Fiscal Council Says Bulgaria's Fiscal Position Is Sustainable, Sees Significant Risks to Medium-Term Outlook

Bulgaria's fiscal position remains sustainable, and joining the Eurozone on January 1 is an important institutional and economic success but, political instability, delays in the formation of the 2026 budget framework and ongoing geopolitical crises pose significant risks to the medium-term fiscal outlook, the Fiscal Council says in an Annual Progress Report for 2026 on the implementation of the National Medium-Term Fiscal and Structural Plan for the period 2025-2028. The report was published by the Fiscal Council on May 12.

The Fiscal Council's report also states that adherence to the parameters of the fiscal path, which should be considered as the maximum allowable level of budget expenditures, does not in itself provide the necessary and sufficient conditions for achieving macroeconomic balance. They therefore believe that domestic budgetary targets and constraints should be more ambitious to ensure the sustainability of public finances and limit economic imbalances. 

In this context, the Fiscal Council emphasizes that the formation of a regular government and the adoption of a realistic, disciplined and sustainable budget are of key importance for maintaining market confidence, limiting fiscal risks and continuing the positive economic trajectory. 

The Council makes five recommendations to the new regular cabinet. 

First is an urgent need to update the medium-term budget forecast and adopt a regular budget for 2026, ensuring compliance with fiscal rules. Secondly, the importance of accelerated implementation of structural reforms aimed at increasing potential growth and productivity is emphasized. Thirdly, the Council recommends strengthening fiscal discipline in public spending, including defense spending, and avoiding the accumulation of deficits. The fourth recommendation is to strengthen monitoring of the structure and sustainability of the debt and current account. The fifth and final recommendation is to review and reformulate the budgetary targets and the fiscal framework in a more ambitious direction, so as to ensure higher sustainability, adequate buffers and effective containment of macroeconomic imbalances. 

Regarding the size of the structural buffer, set in the legislation at 1.5% of GDP, the Council states in its opinion that the crises since 2009 have clearly shown that their impact on the budget can vary significantly depending on the scale of external shocks, reaching up to 9% of GDP in certain cases. The Council states that, in view of the sustained budgetary deviations and the growing external uncertainty, a more realistic structural buffer for Bulgaria should be in the range of 3.5% to 4% of GDP. 

Regarding the debt, the Fiscal Council points out that although "its level remains significantly below the reference value of 60% of GDP, the growth rate deserves attention. The increase is mainly related to the need to finance the budget deficit, as well as the capitalization of public enterprises". They therefore expect the debt trajectory to remain sustainable in the medium term but also emphasize the need for careful management of new debt, including in the event of additional borrowing under the SAFE defense instrument. Public debt is expected to reach 29.9% of GDP in 2025, up from 23.8%.

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