The World Bank yesterday approved a US$150 million Third Programmatic Adjustment Loan (PAL 3) for the Republic of Bulgaria. This is the last in the series of PALs that is providing a single umbrella of support to reforms across different sectors of Bulgaria’s economy while assisting the advancement of Bulgaria’s reform agenda.
PAL 3 plays an important role in moving forward Bulgaria’s structural reform agenda, which would help improve prospects for Bulgaria’s successful EU integration. The reforms supported by the PAL program have helped Bulgaria fulfill important achievements in the areas of large-scale privatization, infrastructure, improvement of the business climate, banking and non-banking financial sector reform, public sector governance, enhancing the access to quality education and health services, and increasing the effectiveness of social assistance.
Under the Government program, supported by the World Bank in partnership with the IMF and EU, Bulgaria’s average annual growth rate accelerated to close to 5 percent during 2002-04; unemployment went down from 19.8 percent in 2001 to 12 percent in 2004; and per capita incomes and living standards increased while poverty has continued to fall. The private sector is stronger and produces 75 percent of the country’s GDP; the civil service is now more transparent and accountable; the front line government services are more efficient and of higher quality; children from low income families have increased their participation in schools; key pension parameters such as benefit indexation, contribution base dynamics and split of contribution rates have become more stable and predictable; and social service provision is outsourced to non-governmental providers.
Even though the PAL program has been completed successfully, Bulgaria still faces a number of important challenges ahead for successful EU integration. Further efforts are needed in reforming the judiciary and reducing corruption for a better business environment. Public service delivery at national and local levels needs to be enhanced to provide quality services to citizens. Bulgaria should deepen the reforms in education and health to ensure equal access, quality and fiscal sustainability, and to strengthen the skills and human resources necessary for a competitive economy. A flexible labor market would help improve employment opportunities. Investments in infrastructure are needed for enhanced transport and water services. And reforms in the social protection and social services should continue. The World Bank stands ready to continue supporting the implementation of the reforms in the coming years.
The total amount of the three loans under the PAL program is US$425 million. PAL 1 for US$150 million was approved in February 2003. It was targeted at improvements in the business environment, the restructuring of infrastructure sectors, and further deepening of the financial sector. PAL 2 added another US$125 million equivalent and had a particular focus on public administration reform. PAL 3 is worth US$150 million equivalent (Euros 116.1 million). The loan signed today for PAL 3 is to be paid over in 17 years, including a 5 year grace period.
The PAL program was a key component of the World Bank’s Country Assistance Strategy (2002-05) that is to be completed this summer. The preparation of the new Country Partnership Strategy (CPS) is underway, and it will guide efforts of Bulgaria’s decision-makers and the World Bank to improve people’s living standards. The new CPS will be a flexible partnership strategy to help Bulgaria complete remaining reforms for a successful EU integration, better absorption of EU grant funds, and achieve a more rapid convergence of income levels with the EU (currently Bulgaria’s average per capita income is still only 28 percent of average EU income levels).
Since Bulgaria joined the World Bank in 1990, the total World Bank-assisted program in the country comprises 37 operations totaling to about US$2,140 million equivalent. This includes thirteen adjustment loans (US$1,351 million), 19 investment projects (US$751 million), four Global Environmental Fund (GEF) grants (US$28.9 million), and two Prototype Carbon Fund grants (US$6.8 million).