Executive Summary
Good public investment provides the backbone of modern, well-functioning societies and supports the wellbeing of people. Public investments contribute to social and environmental objectives through the provision of essential services - such as electricity, water and sanitation, broadband connectivity, public transport, health care, education, and flood protection - that contribute to people’s health and quality of life.
Over the coming decades, Bulgaria will need to find ways to reduce emissions, improve its resilience to shocks and ensure it is providing equal opportunities to all citizens. Responding to climate change requires fast action to reduce emissions in line with the 2050 Paris Agreement. In addition, more extreme weather events, induced by climate change, are expected to become more frequent and severe, requiring urgent action to ensure communities are resilient to a more extreme climate.
For Bulgaria, responding to these events will require significant new public investment, which will be challenging to meet given Bulgaria’s fiscal constraints. However, Bulgaria can put itself in a strong position to address these challenges by investing in infrastructure that is proven to address these challenges while also delivering good value for money. To do this, Bulgaria will need to transform how it plans, funds and delivers its public investments. Adopting the recommendations in this report, and the guidance that follows, would put Bulgaria in a strong position to respond to the challenges it faces over the coming decades.
On completing this review, the OECD makes the following findings:
There are many examples of best practice public investment management in Bulgaria that could be replicated by line ministries and municipal governments.
Many of these practices relate to processes for managing European Union-funded projects, such as checks for compliance with analytical methodologies, performance monitoring, reporting requirements and engineering and design standards.
The processes overseen by the Executive Agency Audit of European Union Funds in the Ministry of Finance have several examples of best practice that could be emulated across national and subnational governments.
There are robust stakeholder engagement processes in place.
There are also some highly innovative examples of where municipalities have gone to considerable lengths to capture the views of all citizens in the future planning of their cities.
In general, public participation processes, which happen as part of environmental impact assessments, appear to capture the perspectives of a wide cross-section of society.
Bulgaria suffers from a lack of co-ordination across national and municipal levels.
The country is missing opportunities to take advantage of new efficiencies and synergies that a more co-ordinated approach would provide.
A centrally mandated project selection process, more sharing of services (horizontally and vertically) and a more co-ordinated capital budgeting system could help address this.
Bulgaria should be more focused on how it can use public investments to achieve its desired public outcomes.
The challenge of transitioning Bulgaria’s economy to net zero in the coming decades is immense. Like all countries, Bulgaria will not make this transition by defaulting to traditional solutions. Instead, public institutions must find new ways to achieve the public outcomes they are seeking.
For example, providing energy to people while meeting carbon-reduction targets will require new, cleaner sources of energy. Ensuring people stay connected to employment and services will require new, cleaner forms of transport and greater digital connectivity.
Focusing on the outcomes that infrastructure delivers, rather than traditional built solutions, opens up new ways to deliver the same, or better, levels of service through new technologies that are more affordable and easier to deliver and which meet international commitments such as carbon reduction targets.
Insufficient resources is a common challenge across national and municipal government, but less of an issue for directorates responsible for managing EU funds.
Resource constraints are often due to difficulties retaining talent when competing with higher salaries in the private sector. This is a perennial problem for many public sectors; nonetheless, addressing resource constraints could help improve the performance and responsiveness of the public sector and its capacity to make public investment decisions that better serve the needs of people.
While Bulgaria has robust strategic direction in the form of the National Development Programme “Bulgaria2030”, the link between this and investment decisions made on the ground is often unclear.
A strategic planning hierarchy whereby priorities, targets and KPIs clearly and consistently cascade from the highest-level of government to implementation plans allows decision-makers to measure whether the government’s policy goals are being implemented. It also allows decision-makers to demonstrate to communities, businesses and investors how the government’s objectives are being implemented, providing certainty on the immediate to long-term policy environment. There are indications that decision-makers may not always make investment decisions with their long-term goals in mind. For example:
Infrastructure projects funded from the state budget are often abandoned as priorities within government change or as projects approach cost overruns, often in favour of other projects that had previously been halted
Projects that can be delivered quicker often get prioritized over projects that will take longer to complete.
While not a common practice, some municipalities are entering inter-municipal cooperation arrangements to achieve economies of scope and scale.
Examples include the sharing of services among municipalities, or among utility providers within a municipality (e.g. transport, electricity, water services, and waste management). This sharing of services often results in better service outcomes, better facilities and improved monitoring of activities, cost savings and a greater responsiveness to outages.
Bulgaria needs a mandated, centre-led methodology for assessing and prioritising infrastructure projects, such as cost-benefit analysis.
Because ministries and municipalities apply bespoke project appraisal tools and criteria, decision-makers cannot consistently compare investment proposals across portfolios to ensure they are allocating resources to the highest societal priorities. In addition, the main criteria for selecting projects in Bulgaria are ‘project readiness’, ‘urgency’, and the capacity to fund projects from year to year; this does not help direct public resources to where they are needed the most.
The capital budgeting system is decentralised from the Ministry of Finance to line ministries, which does not allow or encourage line ministries to co-ordinate their investment programmes to achieve efficiencies and synergies.
The lack of a rigorous public investment management system may be leading to wasteful spending
EU-funded projects are well monitored but there seems to be a more haphazard approach to domestically funded projects. Regular reporting on capital expenditures is performed but there is little analysis of the reports and little monitoring of physical progress.
There is also no fiscal risk management strategy, although the debt/GDP ratio is low and there is a contingency provision in the budget. While several fiscal risks are monitored and reported in the budget, there does not appear to be systematic identification of risks with mitigating factors specified.
The multi-annual budget framework is top-down with little emphasis on the need to engage in realistic planning and costing of projects so that projects are carefully prioritised on a whole-of-life basis
However, the Medium-Term Budget Forecast/Updated Medium-Term Budget Forecast contains medium-term estimates of capital expenditure, and the programme budgets of line ministries -- which are primarily responsible for infrastructural expenditure -- contain information and projections on the implementation of significant capital investments in the medium term.
Also, State bodies are not allowed to carry forward unspent funds from year to year. Municipal bodies can carry forward unspent funds into the next year but State bodies must surrender these funds and agree with the Ministry of Finance to spend them as part of the following year's budget.
While there is a regime for concession contracts and PPPs, the model is seldom used.
The general public is averse to paying user charges and the contractor market believe PPPs impose too much risk upon them. Traditional procurement is much better understood and therefore preferred.
Yet, there is some evidence that concession contracts improve the quality of services, lower costs for consumers and allow concessionaires to make returns that they reinvest into their networks.