EC: Corruption, Low Trust in Judicial System Hamper Private Investment in Bulgaria

An unstable legal framework and low trust in the judicial system hinder private investment in Bulgaria, the European Commission said on Friday.

“Furthermore, corruption remains an important concern in Bulgaria and the response of the national authorities continues to be hampered by weak and fragmented institutions,” the EU’s executive body said in the section on Bulgaria of its annual analysis of the economic and social challenges in the EU Member States, the so-called Country Reports.

The reports are a tool to monitor policy reforms and to point early on to challenges that Member States should address. Commissioner Pierre Moscovici, responsible for Economic and Financial Affairs, Taxation and Customs, commented in a statement that the country reported presented on Friday “provide the most accurate and detailed picture of EU economies” and will form the basis for the necessary dialogue between the EU institutions and national authorities this spring.”

The Commission also opined in its country report on Bulgaria that the slow implementation of reforms in the areas of public administration and e-government in Bulgaria “prevents significant improvements in the business environment.”

On top of that, weaknesses of the public procurement system constrain the use of the European Structural and Investment Funds.

“Insufficient access to finance and lack of appropriate framework conditions for R&D investment hamper innovation and competitiveness. Delays with critical structural reforms in key sectors such as energy could further impede competitiveness,” the Commission said.

Highlights follow of the country report for Bulgaria:

- The high share of people living at-risk-of poverty or social exclusion remains a major economic and social challenge;

- The education system has limited capacities to include vulnerable groups and equip learners with relevant skills;

- The pension system is estimated to be on a sustainable path but almost one-half of the elderly remain at-risk-of-poverty or social exclusion;

- Remaining weaknesses in the labour market continue to hinder growth and limit the adjustment capacity of the economy;

- Risks stemming from high corporate debt and barriers to deleveraging remain. The persistent negative inflation makes deleveraging more difficult and puts additional pressure on the profitability of non-financial corporations;

- Banking sector liquidity and profitability has improved, but a more robust assessment of the resilience of the sector can only be made based on the results of the upcoming asset quality review and stress test, which are expected towards late summer;

- The domestic banking crisis in June 2014 revealed vulnerabilities with potential implications for public finances and macrofinancial stability. The remaining financial sector imbalances impede the efficiency of financial intermediation and capital allocation in the economy;

- The Bulgarian economy has been gradually emerging from the crisis, but a broad-based recovery is not yet in sight. The crisis has more than halved Bulgaria's rate of potential growth thus halting real income convergence with peer economies.