Financial Decentralization in Bulgaria: An Outlook

This study is intended to provide a critical overview of the local government finance reform and analyze the process of strengthening financial decentralization in Bulgaria. First of all, the specifics of government structure and the main components of the legal base in the scope of local self-government are presented. The quantitative analysis is focused on dynamics of the public expenditure indicators and the structure of local revenues, based on fact figures for the period 1990–2011 and forecast for 2012. The influence of economic crises on local government finance is discussed and estimated. A comparison is drawn between the three most severe downturns of Bulgarian economy during the last 20 years, namely the price liberalization in the beginning of transition (1991–1993), the credit crunch and series of bank bankruptcies, which caused the financial crisis in 1996–1997, and the current worldwide crisis. Some of the most important actions, taken by the government in order to consolidate the crisis are described and evaluated on the base of their effects on the local finance. The conclusion is that although the current crisis reached Bulgaria at comparatively mature stage of financial decentralization reform, municipalities can do very little without active central government support and cannot substitute for it in regard of the basic anti-crisis measures.