EU-Report Accession Bulgaria

Chapter 29: Financial and budgetary provisions

Bulgaria has made some further progress over the reporting period, notably as regards the national budget and EC co-financed measures.

A number of new relevant legislative measures have been introduced concerning national budget and EC co-financed measures. The most significant of these are an Annual Budget Act, an Act on the Budget of the Health Insurance Fund, an Act on the Budget of the National Social Security Institute and a Decree of the Council of Ministers on the Implementation of the State Budget.

The state budget planning and forecasting systems have been reformed to orient them towards policy- and results-oriented budgeting in order to achieve efficient resource allocation and service delivery. Fiscal transparency has been improved by streamlining budgetary structures and reducing the number of extra-budgetary accounts. Revenue forecasting at municipality level has been strengthened. An enhanced drafting procedure for the 2003 state budget started in early 2002. The Treasury Single Account was further developed, including the adaptation of the accounting procedures to EC standards. A financial management information system has been piloted in selected spending units. A system for electronic budgetary payments is now largely operational.

As regards application of the own resources system, Bulgaria's customs administration has continued to strengthen its administrative and operational capacity through reform of customs activities including collection of VAT and duties. In addition, the National Statistics Institute has upgraded the calculation of GNP in line with ESA 95 standards (see also Chapters 12 Statistics and 25 Customs union).

A division has been set up within the Budget and State Treasury Directorate of the Ministry of Finance to deal with European integration issues, including participation in the EC own resources system.

Overall assessment

Although budgetary rules are broadly satisfactory and the Treasury is functioning well, Bulgaria should continue efforts to bring the budgetary principles and rules into line with those standards generally applicable in the Community. Public expenditure management and control has steadily improved. The increased orientation towards policy and results, greater transparency of the budgetary process, strengthened forecasting systems, development of the Treasury Single Account and introduction of new systems are all positive developments. Further across-the-board strengthening in these areas is needed, as well as progress on the Public Debt Management Bill. Bulgaria now needs to bring this Bill into force and develop and implement a strategy for restructuring and modernising the Ministry of Finance, including upgrading administrative capacity in a number of areas.

In the immediate future, the priorities include further development of the Treasury Single Account, the Financial Management Information System and the System for Electronic Budgetary Payments, and continued strengthening of the drafting procedure for the annual state budget. In the medium term, national accounts statistics must be brought more closely into compliance with the ESA 95 standard, a more detailed functional budget classification should be developed, budget legislation should be further aligned with EC and international standards, the very few remaining extra-budgetary funds should be closed and the number of budget entities further reduced, and the Ministry of Finance should implement its strategy for reform and restructuring, especially to strengthen its strategic capacity to evaluate the composition and quality of public expenditure.

In relation to future EC own resources, Bulgaria needs to develop plans for an effective government-wide co-ordinating body in the area of own resources. It should further strengthen its efforts to set up effective instruments to combat fraud relating to VAT and customs duties so that the protection of the financial interests of the EC can be assured. Appropriate administrative steps should be taken by Bulgaria to ensure effective coordination between the various authorities involved in the application of the system of own resources. The division set up within the Budget and State Treasury Directorate of the Ministry of Finance to deal with European integration issues, including participation in the EU own resources system, needs to be developed and its staff trained. The capacity to calculate in a reliable, accurate and transparent way the level of customs duties and VAT collected by Bulgaria and to calculate Bulgaria's GNP needs to be further improved to allow calculations to be made in a harmonised and controllable way. Adequate administrative capacity to duly collect and transfer in a timely manner all own resources to the Community budget, including developing the division established in the Ministry of Finance, will need to be established prior to accession, as will the ability accurately and regularly to report to the Commission on the situation with regard to each of the types of own resources.

In addition to the need for central co-ordination of the proper collection, monitoring and payment of funds to and from the EC budget, administrative capacity should continue to be strengthened in the context of the relevant policy areas described elsewhere in this report, such as agriculture, taxation, customs and regional policy.

Conclusion

In its 1997 Opinion, the Commission concluded that, in order to ensure that own resources were established, monitored and made available in line with Community regulations, Bulgaria would have to overhaul its current customs system. In addition, for the purposes of accurately calculating the GNP resource, considerable improvements would have to be made to the national accounts to ensure that they were reliable, homogeneous and complete. The Commission added that improving the statistics would also be essential for drawing up the VAT own resources base, which would mean bringing Bulgaria's VAT system fully into line with the Community directives.

Since the Opinion, Bulgaria has made progress in these areas; however, it has only recently started serious reform of the customs system. Budgetary rules are generally satisfactory and the Treasury is functioning well. However, budgetary principles and rules are not yet in line with those standards generally applicable in the Community.

Negotiations on this chapter are ongoing.

Bulgaria should focus further efforts on the legal framework for budgetary management and for the transparency and efficiency of financial flows to and from the EC budget, which is in the process of being created. Bulgaria's efforts need to focus in particular on improving administrative structures.

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