OVERVIEW OF THE RECOVERY AND SUSTAINABILITY PLAN - PRIORITIES, INVESTMENTS, EXPECTED RESULTS

Analysis of the Institute of Market Economics

Bulgaria's National Plan for Recovery and Sustainability is the only large-scale strategic document of its kind, which includes a list of reforms in the most key sectors and investment projects in them. They should help the economy recover from the COVID crisis and accelerate the green and digital transformation of the economy. At the same time, the implementation of the reforms is a condition for obtaining financing for the planned investments - the embodiment of the principle "money against reforms".

Bulgaria is expected to realize some of the biggest macroeconomic effects among the EU countries - both directly from the planned investments and indirectly as secondary effects from the implementation of the plans of other EU countries due to the deeper integration of economies in the common market.

The latest, fifth, version of the Plan of Bulgaria was presented on 15 October 2021 and was officially sent to the European Commission by the caretaker government of Stefan Yanev. The plan contains 59 investment projects and 46 reforms in four main pillars - "Innovative Bulgaria", "Green Bulgaria", "Connected Bulgaria" and "Fair Bulgaria". The total financing of the investments included in the Plan is BGN 21 billion, of which BGN 13 billion are provided under the Mechanism for Recovery and Sustainability.

The Bulgarian plan has not yet been finally approved, and the delay in its presentation to the EC is to some extent due to the political circumstances in the country. The plan also contains serious political commitments that will likely need to be confirmed by a regularly elected government backed by a parliamentary majority to ensure its smooth implementation.

The main observations from the review of the preparation and nature of the Recovery and Development Plan can be divided into several separate groups.

Priorities

• Many Member States have so far planned to use only grants, with most submitting plans for the full amount allocated by the EC under the Mechanism. Bulgaria is no exception. A small number of countries have requested additional debt financing.
• Most of the reforms are presented through the tools for their implementation - change of legislation, formation of working groups and commissions, development of strategic documents, creation of administrative structures. This means that in practice the name of the reforms differs from their content, and the latter in some cases is not even clearly defined.
• There is no connection between some of the projects and the reforms. Some projects, for their part, do not provide a clear way to determine how they will contribute to the reforms. Thematic analyzes of the IME are forthcoming, which will examine these observations in detail.

Investments

• There is no link between the individual projects (perhaps with the exception of energy projects), which means that they are most likely developed independently and before the whole concept of sector reform and development is clear.
• About ¾ of the costs are construction / rehabilitation of infrastructure and physical capital (purchase of machinery and equipment). The rest are human capital, labor and technology. The recovery plan is in practice used as a substitute for a national investment program in a number of sectors.

Expected results

• The lack of an advance on the plan may have a negative effect on Bulgaria's budget and macroeconomic indicators for 2021.
• According to estimates by the European Commission in 2024, Bulgaria will realize some of the biggest effects of the plan on GDP - both directly from the implementation of the plan (3%) and indirectly as secondary effects from the implementation of plans of other countries (0.7%).
• The recovery plan should complement national reform and investment efforts and cannot replace the overall strategy and policy of the state in individual sectors.
• Postponing reforms and projects in the second half of the plan (after 2023) could be a waste of valuable time. The Bulgarian plan is strongly "pulled" back in time - to the extent that we ask ourselves whether this is a plan to restore growth after a severe crisis or a tool for implementing some investment ideas far into the future.
• The recovery plan does not contain an economic analysis for an overall assessment of the effects of projects at sectoral level, which means that it is very difficult to assess the results of their implementation and the extent to which the objectives will be achieved.
• There are no clearly defined goals and indicators. The indicators are not formulated in a way that allows evaluation of the results and effects of the project implementation. They largely do not meet the requirements for a chain of results.

Finally, we note that the low quality of evaluation indicators shows weaknesses in the development of projects eligible for funding. The capacity of the administration to plan, budget and implement investments and reforms will be tested. The latest remarks of the European Commission show that the preparation of a kind of capital program, argued with indicators to measure the expected benefits of each project, as well as assessing the overall impact on the economy is not an easy and hassle-free task. Even if the EC approves Bulgaria's National Plan for Recovery and Sustainability and starts funding the projects soon, it remains questionable whether these funds will not become another wasteful and inefficient spending scheme without a clear end result.

* The "Overview of the Recovery and Sustainability Plan" analysis is part of the Advocacy for Economic Recovery through Reform project and is implemented with financial support of € 49,000 provided by Iceland, Liechtenstein and Norway through the EEA Financial Mechanism. The main goal of the project "Advocacy for Economic Recovery through Reforms" is to promote the implementation of structural reforms in the National Plan for Recovery and Sustainability through analytical efforts and advocacy.