- b) **Encourage public-private partnerships** to ensure high-quality and commercially viable projects that at the same time promote public sector goals. Cooperation between the private sector and the public bodies permits to the public sector to overcome its budget constraints and focus more on the profitability and viability of the projects. Private companies, on the other hand, gain possibilities to share risk and take on more businesses.

- c) **Obtain involvement in the projects at the municipality level** . The EU will insist on a simpler, more transparent and decentralized system from 2007 on. Higher participation of the local governments is crucial for better management of the projects. Additionally municipalities can be actively involved in the attraction of private funds for co-financing of EU funds.

- d) **Take into account the EU funds inherent inflexibility** . EU regulations and national authorities impose tight restrictions on the use of funds under the structural actions. With the exception of the grants available for small and medium-size enterprises, private companies generally benefit from EU funds indirectly, though tenders and public-private partnerships.

_Source:_ Meth-Cohn and Shields (2005) At the national level, there is an acute need for restructuring of the budget procedures to maximize the absorption capacity for the EU funds. Bulgarian government is in the process of a gradual introduction of two important fiscal management practices, which should facilitate fiscal adjustments. These are: (i) adoption of a middle-term fiscal framework, which should reinforce the government commitment to the targeted path of fiscal reforms, and (ii) introduction of a performance-based budgeting, which should make public expenditures more efficient.

The argument that public expenditures need to be made more efficient is further reinforced in Table 11, which indicates that the deterioration of the national budget balance after accession would stem more from increased expenditures, rather than from lower revenues. Taking into account the already high share of the government in the economy (government expenditures-toGDP ratio amounted to 40% in 2004), it is essential to improve the ability of the government to substitute existing expenditures with EU funds, i.e. to reorganize the structure of the budget in a most efficient way. Fiscal space needs to be made for expanding EU-related capital expenditures, for liquidity reasons and for the national contribution to the EU budget. The need for restructuring stands even more acutely in the light of the expanding social spending, related to the rapidly aging population and high unemployment.

The experience of the NMS-8 points to significant potential for fiscal consolidations, the sources of which stem from: (i) reduced public expenditure achieved via reducing spending on direct or indirect subsidies, rationalizing social transfer programs, enhancing the efficiency of health care and education systems, and streamlining public administration; (ii) strengthened tax administration, broadened tax bases , and reduced tax expenditures; (iii) advanced privatization agenda; (iv) strengthened public finance management.<sup>20</sup> Data published in European Commission (2005b) indicates that successful fiscal consolidations in the NMS-8 prior to accession have been inevitably accompanied by cuts in public spending, going as high as 18.7 percentage points of GDP in Slovakia between 2000 and 2003. Furthermore, while capital expenditures have generally grown, current spending has been significantly reduced in the group of successful reformers. Largest cuts were made in social transfers and in the compensation of employees. Interest expenditures have decreased as a result of the favorable international conditions and debt restructuring in some of the NMS-8 countries.

> 20 See World Bank 2005.

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