More than a year has passed since the spread of the Covid-19 pandemic. The imposed restrictive measures that aimed at controlling the disease had economic and social consequences similar to those of World War II. In May 2020, the European Commission (EC) proposed a large-scale package of measures to pave the way out of the crisis and lay the foundations for a modern and more sustainable Europe - the Next Generation EU.
Next Generation EU is a new temporary recovery instrument for the period 2021-2027, amounting to 750 billion euros, which will increase the EU budget with new funding raised in the financial markets. The instrument is deployed in three pillars: (1) Supporting the recovery of the Member States (covering the "Reconstruction and Sustainability" Mechanism, "Reconstruction Assistance for Cohesion" and "the Territories of Europe" - REACT-EU, Reinforced Rural Development Programs, and Enhanced Fair Transition Mechanism); (2) Economic boost and private investment support (includes the Solvency Facility, the Strategic Investment Facility and the Enhanced InvestEU Program) and (3) Lessons from the crisis (New EU Health Program; Enhanced rescEU and Enhanced Programs focused on research, innovation, and external action).
What is the Recovery and Resilience Facility (RRF)?
In general, the Facility finances reforms and investments in EU-wide priorities and, in particular, the green, digital, and social sustainability that create jobs and sustainable growth. Through the Mechanism, the EU will provide the Member States with non-repayable financial assistance (grants), complemented by low-interest loans, in support of public investments and reforms. The instrument is administered by the EC and is financed with a total of EUR 672.5 billion (EUR 312.5 billion for grants and EUR 360 billion for loans.) The amount allocated to Bulgaria is EUR 6.3 billion for the period 2021-2027 as a grant and a € 4.5 billion loan opportunity.
National Recovery and Resilience Plans (NRRPs)
EU support will be granted to national recovery and resilience plans, which are subject to evaluation and approval by the EC. If the evaluation criteria are met, Member States can receive grants and supplement them with loans. The evaluation of the national plans is carried out within the framework of the European Semester. If there's significant failure to achieve results, the funding may be suspended.
The maximum amount of grants for each Member State is linked to the population, GDP per capita, and unemployment rate. The maximum amount of loans for each Member State will be up to 6.8% of their gross domestic income. Member-States can apply for loans alongside the national plans or after the plan is revised. The amounts will be disbursed in tranches, based on the implementation of key indicators and targets.
Each national plan must comply with the country-specific Council Recommendations, the National Reform Program, the National Energy and Climate Plan, the Just Transition Plan, the Partnership Agreement, and the Operational Programs, and ought to be accompanied by a certain budget and schedule. The plans must justify the potential for growth and job creation; the contribution to green (37%) and digital (20%) transition. It is also necessary to indicate the envisaged stages, objectives, and indicative timetable for the implementation of the reforms. Planned investment projects and the respective investment period and the total estimated costs for the reforms and investments in the plan are also taken into consideration. All these requirements and conditions make the process of preparing national plans significantly complex, requiring synergies of dozens of departments, compliance with diverse strategic documents, combined a bold vision for the recovery and resilience of Member States' economies.
The recovery and resilience plan can be submitted in a single integrated document with the national reform program until 30 April 2021. The EC evaluates the plan within two months and then presents a decision. If the Council opts in favor of the country, the Commission makes a pre-financing payment of up to 13% of the entire financial contribution by December 31st, 2021.
The Bulgarian plan
Bulgaria started drafting a plan and consulting with the social partners as early as August 2020. The first version of the plan was uploaded on a specific website on 30 October 2020, which drove broad public consultation and a lot of informal discussions with the EC services. The presented plan has a total value of BGN 12,159.5 million and is structured in four pillars:
Innovative Bulgaria - aiming at increasing the competitiveness of the economy and transforming it into a knowledge-based and smart growth economy - BGN 2,431.9 million (20% of the resources under the Plan);
Green Bulgaria - focused on the sustainable management of natural resources, by meeting the current needs of the economy and society, and maintaining environmental sustainability at the same time - BGN 4,499 million. (37% of the resources under the Plan);
Connected Bulgaria - providing prerequisites for increasing the competitiveness and sustainable development of the regions, by improving transport and digital connectivity, and promoting local development, based on the specific local potential - BGN 2675.1 million (22% from the resources under the Plan);
Fair Bulgaria focused on disadvantaged groups and individuals; aimed to achieve more inclusive and sustainable policies, and build effective and responsible public institutions that are sensitive to both the business and citizens - BGN 2553.5 million (21% of the resources under the Plan).
On November 27, 2020, the National Council for Tripartite Cooperation discussed the first version of the project. On December 1st, at the initiative of the Chairman of BIA and Chairman of the Economic Policy Committee of the Economic and Social Council (ESC) - Radosvet Radev, the ESC announced the general position of employers and trade unions and other civil society organizations represented by the Council. It set out many criticisms and suggestions for improving the draft plan and the funding allocations.
On February 8, 2021, a second, expanded version of the NRRP was published, reflecting some of the recommendations. A new element was brought in - the Economic Transformation Program, mobilizing a resource of BGN 900 million, provided the Ministry of Foreign Affairs and an additional private co-financing entity covering BGN 828 million. The program consists of three funds ("Technological Modernization", "Green Transition" and Digitalization) and provides targeted support to Bulgarian small and medium-sized enterprises and supporting the transformation to a digital, low-carbon, and resource-efficient economy. It also foresees an element aimed at building basic digital skills in the workforce. The part providing support for the transition to a low-carbon economy has been restructured.
What will happen next?
The development of an NRRP project took more than 7 months and still requires work. In the meantime, following the parliamentary elections, the previous government announced its intention to leave the development of the NRRP to the newly formed government. On April 16, 2021, a third, updated version was submitted to the National Assembly. What are the possible development scenarios?
1. The draft plan is submitted in its current form. In this scenario, the deadline for submission will be met and Bulgaria may request and receive advance funding of 13% within the next few months.
2. Re-doing certain elements of the NRRP. The new projects should be discussed with the EC and presented to the public on very short notice. To use the advance payment, the whole procedure (including preparation, consultation, formal submission to the EC, evaluation, and decision of the Council must be completed by 31.12.2021.
3. Development of an entirely new NRRP. Based on previous experience, we can expect that the development alone would take at least a few months. This is followed by the EC's formal submission, evaluation, and approval, and a decision for its implementation by the Council. There is a possibility that the process will not be completed by the end of 2021, which would potentially deprive our country of the opportunity to use a 13% advance payment.
On April 16, 2021, at a joint press conference, the employers 'and trade unions' organizations called on all parliamentary parties to submit the NRRPs to the EC by the end of April 2021. The decision is, of course, in the hands of the legislature and the executive power.
