REPORT FROM THE COMMISSION Bulgaria Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Bulgaria, budget deficit, budget policy, economic consequence, economic recession, epidemic, gross domestic product, infectious disease, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 542 final  REPORT FROM THE COMMISSION Bulgaria  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Bulgaria 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general  escape  clause  of  the  Stability  and  Growth  Pact.    The  clause,  as  set  out  in  Articles 
5(1),  6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of 
Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe 
economic downturn. In its Communication, the Commission shared with the Council its view 
that, given the expected severe economic downturn resulting from the COVID-19 outbreak, 
the  current  conditions  permit  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data notified by the Bulgarian authorities on 31 March 2020 and subsequently validated by 
Eurostat1  show  that  the  general  government  surplus  in  Bulgaria  reached  2.1%  of  GDP  in 
2019,  while  general  government  gross  debt  stood  at  20.4%  of  GDP.  According  to  2020 
Convergence  Programme,  Bulgaria  plans  a  deficit  of  3.1%  of  GDP  in  2020,  while  debt  is 
planned at 28.5% of GDP. 

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
Bulgaria’s  compliance  with  the  deficit  criterion  of  the  Treaty.  The  debt  criterion  can  be 
considered to be met as the debt ratio is below the Treaty reference value of 60% of GDP. It 
takes  into  account  all  relevant  factors  and  gives  due  consideration  to  the  major  economic 
shock linked to the COVID-19 pandemic.  

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f 

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Table 1. General government deficit and debt (% of GDP)  

2016 

2017 

2018 

2019 

2020 
COM 

2021 
COM 

Deficit 
criterion 

Debt 
criterion 

General 
government 
balance 
General 
government 
gross debt 

+0.1 

+1.1 

+2.0 

+2.1 

-2.8 

-1.8 

29.3 

25.3 

22.3 

20.4 

25.5 

25.4 

Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION 

Based on the 2020 Convergence Programme, Bulgaria’s general government deficit in 2020 
is planned to reach 3.1% of GDP, thereby exceeding the 3% of GDP Treaty reference value. 
Although in excess of 3% of GDP, the general government deficit is planned to remain close 
to  the  Treaty  reference  value.  Based  on  the  Commission  spring  forecast,  the  general 
government deficit is expected at 2.8% of GDP in 2020, somewhat below the reference value 
of 3% of GDP. 

The excess over the Treaty reference value in 2020 is exceptional, as it results from a severe 
economic  downturn.  Taking  into  account  the  impact  of  the  COVID-19  pandemic  on 
Bulgaria’s economy, the Commission  spring forecast  projects  a contraction of real  GDP by 
7.2% in 2020.  

The  excess  over  the  Treaty  reference  value  in  the  Covergence  Programme  is  temporary  as 
defined by the Treaty and the Stability and Growth Pact. In particular, the Commission 2020 
spring forecast projects the deficit to fall below the reference value in 2021.  

In sum,  the planned deficit for 2020 is  above but close to  the 3%-of-GDP Treaty reference 
value. The excess is considered to be exceptional and temporary as defined by the Treaty and 
the  Stability  and  Growth  Pact.  Hence,  the  analysis  suggests  that  the  deficit  criterion  as 
defined by the Treaty and Regulation (EC) No 1467/97 is fulfilled. 

3. 

RELEVANT FACTORS  

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration.  

In the current situation, a key additional factor to take into consideration regarding 2020  is 
the economic impact of the COVID-19 pandemic, which has a very substantial impact on the 

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budgetary situation  and  results in  a highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause. 

3.1. 

 COVID-19 pandemic 

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals  and  sectors  that  are  particularly  affected.  Significant  liquidity  support  measures 
and  other  guarantees  have  also  been  adopted.Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
the  adopted  measures  will  contribute  to  substantially  higher  government  deficit  and  debt 
positions. 

3.2  Medium-term economic position  

At the onset of the COVID-19 pandemic, economic conditions in Bulgaria were favourable. 
At  3.4%,  GDP  growth  in  2019  was  robust  for  the  fifth  year  in  a  row,  mainly  driven  by 
growing  household  consumption.  The  COVID-19  outbreak  interrupted  that  positive  trend. 
Bulgaria’s  real  GDP  is  projected  to  contract  by  7.2%  in  2020,  largely  due  to  the  adverse 
impact of measures taken to contain the spread of the pandemic following the declaration of a 
state of emergency on 13 March 2020 and the slowdown of international economic activity 
during  the  first  quarter  of  2020.  Private  consumption  is  expected  to  fall  by  almost  6%  and 
investment is set to shrink by 18% in 2020. In the same year, exports are set to suffer a broad-
based fall of more than 13%  and imports are expected to  contract  by more than 12%. The 
projected sharp drop in GDP is a mitigating factor in the assessment of Bulgaria’s compliance 
with the deficit criterion in 2020. 

In  2021,  growth  is  forecast  to  rebound.  Private  consumption  is  expected  to  be  the  main 
driving force, as the labour market is set to improve. Growth is also forecast to benefit from a 
rebound  in  exports.  Investment,  however,  is  expected  to  follow  a  slower  recovery  path,  as 
high uncertainty and still weak business finances are set to supress and postpone investment 
activity. This macroeconomic outlook is marked by an exceptional degree of uncertainty, on 
the duration of the pandemic, on their impact on economic activity, consumption patterns and 
business finances.  

3.3 

 Medium-term budgetary position 

Based on outturn data and the Commission forecast, the structural surplus was 1.1% of GDP 
in 2019, above the medium-term budgetary objective of a deficit of 1% of GDP.   

The  Bulgarian  authorities  planned  a  close-to-balanced  budget  in  2020.  The  Parliament 
adopted  a  revised  State  budget  on  6  April  2020,  in  order  to  provide  for  the  new  economic 

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outlook and the measures to combat the COVID-19 pandemic. The budget foresees a deficit 
of 3% of GDP in cash terms, or 3.1% of GDP in ESA terms. These plans are marked by an 
exceptional degree of uncertainty on the duration of the pandemic and its impact on the fiscal 
outlook.  

The  Convergence  Programme  provides  information  on  substantial  new  measures  to  contain 
the pandemic and support the economy and on the estimated impact  of the macroeconomic 
situation.  The  Convergence  Programme  estimates  these  direct  support  measures  with  a 
budgetary impact at 1.3% of GDP in 2020. The main new measures include higher spending 
on medical equipment, additional remunerations for security and military staff, and subsidies 
to  business  to  maintain  jobs  and  tax  deferrals.  Revenues  are  estimated  to  be  lower  than 
expected by close to 2.5% of GDP due to the recession. The Convergence Programme also 
provides information on the State guarantees scheme of 0.6% of GDP and on the reallocation 
of investment funds of around 0.8% of GDP in order to finance additional remuneration for 
the  medical  and  non-medical  personell,  medical  equipment  and  financial  support  to  SMEs. 
Subject  to  more  detailed  information,  the  competent  statistical  authorities  are  to  examine 
whether  those  measures  entail  an  immediate  impact  on  the  general  government  balance  or 
not. 

The  medium-term  fiscal  strategy  of  the  government  has  not  yet  officially  been  updated. 
However,  the  Convergence  Programme  presents  an  outline  of  the  budgetary  strategy  in  the 
medium-term,  namely  that  it  will  remain  focused  on  the  sustainability  of  the  budgetary 
framework  and  committed  to  Bulgaria’s  medium-term  budgetary  objective  of  an  annual 
structural deficit of 1% of GDP. 

3.4 

Other factors put forward by the Member State 

On  15  May  2020,  the  Bulgarian  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections already broadly covers the key factors put forward by the authorities. The 
letter highlights that Bulgaria entered the crisis with a very strong fiscal position and that the 
deviation  from  the  initial  budgetary  objective  is  entirely  driven  by  the  pandemic  outbreak. 
The  letter  adds  that  with  the  expected  economic  recovery  the  government  aims  at 
implementing a consolidation step in structural terms of at least 0.5% of GDP in 2021, and 
rebalancing the budget by 2023. 

 5. 

CONCLUSIONS 

According  to  the  plans  in  the  Convergence  Programme  Bulgaria’s  headline  general 
government deficit in 2020 is planned to increase to 3.1% of GDP, above but close to the 3% 
of GDP Treaty reference value. The planned excess over the reference value is considered to 
be exceptional and temporary. The analysis suggests that the deficit criterion as defined in the 
Treaty and in Regulation (EC) No 1467/1997 is fulfilled. 

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