Bulgaria has progressed in its governance and socio-economic development, but significant gaps remain. Since 1991, Bulgaria has moved from a planned economy to an open, market-based, upper-middle-income economy. Bulgaria’s GDP per capita grew from 29% of the EU average in 2000 to 53% in 2019. The share of the Bulgarian population at risk of social exclusion declined from 61.3% of the population in 2006 to 32.5% in 2019. The country has also improved its democratic governance, transitioning from a monocentric governance model to a multi-level governance system based on a clear division of powers and strong national and subnational institutions. Bulgaria has two deconcentrated regional levels with six planning regions and 28 districts, and one decentralised level with 265 municipalities.

Despite improvements, structural challenges may be limiting further socio-economic transformation. Socio-economic convergence has been slower in Bulgaria than in its Central and Eastern European counterparts, and has not translated into sustainable and inclusive growth across the country, resulting in increased social disparities. While the gap in Bulgaria’s GDP per capita with other EU countries has narrowed it remains the lowest among EU countries and income inequality has risen since the 2008 crisis, with the Gini coefficient for disposable income rising from 35 in 2007 to 41 in 2019. Indeed, since 2016, it has been the highest in the EU. Moreover, despite its strong decline, Bulgaria’s share of the population at risk of social exclusion remains the highest among EU countries.

Territorial socio-economic disparities are strong and increased after EU integration, the move to market-based economic systems and the 2008 global financial crisis. Bridging territorial divides has proven difficult despite significant investment in regional development and EU Cohesion Policy funds. In the 2018 ranking of European regions by GDP per capita, three Bulgarian regions ranked just above last place – between 34% and 36% of the European average.

There are disparities in planning regions, districts, and municipalities. Bulgaria reflects an “island of prosperity” dilemma, i.e. differences between the country’s core region and others based on 11 socio-economic indicators. Regional income differences in Bulgaria are larger than in most OECD countries. National prosperity tends to concentrate in Bulgaria’s South West region, and within it, the Sofia Capital (district). For example, the South West region concentrated 35% of national GDP in 2000 and 48% in 2018. The South West GDP per capita was 1.2 times higher than the national average in 2000 but 1.5 times higher in 2018. At a smaller level, the district of Sofia Capital concentrated 26% of national GDP in 2002 and 40% in 2017. Its GDP per capita was 1.9 times higher than the national average in 2002 but 2.1 times higher in 2017. Although cities such as Plovdiv, Varna and Burgas are emerging as economic centres, counter balancing this concentration of prosperity, other areas remain behind.

Regional development is characterised by mixed results. This is despite the government’s effort to construct a more place-based and integrated regional policy approach, notably through the 2014-2020 Operational Programme “Regions in Growth”. Behind this, in part, are exogenous factors such as the 2008 crisis and difficulties arising from demographic and socio-economic challenges in some regions. The centralised approach to designing regional development policies is another contributing factor.

Despite successive decentralisation strategies and programmes, Bulgaria remains centralised. Bulgaria’s only decentralised level (the municipal one) accounts for a relatively small share of public expenditure: 20% of public expenditure (7% of GDP) versus 34% of total public expenditure in the EU28 (15% of GDP). Fiscal decentralisation is the weakest dimension in Bulgaria’s decentralisation process. Additionally, some pre-conditions for successful decentralisation have not been met, including a balance between political, administrative and fiscal decentralisation.

Municipal governance faces several decentralisation challenges. Low fiscal autonomy and very tight fiscal conditions for many municipalities hinder their ability to provide services, invest and grow. Municipal spending is largely driven by the central government. Administrative decentralisation is limited, and is undermined by weak municipal administrative and strategic capacity. While political decentralisation provided democratic legitimacy and accountability to municipalities, local democracy still needs to be reinforced within municipalities.

Regional governance could be strengthened at the district and planning region levels. On paper, districts are an integral component of the state territorial administration, particularly for regional policy. In practice, they lack the authority, human capital and financial resources to execute their mandates. The six planning regions are “territorial units” without legal status, and thus are not equipped to develop regional development policies.

Regionalisation and decentralisation, when properly designed and implemented, can have a number of positive outcomes. For instance, decentralisation can generate more proactive local and regional development, enhanced growth and productivity, improved local public services, better accountability and a more efficient use of public resources. Bulgaria needs to renew its approach to decentralisation and regionalisation by adjusting its centralised framework in order to reinforce their value in regional development.

Moving towards a place-based and integrated approach for regional policy. Policies that are more place-based, together with new governance tools and an enhanced role for regional entities and municipal governments would help Bulgaria reach its regional development aims. The government should continue refining its place-based and integrated approach to regional policy in the 2021-2027 period. Amendments to the Regional Development Act, adopted in March 2020, and the new Programme for the Development of the Regions (PDR) are a step in the right direction. Bulgaria should ensure that regulations effectively support more clarity, better quality and enhanced coordination.

Improving municipal decentralisation: more capacities and resources and better municipal governance. The lack of progress in Bulgaria’s decentralisation process, despite strong commitment, calls for updating the current 2016-25 decentralisation strategy and preparing a new 2021-25 programme. The update should focus on the strategy’s content and its implementation, for example by preparing an implementation plan and developing an informed dialogue with key stakeholders on the benefits and challenges of decentralisation. The strategy should also bundle municipal decentralisation, regionalisation, and regional development and improve coordination mechanisms among levels of government, e.g. through a permanent multi-level governance platform and contracts. A new programme should advance previously planned measures and introduce additional ones, including enhanced “intra-municipal decentralisation” and civil society participation; more effective administrative decentralisation; and stronger fiscal decentralisation and fiscal responsibility.

Reforming regional governance to boost capacity and deliver regional development objectives. Rather than choose between levels, it is recommended to clarify the existing roles of Bulgaria’s regional bodies. Districts should be reinforced as deconcentrated state territorial administrations, with a role in vertical and horizontal coordination, municipal oversight, and territorial cooperation, but without regional development responsibility. The six planning regions, should be should be adequately resourced and promoted as legal bodies with regional development as their basic responsibility.