Economic Policy Review ISSN 1313 - 0544

The Recovery and Resilience Plan – risks are rising

22.12.2022
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It has been a while since the passing of the Bulgarian National Recovery and Resilience Plan (NRRP) but the prospects of it being completed seem grim. The late submission of the final version of the plan, the missing of the first advance payment, and the late reports on the achieved results regarding the first payment are just the first signals that the financing and implementation of the Plan will not go smoothly. Without a clear strategy and focused efforts on tackling the ever-rising risks, it is unlikely that the country will succeed in completing this task.

Speaking of risks, one should note that the whole concept of the Recovery and Resilience Mechanism clashes with the fact that the “money for reforms” principle is difficulty understood and accepted in Bulgaria. These hardships are a product of the unwillingness and sometimes even the inability to commit to change. In fact, this uncertainty in the extent to which we are ready to progress on certain issues is exactly the biggest danger of all.

More specifically though, here are the risks lying before the National Plan, grouped into two major categories:

Internal Risks

In this group one finds risks stemming from the national environment, i.e., political, economic, administrative, and project-related risks. In the last couple of months, we have witnessed the realization of political risks related to instability, a string of parliamentary elections, the inability to form a ruling majority, a couple of caretaker governments, the fluctuating support for some projects, and the lack of such support for others. Especially critical for the NRRP's implementation is the delayed passing of legal acts in certain areas (e.g., Justice), which are listed as key reforms for the Plan, as well as the absence of an elected government to start the projects.

One should not underestimate administrative risks either. They are related to the lack of capacity, understanding, and ability to prepare reforms and complete the projects. The issues with planning, assigning, and execution of procurements could hinder many of the investments in the NRRP. In some cases, there is also the danger of abandoning a project altogether, which happened with some energy initiatives.

Economic risks could also jeopardize the implementation of the Plan. High inflation and rising labor costs could drive the prices of the projects up, meaning that additional funding would have to be sought. Consequently, there would be pressure on the national co-financing and its provision. Higher costs could also limit the pool of firms for hire for the realization of the projects, which would hurt competition and potentially the quality of the result.

An internal risk could also be the actions or opinions of interested parties, which could seek to damage the reputation of a given project. One example is Reform 10 - Decarbonization of the Energy Sector - which envisions the eventual contraction of coal power plant operations. Reaching a consensus on controversial projects is difficult and right now nothing is being done on resolving conflicts on their realization. In this risk group, one can also count the lack of suppliers. An example is a procurement offered by the Ministry of Internal Affairs, which was key for the completion of one of the goals required for the first payment – upgrading of the TETRA system and the creation of a broadcast relay grid. No firm expressed interest to execute this project.

External Risks

One defines external risks as events outside the territory of Bulgaria which could negatively affect the implementation of the Plan. This includes economic and energy crises, wars, bankruptcies of big firms, banks, and even governments, inflationary pressures, supply chain issues, geographical relocation of productions, pandemics, and so on. Even the incompletion of the NRRPs of key trade partners could hinder the execution of the Bulgarian Plan.

The prime example of such a risk is the war in Ukraine, which led to energy prices soaring in the EU, damaged food security around the world, caused mass refugee flows, and blocked key transport corridors and markets. All this is expected to limit the economic growth of Bulgaria in the short term and will probably shift the focus from key reforms to more urgent social policies.

External risks are difficult to evaluate and navigate, especially when they are caused by one-time events. However, internal ones are supposed to be tackled by the government. Unfortunately, every late or incomplete reform leads to delayed payments for all projects since the evaluation for each round of financing is conducted en bloc. The lack of clear communication and a systematic process for the navigation of risks related to the Plan has led to the expectation of failure regarding the upcoming report for the next payment. Once again, there would probably be no one to take the responsibility.

 

*This document is funded by Active Citizens Fund Bulgaria through the Financial Mechanism of the European Economic Area and Norwegian Financial Mechanism. All its contents are the sole responsibility of Institute for Market Economics and do not represent in any way the views of the Financial Mechanism of the European Economic Area and Norwegian Financial Mechanism and Active Citizens Fund Bulgaria. (www.activecitizensfund.bg