The European Commission has today presented assessments and recommendations for EU economies. The Commission has carried out an in-depth assessment in 16 countries, taking into account that Bulgaria and 14 other countries do not meet the deficit requirements.
The EC makes three recommendations to our country, BTA explains. The first is to end the energy support measures envisaged by the end of the year, with the money saved being directed towards reducing the government deficit. If the rise in renewable energy prices necessitates support measures, our country should provide assistance to vulnerable households and companies, while maintaining energy-saving measures. Our country is expected to ensure prudent fiscal policy, especially by limiting the nominal increase in nationally funded net primary spending next year to no more than 4.6 percent.
According to the Commission, it is necessary to maintain nationally funded public investments and ensure the effective absorption of pandemic and other EU funds from the economic recovery plan, especially to promote the transition to a digitalised and environmentally friendly economy. After 2024, our country is expected to continue to follow a medium-term fiscal strategy for gradual and sustainable consolidation, combined with investments and reforms leading to higher sustainable growth, to achieve a reasonable medium-term fiscal position.
The second recommendation is to ensure an effective governance structure for the rapid implementation of the economic recovery plan. Bulgaria is encouraged to continue with the swift implementation of cohesion policy programmes.
The third recommendation envisages reducing dependence on fossil fuels and accelerating the clean energy transition with the faster introduction of renewables, along with storage options for their energy. Our country should improve the electricity grid. It is recommended that Bulgaria continue its efforts to increase connectivity with the energy networks of neighboring countries. The Commission expects to accelerate the renovation of buildings, to introduce future-oriented solutions for district heating and urban transport, to accelerate the development of railway infrastructure. The Commission expects increased policy efforts to provide and acquire the skills needed for the transition to a cleaner economy.
An accompanying assessment of the Commission notes that with Bulgaria's medium-term macroeconomic position after shrinking by 4% in 2020, the economy grew by 7.6% in 2021 and by 3.4% last year. Growth of 1.5 percent is expected this year and 2.4 percent next year. Growth this year was driven mainly by personal and public consumption, the document said. Economic activity in 2021 returned to its annual level of 2019, the commission said.
In the medium-term budgetary position, including investment, the government deficit increased from 3.8% in 2020 to 3.9% of GDP in 2021, before falling to 2.8% last year. It is projected to be 4.8% of GDP this year and next.
This forecast takes into account Bulgaria's draft budget for 2023 and the medium-term fiscal strategy, which include a basic no-policy-change budget plan guided by measures such as wage and pension increases and reductions in some taxes. It is clarified that the parliament has yet to sit on the budget.
Government investment fell from 3.3 percent in 2020 to 2.6 percent of GDP in 2021, before rising to 3 percent last year and surpassing the government deficit in 2022. According to the Commission's assessments, the fiscal stance in 2022 was in line with the recommendations of the Council of the EU. According to these recommendations, Bulgaria has continued to support the recovery of the economy with investments with EU funds. Expenditure financed by the EU amounted to 0.8% of GDP in 2022 (0.9% of GDP in 2021), according to the data.
Nationally funded investments provided a contribution of 0.5 per cent to the fiscal stance. Bulgaria has kept nationally funded investments, as recommended by the Council of the EU. The increase in nationally financed primary current expenditure (excluding new revenue measures) provided a contribution of 0.8 per cent to the fiscal position. This contribution to enlargement included the additional impact of fiscal policy measures to mitigate the economic and social impact of energy price increases (additional net budgetary costs of 0.9 per cent of GDP), as well as the cost of offering temporary protection to Ukrainian refugees (0.1 per cent of GDP). Bulgaria sufficiently controlled the growth of nationally funded current expenditure, the assessment says.
This year, the fiscal stance, according to the spring forecast of the Commission, is projected to be 3.1% of GDP, accompanied by high inflation. The growth of nationally financed primary current expenditure this year is projected to provide a contribution of 1.9 per cent of GDP to the fiscal position. The expansionary contribution of nationally funded net primary current expenditure is not due to targeted support for vulnerable households and firms due to energy prices, as well as Ukrainian refugees. The projected growth of nationally funded primary current expenditure is not in line with the recommendation of the Council of the EU, the document adds.
Bulgaria is expected to finance additional investments with EU funds and to keep nationally funded investments. EU grant spending is projected to amount to 1.9% of GDP in 2023, while nationally funded investment is expected to provide a growing contribution to the fiscal position of 0.1%.
With regard to the medium-term debt position, it is added that government debt increased from 20 per cent of GDP at the end of 2019 to 24.5 per cent at the end of 2020. It stood at 22.9% of GDP at the end of 2022 and is expected to reach 25% and 28.1% at the end of 2023 and 2024 respectively.
The assessment of debt sustainability shows moderate risks over the medium term. Structural reforms related to the current EU budget, if fully implemented, could have a further positive impact on GDP growth in the coming years and help limit debt sustainability challenges.
The document clarifies that the Bulgarian authorities are holding talks on the draft budget for this year, with the leading parliamentary parties already openly expressing their intention to reduce the deficit to 3% of GDP this year.
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