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Unlike previous years, when the publication of open data on matriculation results was delayed almost until the end of the year, this time they were published much earlier. This, in turn, enables the IME to calculate the average grade at the municipal level, which is not formally published by the Ministry of Education, but is a useful comparative metric for the performance of students at the lowest regional level.

The map below shows the average grade of the state matriculation exam in Bulgarian Language and Literature (BLL) for 2019 at the municipal level. The calculation of the average grade of a municipality is based on the average grades of the schools in it, weighed in accordance with the number of students who took the exam in each of them. We only present the BLL exam results since it is mandatory and all final-year students take it.

Map 1: Average grade at the BLL matriculation exam in 2019 at the municipal level

The trend continues whereby the number of municipalities with an average BLL grade under 3 rises – while they were 5 in 2018, they are now 12, two of which have an average of exactly 3.00. Only one municipality achieves an average grade of 5.00 – Tran, although higher results are often achieved in municipalities with few students taking the exam which leads to great annual variances in the average results there. Most municipalities’ results fall between 3.70 and 3.90. The majority do not experience significant changes compared to previous years and where there is a notable difference, it is mainly due to a very small number of students attending the exam. Where results are different, they are slightly higher but not significantly so.

This year’s data confirms the conclusion that results are a function of the size of the municipality and generally bigger schools in larger municipalities score better. The only exceptions are municipalities with few students taking the exam but there results vary greatly between the years. Conversely, the biggest municipalities – Sofia-city, Plovdiv, Varna, Burgas, - where the country’s leading schools are, continuously rank among the best.

Provoking interest are the results of some smaller municipalities which have been in the leading positions in the recent years, – Chelopech (4.74), Zlatograd (4.61), Rudozem (4.32), and Buzhurishte (4.85) – since there is no evident factor in common between these.

There remain a few uncertainties as to the methodology according to which the Ministry of Education and Science evaluates the grade average for the country. Because the data at the school level allows us to make an independent evaluation, we find that for 2019 the average BLL grade measured as the average at the school level weighed according to the number of students is Good 4.13, rather than the official Good 4.06. The difference is not significant, but it remains clear that the Ministry must be using a different method.

With local elections approaching, there has been increasing talk of the formation of industrial zones in different regions of the country. The mayor of Sofia announced that she is planning to build four new industrial zones, the largest in the northern regions of the capital - Kremikovtzi, Novi Iskar and Vrubnitsa. Simultaneously, the mayor of Sliven presented a project for what is to be ‘the biggest industrial zone in Bulgaria’ situated between Sliven and Yambol. On his side, Deputy Prime Minister Tomislav Donchev spoke of the need of 7 to 10 new industrial zones in the country and said that there is great potential for a zone be established between Gabrovo and Sevlievo. Even though these news’ appearance right before local elections is hardly a coincidence, they are undoubtedly grounded on long-term economic processes in the country.

The leading factor is the shift in the Bulgarian industry which took place over the past 10 years. After the financial crisis the once traditional sectors of Bulgarian manufacturing, such as clothing production, have been losing their share – both in terms of exports and in terms of the number of employed – to the benefit of higher value added production – e.g. electrical appliances, automobile parts, machines and equipment. These processes are clear indicators of the need for the establishment and development of new industrial zones capable of accommodating the novel production.

Another important factor is the unequivocal success of the prime investment regions in the country – Sofia and Plovdiv. The bottom of the number of employed in manufacturing was hit in 2013 when these were around 490 000 people. By 2017 that number has grown by about 32 000 workers but this rise is not equally driven by the different regions. The most significant increase in manufacturing laborers has been concentrated in the two leading centers – with 9 000 more employed in the region of Plovdiv and more than 6 000 more in the region of Sofia and Sofia-city. Plovdiv and Sofia are the two centers that combine a big city with a wide periphery and developed industrial terrains. These are also the two regions which have been working for years over their presentation as centers for foreign investors.

While the development of zones around the capital is hardly a surprise, the change in Plovdiv provokes more interest. The collaborative work of a few municipalities and the unification of the industrial zones around Plovdiv under the Thracian Economic Zone brand is a success and has caused other big towns to pursue the foundation and promotion of their own industrial terrains. But whereas the foremost factor in Plovdiv is private initiative – in practice, the zone is managed by a private operator, - in most other regions the recent development of zones is promoted by the “Industrial Zones National Company”.

In most cases the municipality gives away the terrain on which it plans to establish the industrial zone, while the state company finances the necessary infrastructure. This is not because the municipalities cannot find alternative means to develop these zones, such as partnerships with private actors, but is rather due to the attractiveness of the easy access to finance that the National Company provides. The latter already has six operating zones, five are being developed and quite a few memorandums for cooperation have been signed with various municipalities.

If it is true that 7 to 10 more zones are to be built in the country, the majority of which will most likely be financed be the National Company, the dominance of a large state operator in the country is becoming more and more significant. Certain recent announcements indicate that a regulatory mechanism for the industrial zones’ operators will be established in the following months. It is yet to be seen what the role of municipalities in the management of zones would be and whether the operational centralization is the right move.

Regardless of the legal frame regulating the management of zones, it is important that the municipalities continue to collaborate, where this is justified, and to present themselves as investment centers beyond the scope of the concrete industrial zones. For this reason the merging of Sliven and Yambol is to be welcomed since this is the first case of two regional centers, rather than just a city and its periphery, that promote themselves together. But there are plenty other opportunities, such as the eventual new zone between Gabrovo and Sevlievo or a potential merging between Stara Zagora and Kazanlak which at the moment work independently with the National Company. A good starting point for the possible collaborations is the IME’s analysis of the economics centers in Bulgaria.

Fiscal decentralization is based on two fundamental principles – ‘local self-governance’ and ‘subsidiarity’. Decentralization is a necessary condition so that local authorities could independently and responsibly manage public funds. We are convinced that common problems are most quickly and efficiently dealt with at the most basic possible level.

Given the contextual substantial transformations of the Bulgarian economy, decentralization is particularly important. In the decade following the 2009 financial crisis and the Bulgarian accession to the EU the transformation’s dimensions are generally two – an increasingly active integration of the private sector into international value added chains through growing exports and a gradual disappearance of low-productivity manufacturing based on manual labor which is being replaced by production with higher value added.

These processes are well illustrated by the shift of labor force amongst the sectors of the economy. For less than a decade the workers employed in construction have decreased with nearly 50%, while those in clothing and shoes manufacturing with a third. The employed in the food and furniture industries have also been diminishing despite the increased value of production. Simultaneously, more and more people are working in the automotive, pharmaceutical, electronics and power tools industries. Generally, manufacturing produces and exports significantly more than it did 10 years ago but with 100 000 fewer employees.

Chart 1: Change in the employed in selected sectors, 2017 to 2008

Source: NSI

The structure of exports has also changed notably – the share of the automotive industry has tripled, that of power tools has doubled, while the portion of the machine, chemical and pharmaceutical, metal and plastic manufacturing is also expanding. On the other hand, the importance for the export of fuel, basic metals, textile and clothing has been gradually dropping.

 Chart 2: Share of total exports of goods of main products, 2008 and 2018

Source: INTRACEN

Some of the main export goods are products completely new to the Bulgarian industry. This is the consequence of a lot of new greenfield investments and of the recovery and substantial increase of the capacity of factories which, until recently, were exporting minimal quantities. These novel export goods are various: lighting, resistors, electric installations’ components, rubber hoses, electric bicycles and mopeds, etc. If we look at the dynamics of bicycles and sports equipment manufacturing we register production increases of 3.5 and 2.5 times respectively for the last 8 years and a nearly double rise in the employed in these sectors. The last observation is just another confirmation of the continuously improving labor productivity.

Chart 3: Turnover and number of employed in the production of Bicycles and Mopeds and Sports Equipment

Source: Yearly financial reports

The perceived shift is not only in the structure of products but also in the geographic allocation of jobs creation. In the period following the 2010 ‘bottom’ levels of manufacturing there is a minimal but unequal increase in the number of the employed. Sofia (capital) loses manufacturing jobs, as well as Burgas, Blagoevgrad and Dobrich. At the same time, new investment centers for export-oriented production appear – Plovdiv, Sofia, Stara Zagora, Sliven, Gabrovo. The relatively high unemployment rate also attracts investors to Lovech and Vratsa and we expect the latest data to show the same trends in Pleven and Montana. It is not an accident that some of the successful bicycles and sports equipment factories are also located in the Northwestern region of the country.

Despite the rapid increase in consumption and resurgence of bank crediting in the last years, the number of the employed in trade and finance remain below the 2008 levels. Contrariwise, employment in the outsourcing of supportive business services is gradually growing as the sector is turning into a key employer of workers with relatively good education and mastery of foreign languages. Nonetheless, the uncontested leader in employment growth over the last decade is the IT sector. Software engineering and information services are on average the best paying jobs in the country – already even above the maximum insurance threshold. However, this phenomenon is limited to Sofia (capital) – more than 30 000 new jobs – and, albeit to a lesser extent, to Plovdiv and Varna. Even though recently there has been good news from other regions too (e.g. Burgas), these economic zones still fail to attract a sufficient number of IT companies.

Chart 4: Change in the number of employed in manufacturing, 2010-2017

Source: NSI

Having in mind the anticipated decline in the working-age population, the serious work force competition within the open and increasingly mobile common European labor market, as well as the achieved record-breaking employment levels, the challenge is to increase investment in those goods and services that create greater value added. These are activities that produce globally highly valuend goods and services created with contemporary technologies and highly qualified and productive laborers. Employers of this kind can offer sustained, long-term wage increases and can contribute to the general income growth of Bulgarian households.

Yet, the described transformation of the Bulgarian economic structure is a process encompassing hundreds, even thousands of separate investment plans. The initial step is the choice of Bulgaria as a country to invest in, which is then followed by the decision to build a factory or establish a service in a specific city or region. Municipalities must be especially active in this process, since they determine the conditions for the choice of location of a potential investor. Precisely this, together with the regional quality of living, should be at the center of local elections’ debates and, even more, it should be at the basis of the following four years of local self-governance

A few days ago, with its decision No.513 dated August 26, 2019, the Council of Ministers approved the establishment of a new hospital - Multidisciplinary Hospital for Active Treatment "St. Ivan Rilski” in the town of Gabrovo. For the first time, the government is taking advantage of its new powers to authorize the opening of new hospitals after an amendment to the Health Care Facilities Act, effective from April this year.

It remains unclear what analysis justifies this decision and what calculations has the Ministry of Health presented. The formal adherence to the requirements of article 37a, paragraph 1 of the Law for Medical Institutions does provide an answer to the question whether or not another hospital is needed in Bulgaria. This must only be decided on the basis of an evaluation of the real necessity of health services of a certain quality that the National Health Insurance Fund (which is financed by taxpayers) can pay for.

According to the National Statistical Institute, by the end of 2018 there were 346 medical help institutions with over 53 000 beds in Bulgaria. The latest data of Eurostat (2017) shows that Bulgaria has the highest per capita number of hospital beds in the European Union. As a result of the large number of hospitals and beds, the number of hospitalizations in the country is among the highest (Figure 1).

Figure 1. Number of hospitalizations per 1000 inhabitants 2008-2018

Source: NSI

Despite the attempts of the NHIF to restrict hospitalizations in recent years and the partial success of 2018, more than 1 200 000 people have received hospital services throughout the last year. This means that almost every fifth Bulgarian has stayed in a hospital at least once in 2018. The large number of hospitalizations is typical for countries whose health systems provide an easy access to hospital treatment and where conditions exist for irregularities and unsatisfactory control of financing.

Why in Gabrovo?

Hospital treatment in Gabrovo is currently accessible in 6 hospitals with 860 beds in total. The region’s population is slightly over 109 000 people. Compared to the rest of the country, Gabrovo has a good amount of hospitals and beds (Figure 2). The region has 4.5 beds per 1000 people, whereas the ratio for the country is 5.3.\

Figure 2. Number of hospital beds per 1000 inhabitants by district, 2018

Source: NSI, IME calculations

When it comes to the number of treated patients, however, the region is among the leaders (Figure 3). In 2018, 240.8 per 1000 people have visited a multidisciplinary hospital for active treatment, given a country average of 171.4. Larger numbers have only been registered in the regions of Pleven and Sofia.

Figure 3. Number of treated patients per 1000 inhabitants by district, 2018

Source: NSI, IME calculations

From the presented data we can conclude that a new hospital in Gabrovo is hardly necessary. Even if we accept the need for a healthy competition between the medical institutions and for a greater possibility for citizens to choose where to be treated, the more important issue remains – what would be the relationship of the NHIF with this hospital and the rest of the medical institutions in the region? The negative statement of the NHIF regarding the establishment of a new hospital in Gabrovo is reasonable and is driven by fears of unjustified spending. Until when, however, would the NHIF continue to sign contracts with all medical institutions regardless of the financial constraints and the requirements for a certain quality of health services? The solving of the problem of the excessive amount of hospitalizations and the irregular financing of medical treatment must follow these stages:

• Selective contracting with medical institutions on the basis of ‘value for money’ calculations which should include the attainment of quality parameters of health services and the results of the medical institution;
• Clear valuation of medical services;
• Rigorous control of payments from the financing institution;
• Improvement in out-of-hospital services which should reduce the need for trivial medical treatment to be conducted in hospitals and will restrict hospitalizations to only the necessary cases;
• Stricter requirements for availability of infrastructure and staff.

For the second time in a row, right on the eve of local elections, the idea of fiscal decentralization through personal income tax increase has emerged. In 2015 this happened after a statement of the Minister of Finance Vladislav Goranov and this year the occasion was an interview given by the deputy prime minister Tomislav Donchev. Although he later advocated for decentralization by sharing a portion of the already collected income tax, the discussion had an initial false-start.

In 2015 and also this year, the focus is put on the income tax increase (of up to 2 percentage points) benefiting the municipalities (10+2) instead of implementing the strategic commitment to share part of the collected tax (8+2). For a second time in a row, right on the eve of local elections, the decentralization debate turns into a debate for higher taxes - a topic that, as we reviewed a month ago, is taboo for the local authorities as elections approach. Nobody has an interest to discuss higher taxes, while the voters are headed to the ballot boxes, including the prime minister Boyko Borisov, who promptly tried to put an end to the debate.

We remind you that the failure of several governments to implement the idea of fiscal decentralization as promised a long time ago, is clearly described in the Decentralization Strategy 2016-2025 that is already in force. Regarding the execution of the previous strategy (2004-2015), in the new one it is stated: The decentralization process was blocked [...due] to the refusal of the central government to transfer part of the personal income tax proceeds to the municipalities as their own revenue. 

Imagine how different the pre-election debate would look like if the candidates for municipal council and municipal mayors were able to freely manage a portion of the collected taxes instead of having the right to increase them. This would constitute the preconditions for a genuine political competition, based on identifying local problems and offering local solutions, which is a far cry from the typical bragging/dissatisfaction with the results of the European projects. Sharing part of the already collected personal income tax with the municipalities would decrease the level of government dependency, namely the constant requests to the Council of Ministers for additional funds for the local authorities, but it would also make them less dependent on the European funds. The structural effect that the “8+2” model would achieve on public expenditure distribution between central and local authorities would even purely mathematically be more clearly defined than the alternative “10+2”. In the best-case scenario, the municipalities would not only be entitled to a portion of the proceeds, but would also have the authority to set the tax rate within certain limits. This would better enable the municipalities to impact the business and the living conditions, compared to the alternative which would increase the burden on taxpayers.

In addition, if the fiscal decentralization process takes an upward direction, it would set a precedent that would be difficult to overrule in the following years. If the central government keeps the whole amount of the 10% on the personal income, it is logical to expect the following steps towards fiscal decentralization to be related again to heavier tax burden in general. This approach: 1) would make each step towards local financial independence harder and publicly unacceptable and 2) would leave the taxpayers foot the bill and at the same time lead to decrease of the external competitive power of the Bulgarian economy.

As the end of the current Programming period of the European funds approaches and 2020 is knocking on the door, we are witnessing a significant increase in the amount of funding. This is clear from the annual review conducted by IME of the allocated European funds at the district and municipal level. Besides the considerable increase, in most regions the ranking of districts and municipalities is basically unchanged compared to last year. The same goes for the nature of the larger projects.

Source: ISUN, ISUN 2020, IME calculations

As usual, most European funds per capita have been awarded in the capital city and Gabrovo district - 3129 leva and 3234 leva per capita respectively. This is calculated by using the average annual population in these regions for 2018. Relatively large amounts of money from the European funds are awarded in the Northwestern districts of Bulgaria, but this is partly due to the faster pace of population decline there. On the contrary, in Sliven, Kyustendil and Pernik districts, European funds are estimated to be less than 1000 leva per capita, but there is a high probability that by the end of the programing period these districts would exceed this amount.

The largest projects are in the infrastructure - for instance, the extension of the Sofia metro system, construction of roads and water cycles, due to their nature, require larger investments compared to other activities. This could be observed in the capital city, where the actual amount received for the Sofia metro improvement exceeds 500 million leva and in Blagoevgrad, where the funding for Struma highway construction amounted to 329 million leva.

Compared to the small number, but costlier infrastructure projects, there are many other projects that cost less. They are mostly focused on the improvement of urban environment, educational infrastructure and providing social benefits. The last two groups are key in the Southern regions in the country and especially in Kurdzhali the most expensive projects are precisely for renovation and reconstruction of schools and providing warm lunch.

Source: ISUN, ISUN 2020, IME calculations

Undoubtedly, more interesting is the data regarding the distribution of European finding at a municipality level, because it reveals in greater detail the regional imbalances in the fund utilization. The most visible in the distribution at a municipality level are the projects concerning water supply improvement and construction of waste disposal systems. These projects are usually shared between several municipalities and their cost significantly exceeds the cost of the projects that each municipality (especially the smaller ones) is able to use on its own. This is evident in several municipalities at the seaside, as well as in Pleven, Vratsa and Montana.

Since the beginning of the European funding distribution in our country until the middle of 2019, the largest amount of European funding per capita is in the districts:

• Dobrich - 5683 leva, due to a big project for a water supply improvement in the city; 
• Kostinbrod - 5402 leva, due to a number of projects related to energy efficiency;
• Sozopol - 5172 leva, substantial part is from the previous programming period.

On the contrary, Kovachevtsi municipality has acquired only 32 leva per capita and is still the only municipality that does not have a single project in the new programming period. Similar situation could be observed in Dulovo (62 leva) and Dobrichka (116 leva). We could also add some of the smallest municipalities in the country that have only one project each for insignificant amounts of money. The major reason for that could be the limited administrative capacity of the small municipalities that does not allow them to compete effectively for European funding.

Most municipalities in the country acquire funding less than 1000 leva per capita- including 161 out of 265 municipalities in Bulgaria in total. Between 1000 and 2000 leva are another 70 municipalities and 7 are above 4000 leva.

When reviewing the utilization of European funding, we have to take into account that there is still no evidence of achieving the main purpose of the funds - cohesion, within the country as well as the towards the average European level of economic development. Furthermore, the local administration might focus mainly on the European funds instead of attracting private investments. The latter is proven to be more effective in creating new jobs and improving the living standard at a local level. This controversy highlights again the necessity for a reform in municipal finance and fiscal decentralization, combined with administrative reform and increase in the capacity at a local level. 

At first it may seem that the matriculation exam results published by the Ministry of Education show significant decrease in the average grade in Bulgarian Language and Literature - from 4.24 last year to 4.06 in 2019. On the national level this is the sharpest fall from one year to another since the beginning of the matriculation exams in Bulgaria. The data on the regional level reveal a different situation that we will examine in detail in this article.

District level results in Bulgarian language and literature

Source: Ministry of education, data requested by the IME

As the map above shows, there are barely any changes in the order of districts as compared to 2018 - those that typically score high are leading the ranking, whereas regions with weak performance are again at the bottom. Sofia City continues to get the highest score in the country (4.53, which is of even greater significance taking into account that in this district the largest number of students sat the exam) followed by Varna, Plovdiv and Smolyan which have similar results. There is a shift in the districts with the worst performance - this year the students in Silistra have scored the lowest (3.77) followed by Kardzhali (3.78), Razgrad and Yambol (3.80 in both districts). Most districts score close to “Good” 4.

Source: Ministry of education, data requested by the IME

Much more interesting dynamics can be observed on the district level - although the overall grade on the national level presented by the ministry of education has fallen compared to the previous year, in 23 out of the 28 districts, there is an increase compared to 2018. There is no district, where the decrease is as sharp as the one on the national level - within a year, Smolyan district has lost 0.14 of its average grade compared to 0.18 for the country as a whole, and this is the most substantial drop. In the other districts, where a decrease is present, it is less severe. This contradiction indicates that probably this year there were some specifics in calculating the overall grade for the country. We would be able to check the factuality of this statement when the open data on the school level is published, including the number of students that sat the exam.

Apart from the above-mentioned districts, almost all of the regions have improved in Bulgarian Language and Literature. This is particularly valid for districts with weak performance - Yambol has improved by 0.25, Pleven - 0.23, Vidin and Kardzhali - 0.22. There is still no district that has reached its best results from the past decade, but this could be explained by the different exam structure and stricter control during examination. It is too early to discuss an upward trend in general - the increase within a year could be due to specifics in the edition of the exam; furthermore, matriculation exam results are merely one of many student performance indicators. 

Source: Ministry of education, data requested by the IME

The percentage of students that failed the matriculation exam by district comes as no surprise. The most fail grades are in the regions where students have performed poorly - Kardzhali (20.4%), Yambol (18.2%), Silistra (17.7%), while in districts that typically perform better, the share of failed students is smaller – Sofia City (2.64%), Smolyan (4.18%).

It is more disturbing that next to the improvement of the average grades in 2019, we can observe a considerable increase in the number of failed students, which is an (anti)record for the whole history of matriculation exams. Compared to the year before, the most significantly has raised the number of “fail” grades in Razgrad (6.4 pps) and Shumen (6.1 pps); the slowest increase is in Montana (0.9 pps), Gabrovo and Pernik (1.1 pps) and in most districts it is close to 3-4 pps. As with the outcome discussed above, it is possible that the result for 2019 is an abnormality; a mere deviation from the trend in the matriculation exam performance. Otherwise, the greater number of “fail” grades reveals a negative tendency in the literacy of the students and their inability to cover the minimum educational requirements.

Source: Ministry of education, data requested by the IME

In conclusion

The regional results from the matriculation exam this year outline two opposing trends – a considerable rise in the average grade in most districts, but at the same time significant increase in the number of “fail” grades. In other words, students who have not received a “fail” grade have improved their results, but the problem is that the number of failed students increases. Although these trends are contrary to the ones from the previous year, when there was a decrease in the share of “fail” grades, but also a fall in the average grade, we are not able to comment on the long-term performance of the students. It is still unclear how the average grade on national level is calculated, which has dropped dramatically compared to the increase in most districts.