Bulgaria's economic growth requires stronger convergence with the EU and addressing inflationary pressures through supply-side enhancements. Scaling up quality public investment is identified as a key driver for sustainable growth and development, with potential to boost productivity and private investment.
Public Investment Needs and Efficiency
- Infrastructure quality and availability lag behind the EU average, particularly in transport, water, and energy sectors.
- Both capital stock and public investment have been relatively low, with public investment lagging peers over the past decade.
- Improving public investment efficiency can save up to 1.8% of GDP, as highlighted by the IMF's Public Investment Management Assessment (PIMA).
- Public procurement inefficiencies and corruption risks remain significant, with potential savings estimated at 5.3% of total procurement contract value.
Availability and Absorption of EU Funds
- Bulgaria has access to €18.7 billion in EU funds (18% of 2024 GDP), including €6.2 billion under the Recovery and Resilience Plan (RRP) and €12.5 billion under the Multiannual Financial Framework (MFF) 2021–27.
- EU funds absorption has been slow, with only about 16% disbursed as of mid-October 2025, lagging behind peers.
- RRP implementation delays are due to political factors, with only 22% of available funds disbursed as of September 2025.
- Structural deficiencies, including prolonged project timelines, fragmented project structures, and administrative bottlenecks, hinder effective utilization of cohesion policy funds.
Simulating the Impact of Scaled-Up Quality Public Investment
- The DIGNAR model simulates two scenarios: full absorption of available EU funds and gradual improvement in public investment efficiency.
- Full EU funds absorption would increase public capital expenditures to 4.3% of GDP annually (2026–30), with efficiency-adjusted investment reaching 2.3% of GDP.
- Gradual efficiency improvements (reducing the efficiency gap from 54% to 25% by 2030) further enhance growth dividends.
- Simulations show that full EU funds absorption could boost GDP by 1% in 2030, while combined efficiency improvements could increase the gain to 2.3%.
- Higher efficiency investments also lead to increased private investment, consumption, and exports, with minimal impact on public debt and current account.
Concluding Remarks
Scaling up quality public investment, along with accelerating EU funds absorption and improving efficiency, is crucial for Bulgaria's economic convergence and reducing internal disparities. The simulations underscore the substantial growth dividends from such investments, emphasizing the need for policy reforms in public investment management and procurement.
