OVERVIEW OF FISCAL DECENTRALISATION
Bulgaria is a unitary republic. The territory is divided into regions (oblast) and municipalities. However, self-government and fiscal autonomy only exist at the municipal (obshtina) level. There are 264 municipalities, which for the purpose of this study constitute the sub-national level.
Legal acts governing fiscal decentralisation
Local finances are regulated by the Local Self-Government and Local Administration Act (LSGLAA), the Municipal Budgets Act (MBA), and the Annual State Budget of the Republic of Bulgaria Act (SBRBA). Bulgaria is officially in a decentralisation process started by the Strategy for Decentralisation adopted in 2006 and revised in 2010. This was led by a ministerial council, the Council for Decentralization of State Governance (CDSG), which included a consultative body to support implementation. With the crisis, however, the process was been halted, and in 2011 the council's responsibilities were transferred to the Administrative Reform Council (ARC). The CDSG was re-established on the 1 August 2013.[1]
[1] Ministry of Regional Development and Public Works, Decentralization Strategy 2016-2025, 39
Qualifying fiscal decentralisation
Bulgaria has a low level of fiscal decentralisation, below the EU average. Although regions are defined as administrative units, the municipalities are the only sub-national level of the general government with fiscal autonomy. Municipalities, in contrast to regions, possess their own budgets and are allowed to obtain their own revenues. The main source of financing of local expenditure comes from transfers from the central government.
Municipal responsibilities are presently divided into state-delegated activities and own local activities. State-delegated services concern the management and financing of a number of services, for which the state retains the power to define policy. These delegated services include education (primary and secondary), social protection and health care. By contrast, municipalities have own responsibilities regarding housing and communities amenities, economic affairs, environmental protection, culture and religion.
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
No information on tax autonomy is available.
Fiscal equalisation mechanisms
Grants from the central government are mainly based on targeted transfers (approximately 90%) to cover state obligations where the implementation is delegated to local authorities. The transfers for capital expenditures are determined by specific criteria: population size (40%), number of cities /towns (40%), and the municipal territory (20%). Non-capital targeted expenditure (such as managing environmental activities) make up 8-17% of the total transfer and depend on operation size.
Approximately 7-9% of the transfers are based on equalising criteria determined annually in negotiations between the Minister of Finance and the National Association of Municipalities in the Republic of Bulgaria (Art.34, p.4 of the Law on Municipal Budgets).
LEVEL OF FISCAL DECENTRALISATION
In Bulgaria, regions have no fiscal autonomy and only municipalities have some fiscal capacity. Of the total government revenues, local revenues accounted for 6% in 2018. At the sub-national revenues, this represented 27.5% of the budget, resulting in a transfer dependency of 72.5% compared with the EU average of 48% in 2018. The level of own revenues fluctuated substantially between 2000 and 2006 reaching a high of 51% in 2001 and a low of 8% in 2006. Reflecting efforts noted above, local revenue autonomy steadily increased from 2006 to 2011. Between 2011 and 2014, revenue autonomy fell from 23% to 16%. Since 2014 revenue autonomy has been increasing again.
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
Fiscal rules and borrowing capacity
While there are no limits on the amount of borrowing by municipalities, there are limits on debt-servicing annual payment obligations. These may not exceed 15% of own revenues and the block equalising grant (Municipal Debt Act from 2011), which is down from 25% in previous years. Furthermore, no decisions on long-term municipal debt can be taken within 39 months of the date of the next election. The nominal value of guarantees offered by the municipality cannot exceed 5% of the nominal value of annual debt payments.
The Public Finances Act, which was adopted in Bulgaria 2012 and came into force on 1 January 2014, further restricts municipalities' room to manoeuvre. This act is the tool for the implementation in Bulgaria of the EU's Stability and Growth Pact and imposes a balanced budget on municipalities. Also, annual municipal debt payments cannot exceed 15% of the average revenue (own and from state subsidies) of a municipality for the last three years. Due to reduced revenues from the state, municipalities have recently seen their debt levels grow.
Deficit and debt at sub-national levels
Due to the crisis and revenue shortfalls in recent years, municipalities have accumulated larger deficits. Municipalities became net borrowers between 2007 and 2009, and again between 2014 and 2016. This has caused some extreme effects including municipal bank accounts being blocked and municipal services being temporarily suspended. Nevertheless, as of 2016, debt levels appear to have stabilized. The structure of this debt is composed of bank credits and loan agreements, with external slightly larger than domestic debt. As of 2015 almost half of the total municipal debt reported is held by the municipality of Sofia.[2]
[2] https://www.unwe.bg/uploads/Alternatives/5_Alter_english_broi_3_2017.pdf
Source: authors’ elaboration on EUROSTAT data. For further details, see
methodology.
EXPENDITURE BY GOVERNMENT LEVEL AND BY POLICY AREA
Expenditure responsibilities are concentrated in a few areas including education (far above the EU average), housing, general public services and economic affairs.
The expenditures of municipalities represent a significant part of total general government expenditures in the field of environmental protection (83%), education (67%), housing and community amenities (54%), and recreation, culture and religion (53%).
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
Municipal expenditures in the areas of education, and housing and community amenities make up significant parts of total local government expenditures (34% and 12% respectively).
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
