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Bulgaria
>> Regional Overview >> Bulgaria
Development Challenge Summary Tables
Program Summary
Previous Years' Activities
2001, 2000, 1999, 1998, 1997Last updated: Wednesday, 29-May-2002 18:53:00 EDT
Introduction
Regional political and economic stability to promote U.S. national security is the primary U.S. foreign policy interest in Bulgaria. Taking the lead in Balkan cooperation initiatives, Bulgaria has become a stable political and economic anchor in Southeastern Europe. Regional collaboration, increased attention to proliferation and environmental concerns, and good cooperation with NATO and the European Union (EU) are all features of the Government of Bulgaria's (GOB's) regional policy. Continued U.S. assistance in Bulgaria's transition to a market-oriented democracy will enable the country to contribute further to stability in a highly volatile region, all linked to U.S. foreign policy interests of regional stability, economic development and the spread of democracy. Such assistance is particularly important in the aftermath of the Kosovo crisis and the growing ethnic tension in Macedonia. Consequently, the U.S. priorities in Bulgaria are to support economic reform and growth, democratic transition, and eventual EU accession. While significant progress has been made, the GOB must implement still greater economic and social reforms. To capitalize on the results achieved (as well as further integrate the principles of market competitiveness, democracy and the rule of law) continued assistance is indispensable to sustainability of the reform efforts.
Development Challenge
The economic and political transition has presented many challenges to Bulgaria. Since 1997, the reform-minded democratic government has made important strides in legislative reform, boosting economic growth, and ensuring national and municipal political stability. USAID's strategy is tailored to support the GOB's development priorities. The initiation of EU accession negotiations in 2000 marked an important recognition of the GOB's reform efforts. Despite these positive developments, the country has yet to cope with a number of development issues, including enhanced market competitiveness, corruption, increased access to justice, further decentralization, and increased civil society participation. As a result of the hardships of transition, Bulgaria has experienced a downward trend in its human capacity development with high unemployment, increased poverty, decreased access to education, and deteriorating health status of the population. The development of an adequate strategy to cope with the social repercussions of transition is among the GOB's critical challenges.
Bulgaria has made good macroeconomic progress. In 2000, the economy grew for the third consecutive year, reaching 5% annualized GDP growth. With 80% of non-utility assets now privately owned, the private sector's share of GDP increased to nearly 70%. Foreign direct investment (FDI) exceeded $700 million, and non-energy exports grew by 13%. With sound fiscal policies and budget discipline, Bulgaria has achieved some financial and economic stability. The unemployment rate remains high despite an expanding economy because a large and possibly growing proportion of unemployment is structural and labor mobility is low.
USAID's program contributes to the development of laws, policies, and institutions enabling private sector growth and reducing constraints on businesses. USAID is working to enhance the international competitiveness of Bulgarian industries, thereby improving their market performance and increasing employment, and is also promoting regional market development under the Southeast European Trade Initiative. USAID supported private sector growth by mobilizing credit for small- and medium-enterprises (SMEs), through debt and equity mechanisms and two loan guarantee schemes that have portfolios exceeding $11 million. USAID's assistance contributes to a better-regulated, more efficient banking system and the Capital Market Program helps to establish sound regulation and to build broad, liquid securities market. Further structural and legislative reform coupled with increased investment are still necessary for a fully functioning market economy, as Bulgaria's economy is not sufficiently market-oriented to sustain the competitive pressures of EU integration. The banking sector continues to be the major source for financing, although lending remains shallow, despite high liquidity, since it is more profitable and safer for the banks to hold government bonds than to lend to the private sector. Administrative barriers continue to burden SME development.
The political situation remained stable over the past year. The GOB has strengthened the capacity of its institutions to guarantee democracy and is making some progress in the area of municipal de-centralization. While the central government has demonstrated commitment to implementing judicial reforms, significant efforts are still required to achieve an independent, professional judicial system. Corruption remains a major public concern and a major factor for the decreased public confidence in the government. Although non-governmental organizations (NGOs) play an increasingly active role in the democratic transition, these civil society actors are still not sustainable, need further capacity to build strong coalitions, and lack real public outreach capability. Further efforts are needed to protect minority rights, particularly of ethnic Roma who continue to experience prejudice, social exclusion, and a lower standard of living than the rest of the population.
In 2000, USAID launched the Conflict Resolution and Ethnic Integration Program to improve the situation of minorities by providing training, small grants and technical assistance. USAID supported NGOs that promoted ethnic tolerance, local government reform, social and civil rights, economic development, environmental protection, and social safety net improvement. To address the sustainability of civil society NGOs, USAID will expand networks and support effective partnerships between NGOs, government and the private sector. With regard to judicial reform, four model pilot courts were launched in 2000, and over 1,000 judges were trained at the USAID-supported Magistrate Training Center (MTC). Recognizing the importance of fiscal and administrative decentralization for the effective performance of local governments, USAID continued to support the lobbying efforts of indigenous local government support organizations. USAID also directly assisted central and local authorities in developing new legislation, implementing public policy reform, and strengthening their institutional capacity.
The social aspects of transition have become more pronounced over the past years. In 2000, one fifth of the labor force was unemployed and according to some sources over one third of Bulgarians lived in poverty. In tandem with deteriorating living standards, declining real incomes, and growing income inequality, the existing social assistance system failed to adequately respond to the vulnerable and needy. Life expectancy and other health indicators are not visibly improving. The educational system is also deteriorating, posing the risk of even more severe employment problems and functional illiteracy.
USAID began to address some of the social transition issues through the Regional Initiatives Fund and the Social Safety Plan, which was funded with Economic Support Funds in FY 1999. To date, thirty-six small infrastructure projects have been completed and another thirty are being implemented. These projects have provided both short-term employment and tangible social benefits for citizens in the poorest communities. With USAID assistance, the GOB has made commendable progress in addressing social benefits systems, most notably in the area of pension reform. Health sector reform was also initiated in 2000, with USAID assistance targeting the management of public health finance.
Other Donors
International donor support to Bulgaria is substantial, with total donor assistance projected at approximately $1 billion in 2001 - with the International Monetary Fund (IMF), EU and World Bank providing the lion's share of the funding. Among bilateral donors, the U.S. manages the largest technical assistance program, which is closely coordinated with multilateral and other bilateral programs. USAID has led the development of donor coordination working groups at the expert level in key areas, such as improving the SME policy environment. The World Bank and IMF often prepare the policy and legislative environment for USAID programs to be effective, and USAID reciprocally provides targeted technical support to assist the GOB in meeting multilateral conditionality.
The World Bank leads assistance efforts in energy and economic restructuring with USAID providing technical assistance in these and other areas. USAID coordinates activities with the United Nations Development Program (UNDP) in areas including SME development, poverty alleviation, and integration of marginal populations into society, employment promotion, and government decentralization. In the social arena, USAID collaborates with the WB and UNDP, particularly with respect to the Regional Initiatives Fund. U.S. coordination with the EU is notably strong in the area of judicial reform. Collaboration is expected to intensify as USAID works with the GOB and the EU to facilitate the accession process. EU assistance is being channeled through the following three pre-accession program areas: 1) focusing on agriculture and rural development; 2) supporting infrastructure development projects; and 3) providing technical assistance in various aspects of the pre-accession re-structuring.
FY 2002 Program
To address the challenges continuing to face Bulgaria in its transition to a market-oriented democracy, USAID will re-examine its strategy later this year. Although at a very early concept phase, it is likely that the new strategy will add more social dimensions to the portfolio, including programs aimed at reducing unemployment and poverty, as well as health and educational initiatives. USAID will balance its work at the local and grassroots level with policy reform assistance to the central government.
To further the growth of a competitive private sector, USAID will enhance support to SMEs by working with the GOB and business associations to improve the regulatory framework for the private sector. Particular emphasis will be placed on employment generation and the competitiveness of export-oriented priority industry clusters directly contributing to sustained economic growth and capital formation. In line with plans to expand its activities in the social sector, USAID plans to remain involved in social benefits finance, including pension and health systems reform.
The establishment of effective partnerships among NGOs, local governments and businesses is new to USAID's strategy of creating a sustainable civil society. While current efforts have been focused on building the institutional capacity of indigenous organizations, USAID will test the model of community philanthropy and strategic partnership as a way of attaining sustainability. In view of the forthcoming parliamentary elections, USAID is starting programs to address the declining voter turnout and to assist major parties to develop clear and effective messages. Follow-up assistance is envisioned to improve the capacity of the new parliamentarians. An extensive legislative strengthening program is also anticipated, as well as support to certain central government anti-corruption initiatives.
Improvement of the judicial system will continue as a priority, given USAID's support for the institutionalization of the Magistrate Training Center, including expanded training opportunities for prosecutors and investigators. Strengthening local government will also remain an important element of the democracy program. In FY 2001, USAID will address alternative approaches toward fiscal and administrative decentralization, municipal finance, and increased citizen participation in local government.
USAID will strive to maximize linkages and synergy across all strategic areas by providing continued funding to its special and crosscutting initiatives portfolio.
Activity Data Sheets
- 183-013 Accelerated Development and Growth of Private Enterprises in a Competitive Environment
- 183-014 A More Competitive and Market-Responsive Private Financial Sector
- 183-021 Increased, Better-Informed Citizens' Participation in Public Policy Decision-Making
- 183-022 An Improved Judicial System that Better Supports Democratic Processes and Market Reforms
- 183-023 Local Governments are Making Responsive Choices and Acting on Them Effectively and Accountably
- 183-041 Special Initiatives
- 183-042 Cross-Cutting Programs
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State Dept. Country Information
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Last Updated on: May 29, 2002 |
