On the face of it, Bulgaria in 2011 will be a tale of two events – the (failed) accession to the Schengen area and the local and presidential polls in the autumn.

There is much more than that though.

And despite relentless headlines about shocking hikes and behind-the-scenes political haggling, we expect the spectacle to be mildly reassuring.

Milena Hristova takes a look at the forecasts, must-do tasks and risks Bulgaria faces in 2011.

Economy and Finance

Tightening the Belts Again!

Bulgaria is recovering, though sluggishly, from a deep recession, in which it plunged with the onset of the global economic crisis last year. If the government wants to attract investments and return to growth, it will have to stick to its tight fiscal policy. That means pursuing doggedly its ambition to halve the budget deficit to 2.5% of GDP and aim at growth of 3.6% in 2011.

Unlike its neighbors Bulgarians were spared radical austerity programs, which could help the economy pick up, driven by rising exports and a debt-to-GDP ratio of just about 16%. The risk is that the cabinet, just like its predecessors, may loosen the purse strings to maintain its popularity ahead of local and presidential polls in the autumn.

Bulgaria is planning to sell bonds amounting to EUR 1 B on the international market in 2011 to shore up its finances. But it will be very hard for the government to tap international markets at favorable interest rates if it fails to keep the budget deficit below the forecast level and growth undershoots the ambitious goal.

Tight fiscal policy is a crucial requirement for yet another reason. Finance Minister Simeon Djankov has vowed to make another shot at the eurozone waiting room ERM II in the second half of 2011 after the country has, hopefully, demonstrated that next year's budget deficit will fall below the European Union's ceiling of 3% of gross domestic product in line with the Maastricht criteria. For a number of reasons and for the time being this goal remains just wishful thinking.

Djankov's belt-tightening policy however is likely to continue to draw criticism of creating the illusion of a healthy economy on the back of the people, who are three times poorer than the average EU citizen. The odds are the gap, wide open, between sceptic people and optimistic figures, rattled off by politicians, will grow even wider in 2011.

Bulgaria's government should finally go ahead with the planned sale of tobacco company Bulgartabac Holding AD, Sopot-based Vazovski Mashinostroitelni Zavodi or VMZ, the country's biggest military plant, and minority stakes in E.ON-operated electricity distributor. This step is a must-do task in 2011 due to the sorry performance of the state-owned companies.

Bulgaria in EU

In Schengen or not in Schengen?

Bulgaria will most probably fail to join the Schengen area in March 2011, a target date, which has been set as early as in 2007, during the term of the previous Socialist-led government. Hungary, which currently holds the EU presidency, may decide to put this issue on the agenda of the Council of Interior Ministers of the EU, due on February 24, but the decision will most probably be negative. The next deadline to be set for Bulgaria is expected to be November this year.

Bulgarian experts are unanimous that the country meets the technical requirements. The real problem rather seems to be the threat of information leakages and Greece's porous border with Turkey.

The reluctance of France, The Netherlands, Germany and Austria to let the Balkan country join the Agreement in 2011 is both because of domestic politics and the voters in their own countries and because they really believe the entry into Schengen will be premature, just as the EU entry.

A possible refusal by Brussels to admit Bulgaria into Schengen will be yet another sign that the integration processes within the EU have stalled. Still Bulgaria has to do everything possible to join this internal club. The sooner Bulgaria joins the club, the sooner it can reap the benefits from membership - joining an inner circle of European integration; better trade, investments and tourism; facilitating citizens' travel and stay in other Schengen countries.

Domestic Affairs

Two Crucial Votes in One

Anyone, who follows the news in Bulgaria, will confirm - time is already ticking away for Bulgaria's presidential and local pre-election campaign. What Bulgarians need to do is look carefully at the main runners and take their time to size them up. It does matter!

Incumbent Socialist President Georgi Parvanov was re-elected for a second five-year term in 2006 and isn't eligible to run in next year's presidential elections. The candidates in 2011 elections will probably inspire more than one out of six million voters, the turnout during the previous vote in 2006, but the winner, whoever he is, will be as pathetic to call himself president of all Bulgarians, as anyone can be.

Bulgaria's Prime Minister Boyko Borisov has expressed conviction that his party has among its ranks at least five likely nominees able to sweep the elections for the high, though largely ceremonial, office of president. He has even hinted to journalists that he might run for president.

Meanwhile internet forums in Bulgaria are overflowing with calls for the highly popular Kristalina Georgieva, currently the EU's humanitarian aid commissioner, to run in this year's presidential elections.

The ruling party GERB is unlikely to nominate Interior Minister Tsvetanov, as initially planned, because of the string of discrediting information revealed about him recently, but will Kristalina Georgieva decide to run? Or may be Boyko Borisov's real political goal is to become president?

Whatever the answer to these questions, the most disputed aspect of the vote is the prospect of former special agent of the State Agency for National Security (DANS) and controversial businessman, Aleksei Petrov, running in it. Given that, we can look forward to shocker surprises in these elections!

The power that Socialist President Parvanov handed to the ethnic Turks has given him a bad reputation. Still rumours say that the Socialist Party will run together with the ethnic Movements for Rights and Freedoms, seeking a successor with allegiance to Parvanov.

Bulgaria nationalist leader Volen Siderov has also said he is determined to run - again - for the office. Siderov has been promoting openly his racist beliefs, which disgusted many Bulgarians but fascinated others. The popularity of the national leader however has weakened tremendously over the last year. So there is no risk of Siderov's making a breakthrough and inciting ethnic tension, something that has brought dramas in the Balkan region. Bulgaria, unlike many neighbours, has so far managed to stay clean of ethnic conflicts and this certainly won't be the end of the ethnic peace in the country.

But why should these people want to become president? Despite the mostly ceremonial duties of the post, the president can name figures to bodies like the secret service, the media watchdog and others to extend his influence. President Parvanov did not miss that chance.

One thing is for sure – there will be a dirty and prolonged campaigning prior the local and presidential elections in the autumn. No more of the sluggish and lacklustre campaigns Bulgarians have seen in the last ten years.

Meanwhile the spectre of early elections will pop in and out of the war of words on the political battlefield, but will certainly not happen in real. God forbid! Should the government of the center-right GERB party, led by Boyko Borisov, collapse, all hell will break loose with dozens of small parties fighting for power.

Energy

Time for Big Decisions

The fate of two of the biggest and most controversial energy projects in Bulgaria – nuclear power plant Belene and South Stream natural gas pipeline – should be decided by the government in the first months of 2011.

2010 saw much uncertainty on part of the Borisov Cabinet with respect to the fate of the Belene Nuclear Power Plant. On the one hand, PM Borisov slammed the project as having been used by former goverments to drain budget money, on the other he eventually came around with respect to declaring the importance of the project for the future of the Bulgarian economy. By the end of the year, it reached a certain level of progress in talks with Russia and Rosatom's subsidiary Atomstroyexport, and with some foreign companies interested in having shares in the project. In November the Bulgarian Energy Holding picked HSBC, one of UK's biggest banks, for a consultant to help it decide how to proceed and attract new investors for the planned Belene nuclear power plant. Will HSBC manage to do all this during the next two months? Will Sofia be forced to make yet another concession without having an idea about the profitability of the project? These are questions, whose answers will become clear in the next few months. Until then the government had better start talking figures.

Unlike the nuclear power plant project, South Stream is moving confidently ahead. Sofia and Moscow established a 50/50 joint venture in November 2010 for the building of the Bulgarian part of the Russian-led natural gas pipeline and the due diligence should be ready by the end of February. An investment decision for the construction of the pipeline is expected in the spring, but when it will actually begin is an open question.

In 2011 Bulgaria's government should finally make its mind about how to restructure the energy holding, which groups the country's top energy assets. The Bulgarian Energy Holding was created in 2008 with the merger of five state-owned companies - the National Electricity Company NEK, the gas monopoly Bulgargaz, the Maritza Iztok Mines, the Maritza Iztok 2 Thermal Plant, and the Kozloduy Nuclear Power Plant into a EUR 4 B energy giant. It is expected that the holding will come to include only the thermal and nuclear power plants, together with the National Electricity Company NEK, after which a minority stake will be listed on the stock exchange.

Environment

Going Green at Last?

Bulgaria should start to properly implement EU waste law. In other words it should have a network of waste disposal depots and water purifying stations in place. Otherwise the country will be forced to pay hefty fines, worth millions of euros. Finding a solution to Sofia ongoing waste problems was a politically sensitive issue in the months before the parliamentary elections in the summer of 2009, which Boyko Borisov won by a large margin. A repeat of the scenario is not ruled out ahead of the local poll in 2011.

Bulgaria is expected to have its carbon emissions trading rights under the Kyoto Protocol restored by the United Nations in the first months of 2011. The ban was imposed on Bulgaria on June 30, 2010, for failing to pass appropriate climate legislation in time and provide an emissions inventory for 2007 and 2008. The ban also prevented Bulgarian companies from selling carbon permits in the European Union emissions-trading system.

In 2011 Bulgaria's government should finally map out its strategy about how the business with renewable energy will develop. A new Renewable Energy Sources Act is in the pipeline, due to be voted in parliament this year. The act aims to meet obligatory targets set by EU's Directive on the Promotion of the use of energy from renewable sources - a16 % share of RES on the final consumption of energy in 2020 and at least 10% share of renewable energy in final consumption of energy in transport by the same deadline. Bulgaria's renewable energy legislation has long been expected to be harmonized with EU laws in order to attract major foreign investors.

In 2011 Bulgaria should, though belatedly, start to liberalize its water sector and provide legislation about who does what. Bulgaria's water sector remains one of the least reformed systems in the country. Except for Sofia municipal water supply, which has been granted on concession to a foreign investor, all other units in the sector are either owned by the state or the municipalities. The cash-strapped country can not afford to upgrade and maintain all units in the system – from the dam to the end users – and they have been left to the mercy of time and vandalism. Obsolete water and sewage networks made of asbestos cement cause huge leaks and hurt the quality of the water.

Health Care

Put Life Support Back On!

After a year in which hospitals across the country suspended planned operations and reduced admission of emergency cases, switched into a war-time regime and even tapped into the reserves, meant to be used in case of natural disasters, the health care sector faces huge problems - understaffing, supply shortages, braindrain, bribes to doctors and nurses to ensure better treatment, high debts and chronic lack of money. These will hardly be solved in 2011.

In recession-battered Bulgaria, the government spends just 4.2%  of its GDP on health. All employed and self-employed Bulgarians are obliged to make monthly health insurance contributions of 8% of their income to the Health Insurance Fund, but it has been plagued by corruption and funds siphoning is no exception there. Besides the health insurance contributions that the state pays for the people under its wing are meager. The only solution is breaking the monopoly on the market, where the National Health Insurance Fund now is the only player. This is not however something, which we will witness in 2011.

In 2010 hundreds of cancer and HIV-positive patients faced a shortage of life-saving medicines because of a delay in tenders for their purchase. This year the health ministry will not conduct these tenders and the payment for the expensive medicines will be transferred to the health insurance fund or the hospitals. People, who wish to be treated by a doctor of their choice at medical facilities, will have to pay between BGN 250 and BGN 700 while to select a team they will need between BGN 350 and 950.

In 2011 the government will steer clear of any radical decisions, which might hurt its popularity prior the elections. That's the reason why the closure or privatization of hospitals and their assets will be delayed. What the government must do in fact is prepare a National Health Care Map, which will make much more clear the number and location of the hospitals Bulgarians need.

Agriculture

Sowing the Seeds of Trust

The highlight in the sector in 2011 will be the launch of Bulgaria's Food Safety Agency, due at the beginning of February. It will include the currently existing National Veterinary Service, National Plant Protection Service, National Grain and Grain Products Service, and a unit in the public health body, which is responsible for food safety.

It is still not clear who will head the agency, but Boyko Borisov should be more than careful as staff policy in the sector has often been a washout with dire consequences. Suffice it to mention the case of Kalina Ilieva, former head of a Bulgarian agency overseeing hundreds of millions of euros in EU farm aid, who was disgraced and dismissed for producing a fake diploma.

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