1. Assessment and recommendations

Bulgaria has large and growing regional disparities between the capital and the rest of the country, which may become further be amplified in the aftermath of the COVID-19 crisis. These may be compounded by a centralised policy framework that can limit the space for a place-based policy approach. A new multi-level governance model is needed, one that considers adjustments at the regional level and reinforced decentralisation. Regionalisation and decentralisation, when they are properly designed and implemented, can have a number of positive outcomes, especially for regional development. This Multi-level Governance Review focuses on how municipal and regional governance in Bulgaria could be reformed to support a shift towards more effective place-based regional development policies. Such a shift would help achieve positive regional development outcomes, crucial in ensuring a more resilient recovery from COVID-19.

Bulgaria has made solid progress in terms of socio-economic development, moving from a planned economy to an open, market-based, upper-middle-income economy. Bulgaria’s structural reforms in the late 1990s and its accession to the EU in 2007 led to macroeconomic stabilisation and improved living standards. Since 2011, Bulgaria has experienced positive GDP growth, rapid labour productivity growth, and a falling poverty rate. Bulgaria’s GDP per capita grew from 29% of European Union average in 2000 to 53% in 2019. The share of the Bulgarian population at risk of social exclusion declined from 61.3% of the population in 2006 to 32.5% in 2019. Before the pandemic, growth had exceeded 3% for five years, and reached 3.7% in 2019, with wages rising strongly and unemployment at historic low rates. These positive trends were interrupted by the COVID-19 pandemic, however low public debt, high fiscal reserves, and EU financial assistance put Bulgaria in a solid position to confront the crisis.

Bulgaria has effectively transitioned from a monocentric model of governance to a multi-level governance system, based on a clear division of powers and strong institutions at the national and subnational levels. Its territorial organisation is a mix of state deconcentrated administrations and decentralised authorities. Bulgaria has three subnational tiers, two at the regional level and one at the local level. The first regional level consists of six larger-scale planning regions at NUTS 2-level, and the other level consists of 28 districts at NUTS 3-level. The local level includes 265 municipalities, which can be further divided by sub-municipal level into wards (in large cities) and mayoralties (in rural areas), as well as villages. The municipal level is the only decentralised level of government. Districts, which are “administrative territorial units” representing the central government in district jurisdictions, are in charge of implementing regional development policies, according to the Constitution. The six planning regions, created in 1999, are not administrative entities with legal status but rather territorial units. The regional development councils (RDCs) are appointed by the central government and represent national and subnational governments, as well as partner organisations of employers and employees.

Structural challenges may be limiting further socio-economic transformation in Bulgaria. Socio-economic convergence has been slower in Bulgaria than among its Central and Eastern European counterparts due to lingering structural challenges. In 2019, the Bulgarian GDP per capita was the lowest among EU countries, as well as among all other Eastern and Central European countries, whose GDP per capita were above 65% of the EU average. Bulgaria’s overall productivity gains have not fully translated into sustainable and inclusive growth, leading to increased social disparities. Income inequalities have risen since the 2008 financial crisis, with the Gini coefficient for disposable income rising from 35 in 2007 to 41 in 2019. Since 2016, it has been the highest in the EU. Moreover, despite its decline, the poverty level remains high. In 2019, the share of the Bulgarian population at risk of social exclusion was the highest in the EU – 1.5 times higher than the EU average. There is room to improve outcomes in health, education, and innovation. Doing so could improve future economic potential and citizen well-being. There have been notable improvements in infrastructure with the support of EU funds, but investment needs remain significant in several sectors (e.g. energy, waste and water infrastructure, R&D), especially at the regional and local levels. Megatrends accentuate the long-term growth, fiscal, and social challenges Bulgaria faces. Declining population levels due to emigration and a declining fertility rate, coupled with an ageing population, are particularly acute challenges.

Bulgaria has made significant strides in governance systems, and certain dimensions could be further reinforced. Compared to other EU countries, Bulgaria faces difficult and significant governance gaps at the national and local levels that can affect government performance and regional resilience. This is particularly true with respect to the “control of corruption” and “rule of law” World Bank’s Worldwide Governance Indicators,, which have not improved, or remain very low, since 1996In the Transparency International Corruption Perceptions Index, Bulgaria ranks 77th out of 180 countries, below all EU members.

Since the 1960s, territorial socio-economic disparities have increased. This is due to rapid industrialisation, rural exodus and prior infrastructure investment allocations made by the State that increased rather than corrected imbalances between the capital region and the rest of the country. The process of EU integration and socio-economic convergence, the move to market-based economic systems and the 2008 global economic and financial crisis further increased territorial socio-economic disparities. Megatrends, such as globalisation and demographic changes, and the COVID-19 pandemic are exacerbating regional disparities

Despite large levels of investment in regional development and EU support through Cohesion Policy funds, it has been difficult to counteract territorial disparities in the country. In the 2018 ranking of European regions by their level of GDP per capita, three Bulgarian regions ranked just above last place, ranging between 34% and 36% of the European average. The Sofia City region, home to one fifth of the population, has a GDP per capita corresponding to the United Kingdom’s in purchasing power parities. By contrast, the poorest regions in the northwest are also the poorest in the EU.

Today, territorial disparities are found at all levels: planning regions, districts, and municipalities. Regional income differences in Bulgaria are larger than in most OECD countries and have increased more across regions over the last two decades, according to the dispersion coefficient. Internal territorial disparities can be summarised by the concept of the “island of prosperity” dilemma, with significant differences between the core and the other regions when looking at 11 socio-economic indicators such as demography, GDP and income, health, labour, education, and employment. National prosperity tends to concentrate in the South West region, and within it, the Sofia Capital (district). For example, the South West region is the only one with positive population growth between 2002 and 2017. For example, the South West region concentrated 35% of national GDP in 2000 and 48% in 2018. The South West GDP per capita was 1.2 times higher than the national average in 2000 but 1.5 times higher in 2018. At a smaller level, the district of Sofia Capital concentrated 26% of national GDP in 2002 and 40% in 2017. Its GDP per capita was 1.9 times higher than the national average in 2002 but 2.1 times higher in 2017. At the other end of the spectrum, the North West and the North Central had the highest declines in GDP concentration as well as in GDP per capita as a share of the national average.

Although some cities, such as Plovdiv, Varna and Burgas are emerging as economic centres able to counterbalance the concentration of prosperity in the capital region, other areas remain well behind and face multiple challenges from depopulation, high unemployment and widespread poverty.

Bulgaria’s increased territorial disparities are partly due to the prevailing centralised governance model and the lack of a place-based and integrated regional development approach. Regional development policies are centrally designed and implemented without sufficiently considering specific territorial characteristics and subnational input. Regional and local actors are particularly well placed to act effectively at the regional and local levels, by identifying local comparative advantages and designing relevant development policies. Yet, this implies that subnational governments have some autonomy and capacity to act, including clearly attributed responsibilities and adequate resources.

Bulgaria made significant effort to implement a regional development policy after EU accession but with mixed results as disparities have continued to increase between the capital and the rest of the country. In the 2014-2020 EU programming period, Bulgaria constructed a more place-based and integrated regional policy approach through the National Development Programme Bulgaria 2020, the National Regional Development Strategy 2012-22 (NRDS), and the National Concept for Spatial Development 2013-25 (NCSD). The mixed results are partly due to exogenous factors, such as the 2008 crisis and difficulties arising from megatrends that exacerbated the demographic and socio-economic challenges in several Bulgarian regions. Bulgaria was also faced with quickly absorbing and adapting to the EU cohesion instruments that support regional development policy implementation.

The lack of a place-based and integrated approach in Bulgaria’s regional development strategy and policies contributes to the mixed results. Regional development policies remain centrally designed and implemented without fully considering specific territorial characteristics, and lack subnational input. Bulgaria’s system for managing EU funds in the 2014-2020 programming period was centralised in the hands of national Managing Authorities, although the Operational Programme “Regions in Growth” (OPRG) did incorporate a territorial approach to its implementation. There is a plan to decentralise the structure supporting EU Cohesion Policy funds in the 2021-2027 programming period.

Bulgaria is a centralised country despite successive decentralisation strategies and programmes. Bulgaria has one decentralised level – the municipal one – that accounts for a relatively small share of public expenditure: 20% of public expenditure (7% of GDP) versus 34% of total public expenditure in the EU28 (15% of GDP). Bulgaria remains in the early stages of decentralisation, in particular with respect to fiscal decentralisation, the weakest dimension of its decentralisation process. In Bulgaria, a number of pre-conditions for successful decentralisation are still lacking, notably a balance between political, administrative and fiscal decentralisation, and clarity in the assignment of responsibilities among government levels.

Since the early 1990s, Bulgaria has travelled a long road towards decentralisation. Bulgaria’s decentralisation process has been gradual, with stops and starts, organised around four main phases: 1991-2001; 2002-2005; 2006-2015; and the current 2016-25 phase with a new decentralisation strategy. However, several measures of this strategy included in the 2016-19 programme are yet to be implemented. Bulgaria has maintained a centralised governance system in many respects, especially regarding fiscal decentralisation.

Fiscal decentralisation is the weakest dimension of the Bulgarian decentralisation process, although there is room for additional progress in political and administrative decentralisation as well.

Political decentralisation has provided democratic legitimacy and accountability to Bulgarian municipalities. However, decentralisation is limited within municipalities, as mayoralties and wards have a very limited ability to bring policies and services closer to their citizens. In the same vein, although some tools exist, engaging stakeholders in governance and policymaking is difficult across most Bulgarian municipalities. Open government data initiatives at the municipal level are scarce.

Effective administrative decentralisation has been limited so far. Not only does municipal spending represent a small share of public spending, but it is largely driven by the central government. Municipalities spent over half of their budget on state delegated responsibilities (i.e. education, social protection and health care). Municipal investment is relatively small and fragmented, which limits the emergence of strategic projects with positive spillovers across jurisdictions due to the lack of regional coordination and inter-municipal coordination. Municipal investment is also highly dependent on the central government and EU Funds, and therefore quite volatile. The ability of municipalities to access EU funds is also highly polarised, with many municipalities having difficulty to meet co-financing requirements.

The limited administrative and strategic capacity of municipalities impedes administrative decentralisation. Bulgaria suffers from a lack of sufficient and adequate human resources especially in smaller municipalities as well as limited ability to set strategic goals and regulate, design and plan activities. The quality of municipal services differs across the country. There is a lack of transparency and integrity to mitigate corruption, especially in public procurement. Finally, inter-municipal cooperation is limited, both in rural or urban/metropolitan areas.

Fiscal decentralisation levels work against municipal capacity. Low levels of fiscal autonomy and very tight fiscal conditions for many municipalities, especially small and rural ones, hinder their capacity to provide services, invest and grow. Municipalities depend mainly on central government transfers (and EU funds), which represent 68% of municipal revenues, on average. Despite the increase in grants over the past ten years, there are still underfunded mandates. In addition, 90% of grants and subsidies are earmarked and/or conditional. Municipalities have limited own-source revenue-generating capacity, resulting in large vertical fiscal imbalances. Tax revenue is low, accounting for 12% of municipal revenue (versus 42% in the EU28, on average), 0.9% of GDP (compared to 6.5% in the EU28) and 4.4% of public tax revenues (24.2% in the EU28), and there are substantial disparities among municipalities. In addition, the municipal taxing power remains constrained, both in terms of rates and bases.

Despite a substantial increase in municipal debt over the past two decades, the level of local government debt remains moderate by international standards, accounting for 1.2% of GDP and 5.5% of total public debt, versus the respective EU averages of 11.6% and 14.5%. Municipal debt is also very unevenly distributed. This low level is the result of weak creditworthiness among a large number of municipalities and the strict borrowing framework. Bulgaria has made substantial progress in strengthening its fiscal framework, enforcing fiscal discipline and consolidating local finance. There are still however, significant issues regarding municipal financial sustainability, transparency and accountability.

An effective intermediate level between the central and municipal levels is missing in Bulgaria. The ability of districts and planning regions to deliver on their functions, in particular regional development, is limited. Reinforcing existing regional bodies has been debated for many years, without real progress. In Bulgaria, the topic of regionalisation is sometimes referred to as the “saga of decentralisation at the regional level”. To date, no consensus has emerged on the best options for the future.

The role of the districts is limited in practice. On paper, districts are a key component of the state territorial administration. They are in charge of regional policy, implementation of state governance at the local level, and ensuring the conciliation of national and local interests. In reality, districts do not have sufficient authority, human capital and financial resources to carry out their mandated responsibilities, their coordination role within deconcentrated state administrations, and their “mediation” role between the central government and the municipalities.

The six planning regions have limited territorial impact. These “territorial units” do not have a legal status and are therefore not equipped to develop regional development policies. Planning regions do not have their own administration or permanent staff nor do they exercise any administrative functions, and they suffer from a lack of representativeness and legitimacy. They act primarily as consultative bodies and “conduits” for regional planning and EU funds programming.

Bulgaria’s centralised framework for regional development policy has limited the space to take a place-based policy approach. When they are properly designed and implemented, regionalisation and decentralisation can have a number of positive outcomes. These include more proactive regional and local development, enhanced growth and productivity, improved local public services, better accountability and more efficient use of public resources.

There is an increasing consensus today in Bulgaria on the need for policies that are more place-based and for a renewed governance model, based on decentralisation and regionalisation, i.e. based on an enhanced role for regional entities and municipal governments. Within this model, regional and local actors should be capable of designing and implementing context-sensitive interventions and providing local public goods and services to ensure a better match between policies and citizen preferences. A renewed model should include effective coordination mechanisms among levels of government.

Bulgaria should continue its efforts to move towards a place-based and integrated approach for regional policy in the 2021-27 EU programming period, in particular by effectively finalising and implementing regional policy instruments that are under preparation. Important among these are the draft 2021-27 Partnership Agreement and the new Programme for the Development of the Regions (PDR). Amendments to the Regional Development Act, adopted in March 2020, are a large step in the right direction as they strengthen the importance of the territorial dimension in sectoral policies, improve cross-sector coordination, develop a polycentric model of hierarchical city centres, and ensure the effective implementation of integrated territorial investments (ITI) developed by the EU. These amendments will be instrumental for implementing the new Partnership Agreement and PDR. To consolidate these positive steps, it is necessary to ensure that regulations will effectively support more clarity, better quality and enhanced coordination.

Despite strong commitment, Bulgaria’s limited progress in implementing its 2016-25 decentralisation strategy calls for updating the strategy and preparing a new programme for 2021-25. The update should focus not only on the strategy’s content but also on its method.

Adopting a new method to prepare and implement the revised 2016-25 strategy. Bulgaria needs to address the difficulties encountered in implementing previously planned decentralisation measures. As a first step, Bulgaria could prepare an implementation strategy that identifies the necessary steps and tools for the successful execution of the reform, including communication tools, effective indicators, and pilot programmes. It is proposed to reactivate the Council for Decentralisation of State Governance (CDSG), but with a different structure, role and a permanent secretariat.

Revising the content of the current strategy by better linking decentralisation and regionalisation. Despite the well-defined content of the current strategy, it is necessary to update its content, and to implement measures that were planned in the 2016-2019 programme and include additional measures. It is particularly important that the revised strategy rebalance political, administrative and fiscal decentralisation; address decentralisation in a “whole-of-government perspective”; and connect and “bundle” decentralisation, regionalisation and regional development. Connecting municipal decentralisation reform to the need for a stronger regional level, and vice-versa, could make the entire reform process run smoother.

Establishing effective multi-level governance coordination mechanisms among levels of government. Creating a culture of cooperation and regular communication is essential to achieve effective multi-level governance and long-term reform. Bulgaria could explore putting in place two forms of coordination mechanisms across levels of government: a multi-level governance platform for dialogue and coordination and multi-level governance instruments such as multi-level contracts.

Municipalities could better promote socio-economic development and participate in regional development but they need more capacities and resources to act effectively. They also need to improve their governance. To achieve this, it is proposed to act in each of the three dimensions of decentralisation (political, administrative, and fiscal). Bulgaria could also be inspired by the OECD’s Ten Guidelines for Effective Decentralisation Conducive to Regional Development.

Enhancing intra-municipal decentralisation and civil society participation. Bulgaria should make the most of its existing well-developed network of mayoralties, wards and villages and reinforce civil society participation practices, transparency and accountability at the municipal level.

Generating more effective administrative decentralisation would reinforce the government’s commitment to its decentralisation strategies and programmes, and help increase the effectiveness of its governance system. It involves:

  • Improving the assignment of responsibilities: less delegated functions, more exclusive responsibilities and experiments (asymmetric decentralisation);

  • Increasing municipalities’ room to manoeuvre regarding investment and improving the multi-level governance of public investment;

  • Improving municipal administrative and strategic capacities;

  • Enhancing the quality and efficiency of municipal services;

  • Ensuring the effective use of internal and external resources with integrity;

  • Better municipal services and investment through inter-municipal cooperation in rural, urban and metropolitan areas.

Strengthening fiscal decentralisation and fiscal responsibility. As in many countries, the importance of fiscal decentralisation in ensuring successful reform is widely underestimated. To advance this agenda, the following measures are proposed:

  • Conceptualise fiscal decentralisation reform within a strategic framework, dialogue with key stakeholders;

  • Reform the grant system to ensure more adequacy and flexibility;

  • Reform the local tax system to improve its performance (optimisation of current local taxes); diversify the municipal portfolio of taxes and improve the collection and management system; strengthen the Bulgarian fiscal equalisation mechanism;

  • Facilitate access to external financing for public investment through borrowing and public-private partnerships to close the investment gap;

  • Pursue measures for better fiscal discipline and local financial management.

Moving towards a new regional organisation based on reformed districts and planning regions. More effective regional governance could be of significant value to the Bulgarian multi-level governance system. It could help foster cooperation among municipalities, ensure better coordination between the municipal and central levels, and better support the design and implementation of place-based policies at the regional level, in coordination with the central government and aligned with EU cohesion policy. Although the need for a stronger place-based approach and improved regional governance is widely agreed upon in Bulgaria, there is no consensus on how to achieve this. One challenge is managing the existence of two regional-level entities – districts and planning regions. This report proposes to proceed gradually and in a comprehensive manner. Rather than choosing between the levels, consideration should be given to reforming both levels with functions that are very clearly attributed, focused and differentiated. Districts could be maintained and reinforced as state territorial administrations (deconcentrated central government), but without responsibility for regional development. Planning regions could be promoted as a legal body with responsibility for regional development as their basic function, and they should be adequately resourced to do so.

Reinforcing the role of the districts as state territorial administration. Districts should be reformed to accompany the decentralisation process, and adapted to the new proposed role of planning regions. This involves:

  • Reconfiguring district responsibilities to enhance vertical and horizontal coordination among levels of government (including facilitating cooperation between municipalities) and develop the administrative and budgetary control of municipal activities;

  • Reinforcing human, technical and financial capacities of the districts, including rationalising and consolidating the fragmented territorial units of the central administration at the district level;

  • Conducting a review focusing on the territorial organisation and boundaries of future districts, i.e. keeping the 28 districts or merging them into six state regional administrations.

Strengthening the planning regions as regional development public bodies. To reinforce regional governance in Bulgaria, it is not recommended to establish elected regions, as this option needs more in depth-analysis, discussions and dialogue to be implemented in the longer term if relevant. Rather, two other scenarios are proposed:

  • Scenario 1: a minimal one consisting of providing planning regions with a legal personality. They would become a public body, with their own assets, budget and administration. This is the simplest and fastest scenario.

  • Scenario 2: consists in transforming planning regions into regional associations of municipalities or cooperative regions. This more ambitious scenario allows for a “partial democratisation” of the governance system by directly involving municipalities in the governance structure, which could then be more supportive to this type of regionalisation. This form of regional governance could lay the groundwork for more empowered regions in the future.

To strengthen the current planning regions, it is proposed to:

  • Expand regional functions in the areas of spatial planning, regional development and management of EU funds to also include selection, funding, implementation and monitoring of projects;

  • Provide planning regions with a permanent administration;

  • Provide planning regions with adequate financial resources, skilled staff and modern tools (e.g., efficient IT systems, performance indicators) should be made available to planning regions so that that can effectively perform these tasks, in particular, those concerning implementation, monitoring and evaluation;

  • Enhance planning region capacity through peer-learning, networking and expert committees.

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