Economic status and development of small regional centers in Bulgaria

| Full text of the analysis |

In Bulgaria, there is often talk about the lagging behind of small municipalities and regions compared to large ones, but unfortunately never with enough specificity and clarity. While everyone is aware that there are problems in small regions and municipalities, very little is known about what they are exactly and what the overall picture of the economic and social development of these regions in the country is. At EKIP, we believe that this is a very important topic, especially in view of the upcoming local elections. The lagging behind of small regions and municipalities is a very serious case that causes severe structural problems for the Bulgarian economy in the long term.

Therefore, the EKIP prepared a comparative analysis of the economic development of the 8 regional centers with the smallest urban population in the country since 2007-2008. These are the municipalities of Montana, Lovech, Silistra, Razgrad, Targovishte, Kardzhali, Kyustendil and Smolyan. The data we examined include both regional and municipal indicators and fall into 6 sections - Economic Activity and Investments, Demography, Labor Market, Infrastructure, Tourism and Financial Condition and Tax Policy. You can read the full text of the analysis here.

Through a detailed exposition and analysis of the data relating to these 6 sections, we can gain the clearest and most complete picture possible of the state and development of these regional centers. Here are some of the more interesting conclusions of the report:

• According to the most recent annual data (for 2017), all of the districts under consideration lag behind the country's average levels of economic activity measured by GDP/capita and gross value added.
• Among them, the municipalities with the highest level of economic development as of 2017 (measured by GDP/capita) are Smolyan, Targovishte, Razgrad and Montana. These are also the municipalities that have reported the highest growth in the respective indicator since 2008.
• The districts with the lowest level of economic development as of 2017, which have lagged behind in their growth compared to the others since 2008, are Lovech, Kyustendil and Silistra.
• As of 2018, all municipalities except Kardzhali and Kyustendil have a natural growth rate that is lower than the national average levels.
• There is a noticeable deterioration compared to 2008, when 5 of the 8 municipalities under consideration had a natural increase that was higher than the national average.
• Due to high mechanical growth, Kardzhali is the only municipality whose population almost did not decrease between 2008 and 2018, despite the low natural growth rate.
• The highest salaries are in Razgrad, where the gap with the national average has narrowed over the period under review. In all other municipalities, the gap between local and national salary levels has increased in the period 2008-2017.
• As of 2018, Smolyan Municipality had the highest levels of municipal debt of all municipalities with over 13 million BGN, with a growth of over 35% since 2015.
• According to the data on the profitability of finances, the municipality of Kardzhali is in a much worse condition than other municipalities.
• In Montana and Smolyan, the levels of absorption of European funds are many times higher than in the other 6 municipalities for the last programming period.

The data as a whole show a relative lagging of small regional centers compared to the rest of Bulgaria in terms of economic growth since 2007-2008. Something that also clearly stands out is that these municipalities do not view local tax policy as an effective tool for stimulating the economy. Local tax levels are relatively similar in all 8 municipalities and remain almost unchanged for the period under review. Based on these data, the EKIP makes the following recommendations for the development of small regional centers:

• Tax decentralization stands out as a highly necessary tool for stimulating the economic development of small regional centers.
• Separate economic zones to attract investments - the experience with industrial zones like the one in Plovdiv is highly positive and the proper replication of this model among small regional centers could seriously improve their development.
• The municipalities of Lovech and Silistra need the most ambitious policy to stimulate economic development. Given the serious lagging behind of these municipalities compared to the others, they could probably gain the most from possible decentralization, as long as the tools it would provide are used skillfully.
• The profitability of municipal finances in Kardzhali and Smolyan needs improvement. The most obvious problem is in Kardzhali, which is already in the process of a reorganization procedure. But the situation with the level of municipal debt in Smolyan should not be underestimated either.
• The possibility of improving Smolyan's infrastructure should be explored. Although the municipality performs relatively well in terms of GDP/GVA, labor market, and tourism indicators, the lack of first-class road infrastructure certainly has a negative impact on its economic development.

We hope that these current data will serve as a basis for productive discussion and reforms to support the development of small regional centers in Bulgaria. In view of the upcoming local elections in 1 month, we believe that the topic is particularly relevant and now is the best time to pay it the most serious attention possible.

| Full text of the analysis |

Did you like it? Take a minute to support the EKIP on Patreon!