria is the only Member State with a large 
share  of  coal  in  final  energy  consumption  that 
does not participate in EU programmes for the 
restructuring  of  coal  production.  In  October 
2019, the government indicated that a debate with 
stakeholders has been initiated on the possibility of 
joining 
in 
Transition’,  which,  if  and  when  realised,  could 
help  identify  priority  projects,  measures,  and 
investments.  The  Just  Transition  Fund  could 
support  Bulgarian  policies  designed  to  mitigate 
risks and to reduce the reliance on fossil fuels and 
greenhouse gas emissions (see Annex D). 

the  EU  platform  ‘Coal  Regions 

While efforts to ensure just transition are at an 
early stage, the government’s focus seems to be 
on  the  continued  operation  of  the  thermal 
power  plants.  Moreover,  this  is  happening  in  the 
unfavourable  context  of  rising  carbon  costs  (see 
Section  4.4.3).  To 
the  continued 
operation  of  these  plants,  Bulgaria  is  planning  to 
grant  free  emission  allowances 
to  electricity 
producers  based  on  the  Article 10c  derogation  of 
the  revised  EU  ETS  Directive  for  2021-2030 (119) 

facilitate 

(119) Directive  (EU)  2018/410  of  the  European  Parliament  and 
of  the  Council  of  14 March  2018  amending  Directive 
2003/87/EC  to  enhance  cost-effective  emission  reductions 
and 
(EU) 
2015/1814, OJ L 76, 19.03.2018, p. 3. 

and  Decision 

investments, 

low-carbon 

62 

                                                           
4.5. Environmental sustainability 

Box 4.5.1: Coal regions in transition 

In 2019, Bulgaria had 16 licensed  coal  mining  operators  and  24 local units in the  mining of  coal  and 
lignite  located  in  two  NUTS2  regions (1).  Their  combined  annual  production  amounts  to  35.5  Mt 
(approximately  5.7  Mtoe),  representing  99%  of  the  gross  inland  consumption.  The  coal  mining  sector 
employed 15,000 people in 2018 (2), a fall of 2,400 compared to 2017, but still well above the 2013 level of 
11,000 people in coal and lignite mining. Throughout the coal value chain, the number of jobs dependent on 
coal activities is estimated (3) to be 22 500, with two NUTS2 regions (4) having more than 1,000 indirect jobs 
each. 

There are currently 38 power generation units in 11 operating coal-fired power plants with a combined 
installed  capacity  of  4,600  MW,  representing  almost  40%  of  the  total  installed  capacity  of  operating 
power plants in the country. The coal power plants are located in all of the six NUTS2 regions of Bulgaria, 
and  88%  of  the  coal  power  plants  are  located  in  2  NUTS2  regions.  The  average  age  of  the  coal  power 
generation  units  is  39.2  years,  ranging  from  8  years (5)  to  almost  70  years (6),  with  a  combined  estimated 
efficiency  well  below  current  state-of-the-art  technologies.  Coal  power  plants  are  estimated (7)  to  directly 
employ 5,900 people, while the multiplier effect in related industries is 2.2 or 12,800 people employed. 

Potential decommissioning driven by competition in a carbon-constrained world could lead to the loss 
of  about  20,900  direct  jobs  concentrated  in  two  NUTS2  regions (8).  Taking  into  account  the  secondary 
employment effects, the number  of affected  workers  would increase by  additional 35.3 thousand to overall 
56.2 thousand. Having in mind that average annual wages in the mining and quarrying sector are much higher 
than the average wages in industry and the local economy, the potential loss of employment would also affect 
families in terms of lost income. Thus, accounting for 2.2 average member per household, the potential scope 
of  people  affected  is  estimated  at  123.6  thousand.  The  challenge  is  further  compounded  by  the  fact  that 
regions  with  high  shares  of  jobs  in  the  coal  industry  tend  to  have  limited  development  of  other  economic 
sectors.  

Regions  with  high  levels  of  employment  in  coal  mining  activities  will  be  exposed  to  adverse  socio-
economic  impacts  in  the  coming  decades  as  the  economy  transitions  towards  low  carbon  and  clean 
energy sources. The scale of the transition challenge in Bulgaria is substantial (9) because it accounts for 7% 
of EU coal production and 6% of jobs in the coal mining sector, and according to the preliminary estimates of 
the  authorities,  transition  costs  will  also  be  significant.  In  the  current  context  of  rising  prices  for  emission 
allowances,  investments  in  refurbishment  or  new  coal  power  assets  are  not  economical,  and  the  financial 
viability of many plants is in question. In addition, a large portion of the existing coal-fired power generation 
fleet is expected to face shareholder pressure of mothballing or early decommissioning.  

According to estimates, coal power plants are responsible for more than 650 premature deaths in 2016 
and health costs up to 2 billion (10). Since 2007, Bulgaria has persistently not complied with the limit values 
for particular matter (dust) concentrations in all air quality zones, and for  SO2 in the South East air quality 
zone, which hosts the four largest thermal power plants, all of them coal fired. 
Bulgaria should therefore prepare a strategy for a gradual industrial restructuring, aiming to support 
redundant coal workers, develop alternative business opportunities and maintain or increase regional 
employment and regional economic growth. The retirement of coal assets could provide new employment 
and business opportunities building on the industrial heritage of the affected regions, and establishing new, 
competitive  industries  and  services.  Close  cooperation  between  authorities,  companies,  trade  unions, 
investors  and  local  communities  is  essential  to  identify  the  most  sustainable  uses  and  maximise  social-
economic  development.  A  plan  to  address  the  gap  in  the  energy  supply,  especially  with  regard  to  basic 
supply,  by  building  new  power  plants  and  facilities  should  be  also  developed.  The  EC  Coal  Regions  in 
Transition  Initiative  can  support  the  preparation  of  such  a  strategy  and  identify  priority  projects  and 
measures,  and  assist  with  the  dialogue  at  national  and  regional  level  with  the  managing  authorities 
administering  EU  funds  to  facilitate  funding  for  coal  regions.  The  Just  Transition  Fund  could  further 
contribute to mitigating the adverse socio-economic impacts of the transition.  

(1) Respectively, the South Western (BG41) and South Eastern (BG34) regions. 

63 

 
4.5. Environmental sustainability 

(2) The vast majority working in lignite mines and about 200 people employed in mining of brown coal. Source: Euruostat; 

Labour Force Statistics, [lfsa_egan22d]. 

(3) Estimate based on OECD’s 2015 ‘Input-Output’ tables multiplier, which notes that the loss of 1 job in the coal mining 

sector will lead to 1.5 fewer jobs in other sectors of the economy. 

(4) See footnote 1. 
(5) For some of the refurbished plants in the Maritsa basin. 
(6) Republika 5 Unit of the Heat Distribution Company in the town of Pernik. 
(7) The Bulgarian Ministry of Finance estimate. 
(8) See footnote 1. 

(10)  Source:  Europe  Beyond  Coal  Database;  status:  12 Jul  2019.  Interactive  map  available  at :  https://beyond-

coal.eu/data/?type=maps&layer=2  

64 

 
 
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (120) 

2019 country-specific recommendations (CSRs)  

taxes.  Upgrade 

CSR  1:  Improve  tax  collection  through 
targeted  measures  in  areas  such  as  fuel  and 
labour 
the  State-owned 
enterprise corporate governance by adopting 
and  putting  into  effect  the  forthcoming 
legislation. 

Bulgaria has made Substantial Progress in addressing CSR 
1  

tax  collection 

Improve 
targeted 
measures  in  areas  such  as  fuel  and  labour 
taxes.  

through 

the 

Upgrade 
enterprise 
corporate  governance  by  adopting  and 
forthcoming 
putting 

State-owned 

effect 

into 

the 

in 

seen 

some 
Some  Progress  Overall,  Bulgaria  has 
improvements 
tax  compliance, 
tax  collection  and 
particularly in the context of  labour and fuel taxes.  Labour 
tax revenues have been growing at a higher rate than the tax 
base (compensation of employees) in both 2017 (by 3 p.p.) 
and  in  2018  (by  1.6  p.p.).  Secondly,  the  amount  of 
undeclared fuel has been decreasing, by about 14% (about 1 
million litres) from 2018 to mid-2019. Current lack of plans 
for a future national strategy to improve tax compliance is a 
reason  for  concern,  with  the  National  Revenue  Agency's 
strategic  priorities  being  relatively  vague  ("voluntary 
compliance, fighting tax fraud, collection of tax liabilities, a 
continuation of risk-based planning) and may overly rely on 
soft measures resulting in increased voluntary compliance.  

Substantial  Progress  A  major  reform  of  SOEs  corporate 
governance framework is ongoing. It included the adoption 
of  a  law  overhauling  the  framework  and  the  principles  for 
SOEs  corporate  governance.  The  reform  will  only  be 

(120) The following categories are used to assess progress in implementing the country-specific recommendations (CSRs): 
No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number  of  typical  situations  to  be  interpreted  on  a  case  by  case  basis  taking  into  account  country-specific  conditions.  They 
include the following:  

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

Limited progress: The Member State has:  
announced certain measures but these address the CSR only to a limited extent; and/or 
presented  legislative  acts  in  the  governing  or  legislative  body  but  these  have  not  been  adopted  yet  and  substantial  further,  non-

legislative work is needed before the CSR is implemented; 

presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 
Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to  address the CSR fully as only a few of the measures have  been 
implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision but 
no implementing decisions are in place.  

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

have been implemented.  

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

65 

 
                                                           
 
legislation.  

and 

effective 

the  AML 

supervision 

CSR  2:  Ensure  the  stability  of  the  banking 
sector by reinforcing supervision , promoting 
adequate  valuation of assets,  including bank 
collateral  ,  and  promoting  a  functioning 
secondary  market  for  non-performing  loans. 
Ensure 
the 
enforcement  of 
framework. 
Strengthen  the  non-banking  financial  sector 
by 
risk-based 
supervision  ,  the  recently  adopted  valuation 
supervision. 
guidelines  and  group-level 
roadmap 
the 
Implement 
tackling the gaps identified in the insolvency 
framework.  Foster  the  stability  of  the  car 
insurance  sector  by  addressing  market 
structural 
challenges 
weaknesses.  

forthcoming 

effectively 

remaining 

enforcing 

and 

Ensure the stability of the banking sector by 
reinforcing supervision  

,  promoting  adequate  valuation  of  assets, 
including bank collateral  

,  and  promoting  a  functioning  secondary 
market for non-performing loans.  

A. Overview table 

completed  when  the  implementing  acts  of  the  law  are 
prepared  and  put  into  effect.  The  new  law  prescribes  the 
next steps and the timeline for the completion of the reform.  

Bulgaria has made Some Progress in addressing CSR 2  

the 

implementation 

Substantial Progress The Bulgarian National Bank (BNB) 
guidelines, 
observes 
recommendations  and  other  measures  approved  by  the 
European  Banking  Authority  (EBA)  with  regard  to  the 
convergence  of  supervisory  practices  throughout  the  EU. 
During  the  reporting  period,  the  BNB  approved  decisions 
for the application of a number of EBA guidelines.  

the 

of 

Some  Progress  Despite  efforts  and  progress,  a  range  of 
hard-to-value  assets, such as  real estate collateral still exist 
in the balance sheets of banks. Conditions for harmonisation 
in  valuation  practices  have  been  put  in  place  since  June 
2018,  when  national  standards  became  mandatory  for 
external  independent  collateral  valuers,  in  accordance  with 
the Independent Valuers Act.  

Some  Progress  The  secondary  market  for  NPLs  has 
become  more  dynamic,  notably  for  retail  loans,  with  some 
improvement in the NFC segment as  well.  Ample liquidity 
is  generating  demand  for  NPL  portfolios  and  collateral 
sales,  with  large  international  companies  also  having 
entered the market.  

Ensure 
enforcement of the AML framework.  

supervision 

effective 

and 

the 

Limited  Progress  Bulgaria  achieved  some  progress  in  the 
legislative  framework.  At  the  end  of  November  2019,  the 
National  Parliament  adopted  the  law  aiming  to  amend  the 
Anti-Money  Laundering  Act  transposing  Directive  (EU) 
2018/843  (AMLD  5),  as  well  as  the  remaining  issues  of 
(EU) 2015/849 to prevent the use of the financial system for 

66 

A. Overview table 

the  purpose  of  money  laundering  and  terrorist  financing 
(AMLD 4). The national nisk assessment was completed in 
January 2020 and highlights a number of significant threats.  
The  use  of  financial  intelligence  remains  insufficient  and 
the  risk-based  approach  to  supervision  has  yet  to  be 
implemented. 
Investigation  of  corruption  cases  has 
increased, but final conviction remains very limited.  

insurance  and  pension 

Substantial  Progress  Supervision  has  been  enhanced  in 
several  respects.  The  risk-based  supervision  guidelines  in 
the 
insurance  sectors  became 
applicable  as  of  1  January  2019.  The  new  rules  may  be 
reviewed  in  2020  based  on  experience  and  new  data 
available.  Further  enhancements  to  the  new  approach  may 
be  necessary  following  additional  tests  to  reap  the  full 
benefits of the measure.  

Strengthen  the  non-banking  financial  sector 
by 
risk-based 
supervision  

effectively 

enforcing 

, the recently adopted valuation guidelines   Some  Progress  The  regulatory  framework  has  improved. 
The  government  adopted  important  amendments  to  two 
regulations in the field of insurance and pension insurance: 
Ordinance  53  on  the  requirements  for  accountability, 
valuation of assets and liabilities and formation of technical 
reserves of insurers, reinsurers and the Guarantee Fund and 
Ordinance 9 laying down detailed rules for valuation of the 
assets and liabilities of the supplementary pension funds and 
the 
the  pension 
progress  achieved, 
in 
valuation  practices  is  necessary,  in  particular  regarding  the 
adequacy  of  technical  provisions  in  the  Motor  Third  Party 
Liability  Insurance  and  the  ongoing  appropriateness  of  the 
valuation of non-listed assets.  

insurance  company.  Notwithstanding 
tackling  remaining  weaknesses 

and group-level supervision.  

roadmap 
Implement 
tackling the gaps identified in the insolvency 

forthcoming 

the 

Some  Progress  Group-level  supervision  might  become  an 
issue  for  one  particular  insurance  group,  depending  on  the 
outcome  of 
the  restructuring  process.  The  Financial 
Supervision  Commission,  the  European  Insurance  and 
Occupational  Pensions  Authority  (EIOPA)  and  a  particular 
insurance  group  have  sought  an  agreement  on  the  kind  of 
group-level supervision that should apply to that entity. This 
group is currently taking steps to acquire a major company 
active  outside  the  non  banking  sector  and  may  undergo 
restructuring.  If  this  process  is  completed  successfully,  a 
new  procedure  of  identification  of  the  group  will  start, 
which  will  result  in  the  group  being  identified  either  as  an 
insurance  holding  company  (which  involves  full  group 
supervision) or a mixed holding company (which involves a 
more limited supervision).  

Limited Progress The government adopted the insolvency 
framework  roadmap  on  19  June  2019  and  established  a 
‘Coordinating 
dedicated  steering  body, 

the  so-called 

67 

A. Overview table 

and 

implement 

coordination 
to 

in  charge  of 
the 
of 
the 

the  overall 
Council’,  which  will  be 
roadmap’s 
management 
implementation.  Efforts 
insolvency 
framework  roadmap  have  already  started.  The  Ministry  of 
Justice has set up an interagency working group to draft the 
necessary legislative amendments by the end of June 2020. 
This  group  will  have  a  wide  stakeholder  participation  with 
representatives  of  the  government,  the  judiciary,  law 
professionals  and  the  academia.  However,  more  still  needs 
to be done.   

Limited  Progress  Motor  third-party  liability  (MTPL)  still 
warrants  attention.  MTPL  represents  a  high  share  in  the 
portfolio  of  all  the  Bulgarian  insurers.  Its  profitability  has 
remained  insufficient  for  a  long  time  due  to  a  strong  price 
competition in the sector. After insurance premia increased 
substantially in 2018, the financial results of the MTPL line 
of  business  have  strengthened.  The  solvency  of  some 
players relies on the validity of the assumptions underlying 
the  valuation  of  their  assets  and  liabilities.  There  are  still 
weaknesses  and  areas  of  particular  risk  currently  identified 
in the non-banking sector, including the effectiveness of the 
system of governance and application of the prudent person 
principle,  for  which  sustainable  corrections  need  to  be 
to  amend  by  31 
ensured.  The  government  planned 
December 2019 the legislation on the implementation of the 
bonus-malus’  system,  in  line  with  the  results  of  the  public 
consultation,  but  the  deadline  has  been  missed.  The 
government  planned  to  adopt  by  31  December  2019  an 
ordinance on the approval of a methodology for determining 
the  amount  of  compensation  for  material  and  non-material 
damage sustained as a result of bodily injury to the injured 
person and for determining the amount of the compensation 
for material and non-material damage of the injured person 
as  a  result  of  the  death  of  a  victim.  However,  the  deadline 
has been missed. The Bulgarian Green Card Bureau is still 
under monitoring and the sectoral reinsurance cover is yet to 
be underwritten.  

Bulgaria has made Limited Progress in addressing CSR 3  

framework.  

Foster  the  stability  of  the  car  insurance 
sector  by  addressing  market  challenges  and 
remaining structural weaknesses.  

CSR  3:  Focus  investment-related  economic 
policy on research and innovation , transport, 
in  particular  on  its  sustainability  ,  water, 
waste  and  energy  infrastructure  and  energy 
into  account  regional 
efficiency, 
the  business 
disparities,  and 
environment.  

improving 

taking 

Focus  investment-related  economic  policy 
on research and innovation  

Limited Progress R&D spending remains very low both in 
the  public  and  in  private  sectors.  Bulgaria  has  the  fifth 
lowest  R&D  intensity  level  in  the  EU:  0.75%  of  GDP  in 
2018,  with  a  very  small  increase  from  0.74%  of  GDP  in 

68 

A. Overview table 

2017.  The  extremely  low  public  R&D  intensity  (0.21%  of 
GDP  in  2018,  the  third  lowest  in  the  EU)  is  particularly 
concerning,  and  it  has  been  on  a  mostly  decreasing 
trajectory  since  2000.  This  hinders  the  required  capacity 
building, as research infrastructure is outdated and the very 
low wages act as deterrents to attracting and retaining young 
talent. While the business R&D intensity increased between 
2009 and 2014, it is now also on a decreasing path (0.54% 
of GDP in 2018, from a peak of 0.70% in 2015).  

railway 

investments 

infrastructure 

supported  by 

, transport, in particular on its sustainability   Limited  Progress  The  quality  of  road  infrastructure  has 
been  increasing  slightly  over  the  last  years,  following 
significant 
the  European 
Structural and Investment Funds. The on-going construction 
of  a  national  motorway  demonstrates  good  intentions  to 
modernise  but  is  still  slow.  On  infrastructure,  efforts  are 
needed  on 
fluidity,  without 
segmentation of modernized and non-modernized parts and 
on  development  of  further 
internal  railway  network 
interconnecting strategic points while developing a network 
transit  and  for  country 
of  multimodal  platforms  for 
purposes.  The  penetration 
rate  of  alternative-fuelled 
passenger  cars  is  still  relatively  low  compared  to  the  top 
performers  in  the  EU.  In  road,  rail  and  inland  waterways 
transport,  external  costs  related  to  accidents,  environment 
(air  pollution,  climate  change,  energy  production,  noise, 
habitat  damage)  are  about  7  billion  EUR  annually,  which 
corresponds  to  6,5%  of  Bulgaria’s  GDP.  Road  users 
generate  almost  98%  of  such  costs.  While  road  users  pay 
97% of revenues in transport, the taxes and charges paid by 
them do not cover the total transport generated costs as they 
cover 66% and 46% of the total external and infrastructure 
costs  for  passenger  and  freight  respectively.  Transport 
modes as rail, aviation and waterborne at the moment have a 
very  limited  contribution  to  the  transport  revenues  which 
puts in question the sustainability of transport.  

,  water,  waste  and  energy  infrastructure  and 
energy  efficiency, 
into  account 
regional disparities,  

taking 

limited  progress: 

Limited  Progress  Water  - 
limited 
implementation  on  the  ground;  Bulgaria  is  still  far  from 
achieving  compliance  with  the  drinking  water  and  urban 
waste  water  treatment  directives.  Waste  -  some  progress: 
some  progress  in  closure  and  rehabilitation  of  non-
compliant 
landfills.  Implemented  and  on-going  waste 
infrastructure projects financed under different programmes, 
including  but  not  limited  to  EU  funds,  are  with  limited 
magnitude; many projects still remain  to be implemented in 
the future. Investments in research and development (R&D) 
in  low-carbon  technologies  are  rather  low  but    increasing. 
Investments  are  driven  primarily  by  the  private  sector.  A 
key role in the development and deployment of low-carbon 
technologies is played by the Innovation Strategy for Smart 
Specialisation 2021-2027, which is currently being updated. 

69 

A. Overview table 

Very limited progress was made towards reaching the 2020 
indicative  national  target  for  energy  efficiency.  In  2018 
Bulgaria’s  final  energy  consumption  increased  slightly 
compared to 2017, remaining above the linear trajectory by 
11pp. Similarly, in 2018 Bulgaria did not reduce its primary 
energy  consumption  sufficiently  to  stay  below  the  linear 
trajectory. There are outstanding compliance issues with the 
legal requirements and the current legal framework provides 
insufficient incentives for the obliged parties to invest more 
in energy savings. Huge energy saving and carbon reducing 
potential  yet  to  be  unlocked  by  targeted  measures  in  the 
industrial,  transportation,  and  residential  sectors  -  in  2018 
the highest energy consumption  was in the transport sector 
(34%),  followed  by  industry  (28%)  and  households  (24%). 
Serious social challenges are interlinked with the process of 
effective  energy  transformation,  such  as  job  losses  and 
falling  life  quality  standards.  To  facilitate  a  just  transition 
towards a low-carbon economy from a macroeconomic and 
socio-economic  perspective,  significant  investments  in  the 
fields  of  climate  and  energy  are  required.  Transformation 
measures  have  not  yet  been  considered.  In  October  2019, 
the  government  indicated  that  a  debate  with  stakeholders 
has been initiated on the possibility to join the EC platform 
“Coal Regions in Transition”,  which, if and  when realized, 
could help with identifying priority projects, measures, and 
investments. Investment-related economic policy on energy 
infrastructure:  Substantial  progress  in  gas  (construction 
works  on 
and 
interconnector  + 
modernisation  of  internal  high-pressure  grid  +  improved 
functioning of the  wholesale  market through the setting  up 
of a gas hub + PCI projects + Council of Minsters Decision 
to acquire a stake of the LNG facility in Northern Greece); 
Some  progress  in  electricity  (capacity  increase  of  internal 
lines  +  interconnectors  +  improved  functioning  of  the 
wholesale  market  through  intra-day  coupling)  Investment-
related  economic  policy  on  energy  efficiency:  Limited 
progress.  R&D  investment  in  low  carbon  technologies 
below 1%  with private  R&D  increasing  while public R&D 
remain  the  lowest  in  the  EU,  well  below  0.4%  of  GDP. 
Limited  progress  towards  reaching  the  2020  indicative 
national target for energy efficiency.  

reinforcing 

IGB 

and improving the business environment.  

CSR  4:  Strengthen  employability  by 
reinforcing  skills,  including  digital  skills. 
Improve 
labour  market 
quality, 
relevance,  and  inclusiveness  of  education 
and  training,  in  particular  for  Roma  and 

the 

Some Progress Bulgaria is implementing measures in order 
to  improve  the  business  environment  and  to  remove  the 
existing obstacles to investment, however, they have not led 
to significant improvements so far.  

Bulgaria has made Limited Progress in addressing CSR 4  

70 

through 

improved  access 

other  disadvantaged  groups.  Address  social 
inclusion 
to 
integrated  employment  and  social  services 
income 
and  more  effective  minimum 
support.  Improve  access  to  health  services, 
including 
out-of-pocket 
reducing 
payments and addressing shortages of health 
professionals.  

by 

Strengthen  employability  by 
skills, including digital skills.  

reinforcing 

the 

Improve 
labour  market 
quality, 
relevance,  and  inclusiveness  of  education 
and  training,  in  particular  for  Roma  and 
other disadvantaged groups.  

Address  social  inclusion  through  improved 
access  to  integrated  employment  and  social 
services  

and  more  effective  minimum 
support.  

income 

A. Overview table 

Some  Progress  Sustained  efforts  to  increase  skills  of 
jobseekers,  such  as  trainings,  traineeships,  apprenticeships 
and dual VET have shown positive results. Operations were 
implemented at national and local level in 2019 to improve 
employability  of  vulnerable  groups.  There  are  ongoing 
measures  to  improve  the  labour  market  relevance  of  VET 
and higher education, although their impact is still limited.  

Limited  Progress  There  has  been  limited  progress  in  the 
area  of  education  and  training,  as  the  challenges  of  quality 
and inclusion, in particular for Roma, remain. The impact of 
the measures taken to tackle any of those is yet to be seen. 
There  are  measures  undertaken  to  improve  the  labour 
market relevance of education, but their impact is mitigated.  

Limited  Progress  Bulgaria  planned 
the 
provision  of  social  services  with  the  new  law  adopted  in 
March 2019, but its entry into force is delayed to the second 
half  of  2020,  however,  there  is  no  implementation  and  the 
timeframe could be further extended.  

improve 

to 

Some  Progress  Measures  have  been  taken  to  improve  the 
adequacy and coverage of  the heating allowance as part of 
the  minimum 
the 
modification  of  the  access  criteria  and  the  increase  by 
24.5% of the allowance to a 21% increase of the number of 
recipients compared to 2018. 

In  particular, 

support. 

income 

Improve  access to  health services,  including 
by  reducing  out-of-pocket  payments  and 
addressing shortages of health professionals.  

Limited  Progress  Majority  of  measures 
to  address 
problems with access to health care including out-of-pocket 
payments and shortages of health professionals are either in 
drafting stage or in process of adoption.  

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 
76%. 

72.4% (2018) 

R&D target set in the NRP: 1.5 % of GDP 

There was no progress towards the R&D intensity target. 

National greenhouse gas (GHG) emissions  While the 2020 target has been met, provisional inventories 

71 

A. Overview table 

target:  
- +20 % in 2020 compared with 2005 (in 
sectors not included in the EU emissions 
trading system) 

indicate that the gap to the 2018 target is estimated to be 
close to 3pp. 

2020 renewable energy target: 16 % share of 
renewable energy in gross final energy 
consumption 

Provisional inventories show that in 2018 Bulgaria has 
already surpassed its 2020 target for renewable energy 
shares by 2.7pp. 

Energy efficiency, 2020 energy consumption 
targets: 

Bulgaria's 2020 indicative energy efficiency 
target is 16.9 Mtoe expressed in primary 
energy consumption and 8.6 Mtoe expressed 
in final energy consumption. 

Continuing the trend from previous years, Bulgaria’s final 
energy consumption in 2018 increased slightly, remaining 
above the linear trajectory by 11pp. Bulgaria’s primary 
energy consumption in 2018 has also stayed above the linear 
trajectory, putting at risk the fulfilment of its obligation by 
2020. 

Early school/training leaving target: 11 % of 
population aged 18-24. 

12.7 % in 2018. No progress has been made since 2010 
(+0.1 point). 

Tertiary education target: 36 % of 
population aged 30-34. 

33.7 % in 2018. Tertiary educational attainment has been 
steadily improving (+6.9 points since 2012) but is unlikely 
to reach the national target by 2020. 

Target for reducing the number of people at 
risk of poverty or social exclusion, 
expressed as an absolute number of people: 
decrease by 260 000 (baseline 2008: 1 632 
120). 

1 550 797 (2018) 

72 

 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

73 

General government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio22.321.119.918.617.015.614.513.412.511.610.810.09.3Changes in the ratio (-1+2+3)-3.1-1.1-1.3-1.2-1.6-1.4-1.1-1.1-1.0-0.9-0.8-0.8-0.7of which(1) Primary balance (1.1+1.2+1.3)2.41.71.41.51.41.21.00.90.80.80.70.70.6(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)2.41.51.21.21.21.11.00.90.80.80.70.70.6(1.1.1) Structural primary balance (bef. CoA)2.41.51.21.21.21.21.21.21.21.21.21.21.2(1.1.2) Cost of ageing0.00.10.20.30.40.40.50.50.6(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.00.00.00.0(1.2) Cyclical component0.00.20.20.30.20.10.00.00.00.00.00.00.0(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)-1.1-1.1-0.6-0.5-0.2-0.2-0.1-0.2-0.1-0.1-0.1-0.1-0.1(2.1) Interest expenditure0.60.60.60.60.50.50.40.40.40.30.30.30.3(2.2) Growth effect-0.7-0.7-0.6-0.5-0.3-0.3-0.3-0.3-0.2-0.2-0.2-0.2-0.1(2.3) Inflation effect-1.0-1.0-0.6-0.5-0.4-0.4-0.3-0.3-0.3-0.2-0.2-0.2-0.2(3) Stock-flow adjustments0.41.70.80.80.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. 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). 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.[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 and the DSM 2019.[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. 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 after that) to bring the debt-to-GDP ratio to 60 % by 2034. The critical values used are 0 and 2.5 pps of GDP. The DSA classification is based on the results of five 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. 051015202530354020172018201920202021202220232024202520262027202820292030Debt as % of GDP -BGBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario01020304020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -BGp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline051015202530354020172018201920202021202220232024202520262027202820292030Debt as % of GDP -BGBaselineHistorical SPB scenarioSGP scenario051015202530354020172018201920202021202220232024202520262027202820292030Debt 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 (2030)9.313.610.09.610.7Debt peak year20192019201920192019Percentile rank36.0%45.0%Probability debt higher29.1%Dif. between percentiles29.2LOWLong termLOW(S2 = 1.6)S1S2Short termLOW(S0 = 0.2)DSALOWDebt sustainability analysis (detail)Medium termLOWLOW(S1 = -5.4) 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 - 2019. Includes not only banks but all monetary financial institutions excluding central banks.    
(2) Latest data Q2 - 2019.    
(3) Quarterly values are annualised.    
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

74 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)110.5106.4104.6101.9101.999.3Share of assets of the five largest banks (% of total assets)55.057.658.056.559.7-Foreign ownership of banking system (% of total assets)(2)76.176.376.576.477.978.0Financial soundness indicators:(2)              - non-performing loans (% of total loans)16.014.512.810.27.76.9              - capital adequacy ratio (%)21.521.621.521.820.619.5              - return on equity (%)(3)7.28.011.310.211.812.1Bank loans to the private sector (year-on-year % change)(1)2.2-0.23.47.89.99.1Lending for house purchase (year-on-year % change)(1)-1.7-0.52.78.712.114.2Loan-to-deposit ratio(2)82.773.472.472.675.577.4Central bank liquidity as % of liabilities(1)0.00.00.00.00.00.0Private debt (% of GDP)125.6109.3104.599.095.0-Gross external debt (% of GDP)(2) - public14.112.213.910.99.98.9    - private65.253.547.544.741.139.6Long-term interest rate spread versus Bund (basis points)*218.4199.6218.2128.549.670.0Credit default swap spreads for sovereign securities (5-year)*119.4153.8139.0102.762.069.5 
 
 
  
 
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 and/or living in households with zero or very low work intensity.    
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.    
(3) Gross disposable household income is defined in unadjusted terms, according to the draft 2019 joint employment report.    
(4) Reduction in percentage of the risk-of-poverty rate, due to social transfers (calculated comparing at-risk-of-poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).    
(5) Average of first three quarters of 2019 for the employment rate, unemployment rate and gender employment gap.  
Source: Eurostat. 

75 

201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)12.913.413.812.712.7:Gender employment gap (pps)6.16.67.38.08.28.1Income inequality, measured as quintile share ratio (S80/S20)6.87.17.78.27.7:At-risk-of-poverty or social exclusion rate(1) (AROPE)40.141.340.438.932.8:Young people neither in employment nor in education and training (% of population aged 15-24)20.219.318.215.315.0:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)65.167.167.771.372.475.0Unemployment rate(2) (15-74 years)11.49.27.66.25.24.3Long-term unemployment rate (as % of active population)6.95.64.53.43.02.6Gross disposable income of households in real terms per capita(3) (Index 2008=100) 113.0116.9123.2130.0::Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)816487429329:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)5.527.278.55:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)20.122.517.919.925.4:Children aged less than 3 years in formal childcare11.28.912.59.416.2:Self-reported unmet need for medical care5.64.72.82.11.9:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):31.026.029.0:: 
 
  
 
C. Standard tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator    
(1) Long-term unemployed are people who have been unemployed for at least 12 months.    
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with 10 or more employees, without restrictions for age and hours worked, are included.    
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.    
(4) Impact of socio-economic and cultural status on PISA (OECD) scores.    
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted.  
Source: Eurostat, OECD 

76 

Labour market indicators201420152016201720182019 5Activity rate (15-64)69.069.368.771.371.573.3Employment in current job by durationFrom 0 to 11 months10.69.99.610.28.2:From 12 to 23 months8.27.27.27.37.1:From 24 to 59 months19.317.918.217.518.9:60 months or over61.965.065.065.065.6:Employment growth* (% change from previous year)0.40.40.51.8-0.1-0.2Employment rate of women(% of female population aged 20-64)62.063.864.067.368.371.0Employment rate of men (% of male population aged 20-64)68.170.471.375.376.579.1Employment rate of older workers* (% of population aged 55-64)50.053.054.558.260.764.4Part-time employment* (% of total employment, aged 15-64)2.52.22.02.21.82.0Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)5.34.44.14.44.04.4Transition rate from temporary to permanent employment(3-year average)31.528.928.225.619.0:Youth unemployment rate (% active population aged 15-24)23.821.617.212.912.79.5Gender gap in part-time employment0.50.50.50.30.30.4Gender pay gap(2) (in undadjusted form)14.215.414.413.6::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)2.12.02.22.32.5:Underachievement in education(3):42.1::::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)30.932.133.832.833.7:Variation in performance explained by students' socio-economic status(4):16.4:::: 
 
  
 
C. Standard tables 

Table C.4: 

Social inclusion and health indicators 

* Non-scoreboard indicator    
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.     
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.    
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation.    
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.    
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59.    
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Source: Eurostat, OECD 

77 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare4.44.94.64.64.6:Disability1.41.41.31.21.2:Old age and survivors8.68.88.68.48.1:Family/children1.81.91.91.81.8:Unemployment0.50.50.50.50.5:Housing0.00.00.00.00.0:Social exclusion n.e.c.0.30.30.30.30.2:Total17.017.917.216.816.4:of which: means-tested benefits0.70.70.60.60.5:General government expenditure by function (% of GDP)Social protection13.513.413.312.712.5:Health4.55.55.55.04.9:Education3.74.14.03.43.6:Out-of-pocket expenditure on healthcare47.145.847.748.046.6:Children at risk of poverty or social exclusion (% of people aged 0-17)*51.545.243.745.641.633.7At-risk-of-poverty  rate(1) (% of total population)21.021.822.022.923.422.0In-work at-risk-of-poverty rate (% of persons employed)7.29.27.711.49.99.9Severe material deprivation rate(2)  (% of total population)43.033.134.231.930.020.9Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan6.511.816.014.215.613.0Tenant, rent at market price13.918.116.914.111.49.2Proportion of people living in low work intensity households(4) (% of people aged 0-59)13.012.111.611.911.19.0Poverty thresholds, expressed in national currency at constant prices*254928752941281132463208Healthy life yearsFemales9.99.69.510.19.2:Males8.78.78.79.28.4:Aggregate replacement ratio for pensions(5)0.40.40.40.50.40.4Connectivity dimension of the Digital Economy and Society Index (DESI)(6):36.544.048.252.3:GINI coefficient before taxes and transfers*47.749.750.253.053.8:GINI coefficient after taxes and transfers*35.435.437.037.740.2: 
 
  
 
C. Standard tables 

Table C.5: 

Product market performance and policy indicators 

*While the indicator values from 2003 to 2013 are comparable, the methodology has considerably changed in 2018. As a 
result, past vintages cannot be compared with the 2018 PMR 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 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm  
(8) Simple average of the indicators of regulation for lawyers, accountants, architects and engineers. 
(9) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR). 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). Source: European 
Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for the product 
market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

78 

Performance indicators201320142015201620172018Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry3.053.601.236.512.18-2.08Labour productivity growth in construction3.99-2.581.74-3.464.35-3.60Labour productivity growth in market services0.220.933.651.463.155.50Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry3.583.561.842.967.6210.25ULC growth in construction3.1613.403.123.178.348.82ULC growth in market services4.585.843.365.916.373.84Business environment201320142015201620172018Time needed to enforce contracts3 (days)564564564564564564Time needed to start a business3 (days)25.025.025.023.023.023.0Outcome of applications by SMEs for bank loans40.860.970.540.490.250.61Research and innovation201320142015201620172018R&D intensity0.640.790.950.770.740.75General government expenditure on education as % of GDP3.704.104.003.403.60:Employed people with tertiary education and/or people employed in S&T as % of total employment313233333333Population having completed tertiary education5222424242525Young people with upper secondary education6868685858686Trade balance of high technology products as % of GDP-2.17-2.55-2.50-2.09-1.82-1.79Product and service markets and competition2003200820132018*OECD product market regulation (PMR)7, overall::1.571.93OECD PMR7, retail::0.201.56OECD PMR7, professional services8:::2.43OECD PMR7, network industries9::2.451.35 
 
 
  
 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)     
     Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)     
     Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)     
     Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)     
     Waste intensity: waste (in kg) divided by GDP (in EUR)     
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.      
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP.     
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change).     
Real unit energy cost: real energy costs as % of total value added for the economy.     
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR).     
Real unit energy costs for manufacturing industry excluding refining: real costs as % of value added for manufacturing sectors.     
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP.     
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000 -100 000 GJ; figures 
excl. VAT.     
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste.     
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP.     
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions.     
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency.     
Transport energy intensity: final energy consumption of transport activity including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR).  
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR).  
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels.     
Aggregated supplier concentration index: Herfindahl index covering oil, gas and coal. Smaller values indicate larger 
diversification and hence lower risk.  
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels. Smaller values indicate larger diversification. 
* European Commission and European Environment Agency - 2018 provisional data. 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators). 

79 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0.430.440.450.420.420.41Carbon intensity kg / €1.421.471.491.371.37-Resource intensity (reciprocal of resource productivity)kg / €3.163.413.683.133.123.00Waste intensity kg / €-4.50-2.79--Energy balance of trade % GDP-6.2-5.6-3.8-2.4-3.0-3.4Weighting of energy in HICP%15.0114.0513.0610.7211.4813.29Difference between energy price change and inflation %-2.9-1.36.2-0.72.21.6Real unit of energy cost% of value added34.030.830.430.4--Ratio of environmental taxes to labour taxesratio0.310.280.320.300.28-Environmental taxes% GDP2.92.83.22.92.92.9Sectoral Industry energy intensity kgoe / € 0.280.270.270.260.260.26Real unit energy cost for manufacturing industry excl. refining% of value added50.644.443.843.3--Share of energy-intensive industries in the economy% GDP11.3311.5912.0512.9212.6611.68Electricity prices for medium-sized industrial users€ / kWh0.080.080.070.090.080.08Gas prices for medium-sized industrial users€ / kWh0.040.030.030.020.020.03Public R&D for energy % GDP0.000.000.000.000.000.00Public R&D for environmental protection% GDP0.000.000.000.000.000.00Municipal waste recycling rate%28.523.129.431.834.636.0Share of GHG emissions covered by ETS*%59.560.058.956.656.853.7Transport energy intensitykgoe / €1.431.471.481.491.611.64Transport carbon intensitykg / €2.832.672.622.672.892.70Security of energy supplyEnergy import dependency%38.535.336.538.639.5-Aggregated supplier concentration indexHHI66.059.368.360.263.6-Diversification of energy mixHHI24.625.725.623.723.923.3 
  
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2027 FOR BULGARIA 

Building  on  the  Commission  proposal,  this  Annex  (121)  presents  the  preliminary  Commission  services’ 
views on priority investment areas and framework conditions for effective delivery for the 2021-2027 Just 
Transition  Fund  investments  in  Bulgaria.  These  priority  investment  areas  are  derived  from  the  broader 
analysis  of  territories  facing  serious  socio-economic  challenges  deriving  from  the  transition  process 
towards a climate-neutral economy of the Union by 2050 in Bulgaria, assessed in the report. This Annex 
provides the basis for a dialogue between Bulgaria and the Commission services as well as the relevant 
guidance  for  the  Member  States  in  preparing  their  territorial  just  transition  plans,  which  will  form  the 
basis for programming the Just Transition Fund. The Just Transition Fund investments complement those 
under  Cohesion  Policy  funding  for  which  guidance  in  the  form  of  Annex  D  was  given  in  the  2019 
Country Report for Bulgaria (122). 

The “Maritsa” area in the Stara Zagora province hosts the largest coal mining and coal-fired power plant 
area  in  Bulgaria.  Around  85%  of  jobs  (over  12 500  people)  in  Bulgaria’s  coal  sector  are  concentrated 
there, with over 10 700 jobs in the mines and over 1 800 in the power plants. Moving away from fossil 
fuel production is likely not only to lead to the closure of extraction sites, but will also affect the energy-
generating  plants.  The  process  of  effective  and  just  transition  requires  anticipation  of  social  challenges 
such as job losses and lowering of life quality standards. Based on this preliminary assessment, it appears 
warranted that the Just Transition Fund concentrates its intervention on that province. 

In  order  to  tackle  these  transition  challenges,  high  priority  investment  needs  have  been  identified  for 
diversifying and making the regional economy more  modern and competitive, as well as alleviating the 
socio-economic costs of transition. Key actions of the Just Transition Fund could target in particular: 

productive  investments  in  SMEs,  including  start-ups,  leading  to  economic  diversification  and 

• 
reconversion;  

• 

• 

• 

• 

• 

investment in research and innovation activities and fostering transfer of advanced technologies; 

investment in digitalisation; 

upskilling- and reskilling of workers; 

job-search assistance to jobseekers; 

active inclusion of jobseekers. 

In order to tackle the transition challenges related to environmental sustainability and resource efficiency, 
related investment needs have also been identified. Key actions of the Just Transition Fund could target in 
particular investment in: 

• 

• 

• 

the deployment of technology for affordable clean energy; 

regeneration and decontamination of sites, land restoration and repurposing projects; 

enhancing the circular economy. 

(121) This Annex is to be considered in conjunction with the EC proposal for a Regulation of the European Parliament and of the 
Council  on  the  Just  Transition  Fund  2021-2027  (COM  (2020) 22)  and  the  EC  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European 
Social Fund Plus, the Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and for the 
Asylum and Migration Fund, the Internal Security Fund and the Border Management and Visa Instrument (COM (2020) 23). 

(122) SWD(2019) 1001 final 

80 

 
                                                           
D. Investment guidance on Just Transition Fund 2021-2027 for Bulgaria 

The Stara Zagora province faces the challenge of substantial job losses, which realistically might not be 
entirely  offset  by  the  creation  and  development  of  SMEs,  exceptionally,  and  where  necessary  for  the 
implementation of the territorial just transition plan, support to productive investments in large enterprises 
could therefore be considered. 

The  Bobov  Dol  municipality  in  the  Kyustendil  province  is  the  second  most  important  area  in  Bulgaria 
when  it  comes  to  coal  mining  and  coal-fired  energy  production.  All  together  the  Southwest  region  is 
currently estimated to host some 1 500 jobs in coal related activities and most of those are in Bobov Dol. 
The latter already experienced in recent years the negative socio-economic effects of closure of extraction 
sites. As a result, there has been increased unemployment but also loss of working population because of 
lack of alternative employment. Based on this preliminary assessment, it appears warranted that the Just 
Transition Fund also intervenes in that province. 

In  order  to  tackle  these  transition  challenges,  high  priority  investment  needs  have  been  identified  for 
diversifying and making the regional economy more  modern and competitive, as well as alleviating the 
socio-economic costs of transition. Key actions of the Just Transition Fund could target in particular: 

productive  investments  in  SMEs,  including  start-ups,  leading  to  economic  diversification  and 

• 
reconversion;  

• 

• 

• 

• 

• 

investment in research and innovation activities and fostering transfer of advanced technologies; 

investment in digitalisation; 

upskilling- and reskilling of workers; 

job-search assistance to jobseekers; 

active inclusion of jobseekers. 

In order to tackle the transition challenges related to environmental sustainability and resource efficiency, 
related investment needs have also been identified. Key actions of the Just Transition Fund could target in 
particular investment in: 

• 

• 

• 

the deployment of technology for affordable clean energy; 

regeneration and decontamination of sites, land restoration and repurposing projects; 

enhancing the circular economy. 

81 

ANNEX E: PROGRESS TOWARDS THE SUSTAINABLE 

DEVELOPMENT GOALS (SDGS) 

Assessment of Bulgaria’s short-term progress towards the SDGs (123) 

Table E.1 shows the data for Bulgaria and the EU-28 for the indicators included in the EU SDG indicator 
set used by Eurostat for monitoring progress towards the SDGs in an EU context (124). As the short-term 
trend at EU-level is assessed over a 5-year period, both the value at the beginning of  the period and the 
latest available value is presented. The indicators are regularly updated on the  SDI dedicated section of 
the Eurostat website. 

Table E.1: 

Indicators measuring Bulgaria’s progress towards the SDGs 

(123) Data  extracted  on  9  February  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables).  

(124) The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

(Continued on the next page) 

82 

 
 
                                                           
 
  
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

83 

 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

84 

 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

85 

 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

Source: Eurostat 

86 

 
   
 
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