site.btaEC Recommends Bulgaria to Reduce Its Reliance on Fossil Fuels

 The European Commission (EC) presented here on Wednesday assessments and recommendations for the economies of the EU Member States. The Commission that Bulgaria reduces its reliance on fossil and accelerate the clean energy transition through faster deployment of renewable energy sources, together with storage capacities to increase the flexibility of the energy system. 

The EC has conducted a comprehensive assessment of the economies of 16 countries and has found that the deficit criteria are not met in Bulgaria and 14 other Member States. 

The Commission has also made three recommendations to Bulgaria.

The first one is to wind down the energy support measures in force by the end of 2023 using the related savings to reduce the government deficit. Should renewed energy price increases necessitate support measures, ensure that these are targeted at protecting vulnerable households and firms, fiscally affordable, and preserve incentives for energy savings. Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 4.6%. Preserve nationally financed public investment and ensure the effective absorption of RRF grants and other EU funds, in particular to foster the green and digital transitions. For the period beyond 2024, continue to pursue a medium-term fiscal strategy of gradual and sustainable consolidation, combined with investments and reforms conducive to higher sustainable growth, to achieve a prudent medium-term fiscal position, the document reads. 

The second recommendation is for Bulgaria to ensure an effective governance structure and strengthen the administrative capacity to allow for a swift and steady implementation of its recovery and resilience plan. Swiftly finalise the REPowerEU chapter with a view to rapidly starting its implementation. Proceed with the speedy implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan. 

The third recommendation is to reduce reliance on fossil fuels and accelerate the clean energy transition through faster deployment of renewable energy sources, together with storage capacities to increase the flexibility of the energy system. Strengthen the electricity grid infrastructure and improve its management by streamlining the connection procedures and introducing smart grid elements. Continue efforts to increase interconnection with neighbouring countries. Accelerate building renovation to incentivise energy efficiency and address energy poverty. Promote new future-proof solutions in district heating and sustainable urban transport as well as accelerate development of railway infrastructure. Step up policy efforts aimed at the provision and acquisition of the skills needed for the green transition, the document says.

The EC’s report on Bulgaria notes that after a contraction of 4% in 2020, the Bulgarian economy grew by 7.6% in 2021 and 3.4% in 2022. It is expected to grow by 1.5% in 2023 and 2.4% in 2024. Growth in 2023 is mainly driven by private and public consumption. Economic activity returned to its annual 2019 level in 2021. 

When it comes to the medium-term budgetary position, including investment, it is reported that the government deficit increased from 3.8% in 2020 to 3.9% of GDP in 2021, before falling to 2.8% in 2022. It is projected to be at 4.8% of GDP in both 2023 and 2024. This projection takes into account Bulgaria’s 2023 draft budget and medium term fiscal strategy, which include a baseline no-policy-change budgetary plan driven by measures legislated in previous years such as increases in wages and pensions and reductions of some taxes. These documents have not yet been approved by Parliament. 

Government investment decreased from 3.3% in 2020 to 2.6% of GDP in 2021, before increasing to 3% in 2022, and being larger than the government deficit in 2022. 

According to the Commission estimates, the fiscal stance in 2022 was supportive, at -1.2% of GDP, as recommended by the Council. As recommended by the Council, Bulgaria continued to support the recovery with investments to be financed by the Recovery and Resilience Facility and other EU funds. Expenditure financed by Recovery and Resilience Facility grants and other EU funds amounted to 0.8% of GDP in 2022 (0.9% of GDP in 2021). Nationally financed investment provided an expansionary contribution of 0.5 percentage points to the fiscal stance. Bulgaria therefore preserved nationally financed investment, as recommended by the Council. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) provided an expansionary contribution 0.8 percentage points to the fiscal stance. This expansionary contribution included the additional impact of fiscal policy measures to mitigate the economic and social impact of the increase in energy prices (additional net budgetary cost of 0.9% of GDP), as well as the costs to offer temporary protection to displaced persons from Ukraine (0.1% of GDP). Bulgaria therefore sufficiently kept under control the growth in nationally financed current expenditure. 

In 2023, the fiscal stance is projected in the Commission 2023 spring forecast to be expansionary – 3.1% of GDP, in a context of high inflation. The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 is projected to provide an expansionary contribution of 1.9% of GDP to the fiscal stance. The expansionary contribution of nationally financed net primary current expenditure is not due to a targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. In sum, the projected growth of nationally financed primary current expenditure is not in line with the Council recommendation. Bulgaria is projected to finance additional investment through the Recovery and Resilience Facility and other EU funds, and to preserve nationally financed investment. Expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to amount to 1.9% of GDP in 2023, while nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0.1 percentage points. 

As far as the medium-term debt position is concerned, the EC notes that the government debt increased from 20% of GDP at the end of 2019 to 24.5% at the end of 2020. It stood at 22.9% of GDP at the end of 2022 and it is projected at 25% and 28.1% at the end of 2023 and 2024, respectively. Overall, the debt sustainability analysis indicates medium risks over the medium term. In addition, the structural reforms under the NGEU/RRF, if fully implemented, could have a further positive impact on GDP growth in the coming years, and therefore help to mitigate debt sustainability challenges. Other factors put forward by the Member State: The analysis presented in the previous sections already covers the key factors put forward by Bulgaria on 11 May 2023. Bulgarian authorities also informed that, as part of the ongoing discussions on the draft budget for 2023, the leading parties represented in Parliament have publicly committed to reducing the deficit to 3% of GDP in 2023.