Written by Yasen Georgiev – EPI, EECFA Bulgaria
On 9 June 2024, Bulgarians are heading to the sixth parliamentary elections in the last three years. The lack of stable coalitions and the fragmented political landscape since 2021 will most probably lead to another fragile government construction with vague prospects for a 4-year term in power. This would have a detrimental effect on the absorption rate of EU money, and thus, public investments in construction.
Against this backdrop, Bulgaria’s economy is projected to grow by 1.9% in 2024 and 2.9% in 2025 according to the Spring 2024 Economic Forecast of the European Commission. These growth projections could have been significantly higher if public investments in general and government spending in infrastructure and construction in particular were in place. Traditionally, the main sources of public investments in energy efficiency of the residential and non-residential stock, urban mobility, road and railway connectivity, utilities, etc. are EU funds available for Bulgaria. However, as of May 2024 EU funding, along with national sources, prove to be absolutely underutilized for various internal and external reasons. These include the insufficient administrative capacity, the lack of project readiness, new priorities at EU level due to the pandemic (as the RRP was prepared as response to it) and Russia’s war against Ukraine. These setbacks have been additionally amplified by a series of government changes resulting in delays of administrative procedures and prolonged communication between Sofia and Brussels, but also by the lack of long-term mandates for the implementation of deep and sometimes painful reforms.
As of May 2024, the average disbursement rate of all EU-funded programmes and instruments during the ongoing budget cycle since 2021 is around 4%. What is more, EU-funded projects with a more extensive component of public investments in construction are disbursed at less than 2% (see table). In contrast, contracted amounts are ten times higher. Still, this shows a slow pace of implementation given the fact that the current financial framework ends in 2027, and certain instruments such as the Recovery and Resilience Plan (RRP) end in 2026. While funding within the classical Operational Programmes could be used up to two years after the period ends, if projects are duly contracted, the resources under the RRP are not transferable in time, according to the respective regulation.
On the one hand, the low absorption rate is due to the delays in finalizing EU projects within the previous financial framework (2014-2020) and the late approval of the new EU programmes within the current budgetary framework (2021-2027).
On the other hand, this performance is linked to home-made political and bureaucratic deficiencies that struggle with the new concepts for EU funding that is made available provided that commitments to reforms are met within strict deadlines. This is the case with the Recovery and Resilience Plan (RRP) that provides funds for green and digital transition projects based on a detailed reform agenda mutually agreed between Bulgaria and the European Commission. This agenda includes amendments of existing legislation or new laws that have to be passed by the parliament, which in recent years has been either not functioning or preoccupied with domestic issues. This barely left time for unpopular reforms, the majority of which have been avoided by political parties due to the constant prospects for new elections.
As a result, currently, Bulgaria is in the fifth implementation period of its Recovery and Resilience Plan but has met only the respective milestones and targets that are set in the first period (with a deadline in June 2022). Thus, projects under the RRP will have to be either downsized and/or implemented with national funding only.
In parallel, Bulgaria struggles with the absorption of EU money in coal-dependent regions under the Just Transition Mechanism, which secures funding for large-scale investments that also include construction activities. It remains to be seen if similar implementation difficulties will show up with the newly launched ‘Municipal Projects Investment’ programme that disburses national funding only.
This interplay of bottlenecks in utilizing available EU and national funding could be tackled appropriately only if a stable government is formed after the parliamentary elections in June. What is also very much needed is that the new government is reform-oriented and abstains from populist measures. The latter would lead to postponing reforms and thus would limit the absorption rate of the available EU funding, which could negatively impact meaningful public investments that come with the oversight of the EU, and which is likely to keep the economic growth below its potential.
More on Bulgarian construction and the segment-level forecast can be found in the EECFA Construction Forecast Report. The new forecast will be out on 25 June. Orders and sample report: eecfa.com