News

Yavor Aleksiev

The latest data on European regional development clearly show that Bulgaria is by far not the only country where regional differences are not only significant, but are also becoming greater. There are basically no countries which manage to simultaneously increase the wealth in their poorest and richest regions, while at the same time achieving a meaningful internal convergence.

A brief look on Bulgaria

The differences between the poorest and richest Bulgarian region (Northwest and Southwest) remain significant. While GDP per capita (expressed in purchasing power standard) of Northwest Bulgaria is barely 29% of the EU average, Southwest Bulgaria has reached 76%, primarily due to the development of the capital city. The gap between the two regions widened primarily in the 2006-2010 period, when the indicator for Southwest Bulgaria increased from 59 to 77% of the EU average, while the increase in Northwest Bulgaria was only from 26 to 28%. In 2015 the country average reached 47 % of the EU average, but all regions, except the Southwest, remain far from this rate. The closest to it are the Northeast and Southeast regions (39%).

Regional differences in Europe

The first figure shows the poorest and richest regions in each of the countries that have more than one region in Europe and for which Eurostat published comparable data for 2015. The average value for each country is also shown.

Fig.1 GDP per capita (PPS) as % of EU average (2015)

Source: Eurostat, IME calculations

In percentage points the difference varies from 512 pp in the UK to barely 4 pp in the Croatia, while in Bulgaria the difference is 47 pp – the sixth lowest in the EU.

Change in the 2006-2015 period

During the 2006-2015 period regional differences decreased significantly (by more than 10 pp) in 6 out of 21 countries with comparable data and increased significantly (more than 7 pp) in 7 countries, Bulgaria among them. We should mention that in most of the countries with diminishing differences (Belgium, Portugal, Greece and even Romania) this process is due to the decrease of the relative wealth in the richest region and not because of faster economic development in the poorest one. In Austria the dynamics is bipolar – there is a clear wealth increase in the poorest region and a mild decrease in the richest one. Only in Germany there is a clearly visible convergence process – the richest region maintains its level of wealth (without increasing it), and the poorest one slightly improves its position.

Fig.2 Increasing and decreasing differences (2015/2006), pp

Source: Eurostat, IME calculations

In the countries where there are deepening differences between the poorest and richest region (shown in red, including Bulgaria), the reason is usually in the faster development of the wealthiest region, but we can still differentiate two groups:

• In Sweden, Denmark, France and the UK the wealth of poorest region has decreased, while GDP per capita in the richest one has increased;
• In Bulgaria, Poland and Slovakia the wealth of both the poorest, and the richest region has increased, but the difference has widened due to the faster development of the richest one.

An alternative look at the differences

In the same time, there are only four countries in the EU where the difference between the poorest and the richest region is greater than that in Bulgaria – the UK, Slovakia, the Czech Republic and Belgium. More than two times greater differences can be seen in Italy, Germany, Hungary, Poland and France. The smallest differences are observed in Croatia, Slovenia, Romania and Portugal.

Fig.3 Difference in GDP per capita (PPS) between the richest and the poorest region in EU countries

Source: Eurostat, IME calculations

The English version will be available on April 7th, 2017.

On March 16th, 2017 the IME presented the study "Regional Profiles: Indicators of Development" in front of Bulgarian students for the first time.

A special focus was put on issues related to poverty and inequality at the regional level. Apart form IME's Desislava Nikolova, PhD and Yavor Aleksiev, the panel also included prof. Neno Dimov form the Sofia Univercity and Aleksander Tsvetkov PhD form "Regiostat". 

The presentations are available in Bulgarian here:

• Poverty and Inequality - Measurment and Interpretation
• Poverty and Inequality in Bulgaria

The negative demographic processes over the last decades have lead to a significant decrease of the population in a number of Bulgarian municipalities. This ongoing process makes the question of a territorial-administrative reform more and more topical with each passing year.

The first rule of Article 8 of the Law for the Administrative-Territorial Structure of the Republic of Bulgaria foresees a minimum of 6000 people for the establishment of a new municipality. This requirement is not applied to already existing municipalities, which can be seen on the applied map.

Municipalities with less than 6000 inhabitants

In 2015 there are 69 municipalities that fail the above mentioned initial requirement for establishing of a municipality, while in 2000 those were only 32. The majority of these are situated in the border regions – a clear concentration of such municipalities can be seen in Northwest Bulgaria. In addition, there are 16 municipalities where the population is above 6000 but less than 7000 people. In most of these there is a clear tendency of decreasing population, with the exception of Nikola Kozlevo, Primorsko, Kuklen and Mineralni Bani.

The question whether the requirements for establishing a new municipality should not apply for already existing ones remains open, but it leads to a number of problems, such as:

• Turning many municipalities and municipal enterprises into a major  employer, which creates obvious risks for the local democratic process;
• Inability to apply adequate policies (including successful realization of European projects) due to lack of administrative capacity and enough funding;
• Reaching exceptionally high levels of the ratio between number of municipal workers and the local population.

The regulatory framework has a number of loopholes that allow the establishment of smaller municipalities (Article 8 in relation to Article 9 of the Law for the Aadministrative-Tterritorial Structure of the Republic of Bulgaria ), which basically limits the process to an expression of will of the local population (followed by a referendum) and a decision of the Council of Ministers. Such was the case with the newest Bulgarian municipality – Surnitsa.

There is also a requirement for a distance not higher than 40 km. of the populated places from the municipal center, as well as for proving the ability to finance the expenses of the particular municipality in an amount not less than half of the country average according to data from the last annual report for the execution of municipal budgets. The last rule is also not applied by the majority of the existing municipalities, as in the anecdotal case of the smallest Bulgarian municipality in terms of population – Treklyano. Its own revenues are about BGN 70,000 per year, 45,000 of which come from renting land and property. The yearly expenses of the municipality are almost 10 times higher.

In the light of a  future and much needed  territorial-administrative reform all these requirements will have to be changed. Due to the condition of proving financial capabilities, the process of financial decentralization should be given a priority and its effects should be considered before respective changes in the law are made. This will show which municipalities can finance themselves, at least to a certain point, and which need additional financial support.
In any case the rule for distance not higher than 40 km. from the municipal center should be revised, while the lower limit of population number should be set high enough so it can guarantee the sustainability of the new borders.

The consolidation of municipalities cannot be seen as a panacea for problems of the regional development but the current fragmentation makes it impossible to implement  adequate regional policies in more and more of the country’s regions.

The negative demographic processes over the last decades have lead to a significant decrease of the population in a number of Bulgarian municipalities. This ongoing process makes the question of a territorial-administrative reform more and more topical with each passing year.

The first rule of Article 8 of the Law for the Administrative-Territorial Structure of the Republic of Bulgaria foresees a minimum of 6000 peoplefor the establishment of a new municipality. This requirement is not applied to already existing municipalities, which can be seen on the applied map.

In 2015 there are 69 municipalities that fail the above mentioned initial requirement for establishing of a municipality, while in 2000 those were only 32. The majority of these are situated in the border regions – a clear concentration of such municipalities can be seen in Northwest Bulgaria. In addition, there are 16 municipalities where the population is above 6000 but less than 7000 people. In most of these there is a clear tendency of decreasing population, with the exception of Nikola Kozlevo, Primorsko, Kuklen and Mineralni Bani.

The question whetherthe requirements for establishing a new municipality should not apply for already existing ones remains open, but it leads to a number of problems, such as:

• Turning many municipalities and municipal enterprises into a major employer, which creates obvious risks for the local democratic process;

• Inability to apply adequate policies (including successful realization of European projects) due to lack of administrative capacity and enough funding;

• Reaching exceptionally high levels of the ratio between number of municipal workers and the local population.

The regulatory framework has a number of loopholes that allow the establishment of smaller municipalities (Article 8 in relation to Article 9 of the Law for the Aadministrative-Tterritorial Structure of the Republic of Bulgaria ), which basically limits the process to an expression of will of the local population (followed by a referendum) and a decision of the Council of Ministers. Such was the case with the newest Bulgarian municipality – Surnitsa.

There is also a requirement for a distance not higher than 40 km. of the populated places from the municipal center, as well as for proving the ability to finance the expenses of the particular municipality in an amount not less than half of the country average according to data from the last annual report for the execution of municipal budgets. The last rule is also not applied by the majority of the existing municipalities, as in the anecdotal case of the smallest Bulgarian municipality in terms of population – Treklyano. Its own revenues are about BGN 70,000 per year, 45,000 of which come from renting land and property. The yearly expenses of the municipality are almost 10 times higher.

In the light of a future and much needed territorial-administrative reform all these requirements will have to be changed. Due to the condition of proving financial capabilities, the process of financial decentralization should be given a priority and its effects should be considered before respective changes in the law are made. This will show which municipalities can finance themselves, at least to a certain point, and which need additional financial support.

In any case the rule for distance not higher than 40 km. from the municipal center should be revised, while the lower limit of population number should be set high enough so it can guarantee the sustainability of the new borders.

The consolidation of municipalities cannot be seen as a panacea for problems of the regional development but the current fragmentation makes it impossible to implement adequate regional policies in more and more of the country’s regions.

Yavor Aleksiev

The regional analysis of 2016 NSI and EA data for the development of the labor market in the country shows that despite the ongoing decline of  unemployment, job creation is gradually losing pace in many regions of the country.

Based on the data published thus far, we expect an average annual decline in the number of the employed aged 15-64 in 2016 with nearly 20 thousand people compared to the previous year. Nevertheless we expect aslight increase in the average employment rate in the same age group – up to 63,4% (compared to 62,9% from the prior year)- due to the rapidly declining population of the country.

On the basis of the quarterly data we can expect a drop in the employment rate by more than 1percentage point in 5 of the 28 districts in the country and an increase of over 1 percentage point in 11 districts.

In 2016 the employment rate decreased in all districts of Northwestern Bulgaria – the largest decline is observed in the following districts – Lovech (2.2 pp), Vidin (1.8 pp) and Pleven (1.7 pp). While trends in Vidin and Pleven  have been relatively positive, in the other three districts (especially Vratsa) the consequences of the crisis are clearly visible and the employment rate remains far from the pre-crisis levels.

In 2016 Vratsa is expected to register the lowest employment rate since 2005 and so become the district with the lowest employment rate in the country. Lovech (52.4%) and Montana (53.3%) are respectively third and fourth in this negative ranking, while the second place goes to Silistra (52.2%). EA data  show that  the Northwest region of the country has the largest concentration of municipalities with unemployment rate above 25%. Except for the regional centers Montana, Vratsa, Pleven and Lovech the only other municipality in which the unemployment level is below 10% is Troyan.

Employment in Veliko Tarnovo kept its level from the last year (65%), which is the highest  since 2003. The number of the employed people in the district shows a decline for the recent quarters yet still remains above 100,000 people despite the fall of the population of the district. Employment in Gabrovo still remains fairly high although it has not reached the levels of 2008 -2009.

The most stable positive trend of employment growth was observed in the district of Razgrad, yet due to the low base it remains significantly lower than the average for the region and for the country. After a long crisis period, improvement was observed in two other districts of the North Central Region - Ruse (in 2015 and 2016) and Silistra (2016). The latter, however, remains with the second lowest employment rate in the country. Ruse, in turn, marked seventh consecutive quarter of growth in the number of employees on an annual basis at the end of 2016, although the pace of job creation is gradually slowing down.

All districts in the Northeastern region of the country, with the exception of Varna, recorded an increase in employment in 2015 and 2016. Dobrich and Shumen respectively reached the record-breaking 62.6% and 61.2%.

Employment in Targovishte has increased  for three consecutive years, reaching 53.6%, but remains far from the pre-crisis levels and is among the lowest in the country. After registering a record of 68.4% in 2015, employment in Varna declined to 65.9%. Nevertheless, it remains the highest in the region and the fourth highest in the country.

The Southeastern region of the country is the only one in which the employment rate in 2016 grew in each of the districts. The recovery of the labor market in Burgas ended (in line with the IME forecasts) and now we can safely talk about an expansion. The average employment rate will be higher than the one from 2015 and will reach a record of 63,6%. The expansion also covers smaller municipalities such as Kameno and Aitos in which the unemployment rate (according to EA) in 2016 droped below 10%.

The data on the development of the labor marker in the other three districts (Sliven, Stara Zagora and Yambol) are also positive, given the fact that Yambol has surpassed and Sliven is approaching its pre-crisis level of employment. At the same time, the only municipality in the district of Sliven where the unemployment rate in 2016 was below 10% is Nova Zagora. Despite being part of the district of Sliven, its territorial location between the regional centers Sliven and Stara Zagora and the data for the daily labor migration show that its economy is rather bounded with the Western district - Stara Zagora. The labor market in the district of Stara Zagora continues to be fragmented and in the two of the municipalities, Kazanlak and Stara Zagora, unemployment is below 5% and in Radnevo and Galabovo - below 10%. The situation in municipalities such as Maglizh, Nikolaevo, Gourkovo and Bratya Daskalovi still remains critical, given the fact that in some of them unemployment is even above the levels of 2011.

The past year can be considered rather uneventful  in terms of the employment in the South Central region of the country. Employment in the districts of Plovdiv and Smolyan remained stable, but is still about 1 percentage point lower than its peak in 2008. Quarterly data for both districts, however, clearly shows a gradual deterioration in the second half of 2016, as the number of people employed in both of them has decreased on an annual basis.
Positive trends were observed mainly in the district of Haskovo. The employment rate reached pre-crisis levels and unemployment in the district center and in Dimitrovgrad is declining. Pazardjik registered a modest increase of the employment rate up to 60.3%.

Though we expect the average annual number of the people employed in the capital city to set a new record, the gradual increase in population means that the capital city has not reached its pre-crisis employment rate (73.9% in 2008). It is Sofia (capital), however, that is the main engine of the process of the job creation at a national level in 2016.

The data are positive for the districts of Blagoevgrad and Kyustendil are also positive as the latter is already approaching pre-crisis levels of employment of the population aged 15-64. Employment in the big district of Sofia and Pernik decreases as quarterly data suggests an improvement at the end of the year for Pernik and further deterioration in Sofia (district).

In conclusion

IME’s assessment of the labor markets in 2016, prepared on the basis NSI and EA data, shows that job creation is slowing down or has stopped altogether in many of the country’s districts. The data on the development of the labor market in the Northwestern part of the country is extremely worrying, especially in regard to the districts of Vratsa, Lovech and Montana. The only region in which we observe a growth of employment across the board  is the Southeastern one, though the recovery of some districts (such as Stara Zagora) remains extremely uneven.

The average annual rates for 2016 which we forecast relate to the employment of the population aged 15-64 and are based on a quarterly data from NSI.

Silviya Chomakova, Miroslav Hadjiiski*

The continuous decline of the size of the population in a number of Bulgarian regions leads to more and more glaring ratios between the number of municipal workers and the people of those municipalities. This can be seen clearly on the map below, based on Ministry of Finance three-month data on the financial condition of the municipalities, including information about the number of municipal workers.

The Ministry of Finance data shows that the municipalities with the smallest administration to population ratio are Dobrich, Burgas, Sofia and Ruse – under 2 municipal employees per 1000 people. The situation is similar in other regional centers – the number of municipal employees is quite small relative to the total population.

This is quite different in the smaller municipalities, where we can see up to 10 times higher municipal employees to the total population ratios at times. A good example is Trekliano municipality in the region of Kyustendil, where there are 35 municipal workers and only 889 people. The municipalities of Boinica (1143 people), Kovachevtsi (1760) and Makresh (1438) are similar – there there are more than 20 administration employees per 1000 people.

Two of the aforementioned municipalities, Boinica and Makresh, are located in Vidin region, where a big ratio of administration workers compared to the total population can also be observed in the municipalities of Gramada, Novo selo and Kula. This data shows that even though a territorial-administrative reform is currently not on the agenda, it simply cannot be avoided in the future, especially if the current rights and obligations of the municiplaties remain the same or even increase. There are some municipalities where the local administration is among the largest employers – a fact that, alongside with the issues of public spending effectiveness, raises major concerns about the political processes on local level.

Major differences in the ratio between municipal workers and the local population can also be observed on the district level. Here we must point out that the data is from two different sources – the official yearly reports of the municipalities (published in 2010 and 2014) and Ministry of Finance data(form 2016), and for this reason they individual data points may not be fully comparable.

There is a declining number of municipal employees per 1000 people in some parts of the country. Dobrich is one of the best examples for this trend, since in 2014 there were 7,18 municipal employees per 1000 people, while in 2016 their number declined to 4,35 per thousand. A similar trend can also be observed in other regions such as Plovdiv, Yambol, Haskovo and Gabrovo. The overall population size and the number of municipal employees here are linked proportionally – as the size of the population declines, so does the number of municipal employees in those regions.

The opposite trend is observed in the regions of Kardjali, Varna, Kyustendil, Vratsa, Pernik and Silistra. The rise in the number municipal workers in Kardjali can be seen clearly in the table (in 2014 there were 6,72 administration employees per 1000 people, whereas in 2016 the number rises to 7,76). This drastic increase in this ratio is the result of the decline of the size of the overall population, combined with an increase in the number of municipal workers keeps; this is true for Kardjali and all of the aforementioned regions.

Ceteris paribus, the declining population of Bulgaria should result in a decline in the size of the administration, especially in the regions where there is a steady trend of negative natural and mechanical growth. Turning the municipal administrations into the main employer in those regions leads to a number of problems, especially in terms of the functioning of local democracy. In addition, the vicinity of small municipalities with high municipal employees to population ratios (such as Trekliano) and big municipalities with low ratio (such as Kyustendil), once more points to the need of a territorial-administrative reform.

Yavor Aleksiev

The recovery of the labor market continued in 2016 although at a slower pace compared to 2015. The improvement is clearly visible not only at district, but also at municipal level, especially with regard to the increasing number of municipalities with relatively low unemployment rate.

According to data from the Employment agency, which the Institute for market economics requested and received, there are already 16 municipalities in which the unemployment rate is below 5% (in dark blue on the map) and another 75 municipalities in which the rate is below 10% (in light blue on the map). In 2013 when the labor market crisis is at its peak the number of those municipalities was 3 and 41 respectively.

In parallel with the overall favorable trends there is also a stable high rate of unemployment in many territories. Even in 2016 there are 10 municipalities in which the unemployment rate is above 50% as well as another 56 municipalities in which the rate varies from 25% to 50%. Although, there is a decline compared to the rates of 2013, the situation in a lot of the municipalities in those two groups is similar to the levels of 2011 which means that there has not been a significant improvement of the economic situation in most parts in our country.

On regional level there is faster improvement in the Southern part of the country - compact groups of municipalities with low unemployment rates are observed near the capital city, Plovdiv, Stara Zagora and Burgas. In Northern Bulgaria such regions are Sevlievo-Gabrovo-Veliko Turnovo and Varna-Dobrich.

Additionally to the regional centers, excluding Vidin, unemployment rate below 10% in Northeastern Bulgaria is observed only in municipalities in Troyan and Apriltsi. Despite the presence of number of municipalities with low unemployment rate in the Northeastern part of Bulgaria, there are also groups of neighboring municipalities with very high rate of unemployment.

The data from the Employment agency show that in the country there are many municipalities that are still bypassed by the overall improvement of the economic situation in the country at least as far as the notable positive effects on the labor market are concerned. Among the reasons for that are weak business activity in neighboring municipalities as well as comparatively low labor mobility of the population in the mentioned regions and also because of problems with the qualification and educational level of the working population.