December, 2023BulgariaPublic Finance Review2023Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized© 2023 International Bank for Reconstruction and Development / The World Bank1818 H Street NWWashington DC 20433Telephone: 202-473-1000Internet: www.worldbank.orgThis work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governmentsthey represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.Rights and PermissionsThe material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given.Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. iAcknowledgments vAbbreviations viExecutive Summary viiiChapter 1. Fiscal Policy Developments and Challenges 1Macroeconomic context 2Overall fiscal trends 4Government revenues 8Government expenditures 10Government debt 15Fiscal risks 17Explicit direct liabilities 17Explicit indirect liabilities 17Implicit direct liabilities 19Indirect implicit liabilities 20Risks stemming from business-cycle dynamics 20Chapter 2. Government Revenue Trends and VAT Gap Analysis 26Total revenue trends 27Bottom-up estimation of the VAT reporting gap in Bulgaria 36VAT gap estimation methodology for Bulgaria 38Data description 38VAT gap estimation results 38Policy takeaways from bottom-up VAT gap study 40Chapter 3: Fiscal Spending Efficiency and Effectiveness 42Recent dynamics in budget spending 43Fiscal spending: Efficiency analysis 45Special Focus 3.1. Efficiency and effectiveness of spending on education 49Special Focus 3.2: Efficiency and effectiveness of social spending, including for addressing child poverty 53Annexes 59Annex 1: Model for Bulgaria’s DSA 60Annex 2: Output Gap Assessment 61Annex 3: Methodological Note on Study of Education Spending Effectiveness 62Annex 4: Rigidity Classification of Budget Expenditure 67Annex 5: Optimizing Spending in Bulgarian Public Procurement: A Strategic Sourcing Analysis 68Annex 6: Matrix for Fiscal Risk Analysis 76Annex 7: Health Taxes’ Simulation Results 77Table of ContentsiiList of FiguresFigure ES.1. General government budget balance on cash basis (MoF) and accrual...
