Bulgaria's Fiscal Council has warned of a risk of a debt spiral and mounting interest rate pressure in its analysis of the current 2027 budget procedure. The accumulation of budget deficits is raising concerns about debt and interest payments, which are projected to reach EUR 1.88 billion in 2028, or about 1.3% of GDP, the Fiscal Council says in the analysis. This is leaving less fiscal space for key sectors such as education and healthcare.
The analysis also points to an approaching period with a risk of recession and recommends budget savings of at least 2% of GDP in 2027 and at least 1% of GDP in 2028. The recommendation is particularly urgent in view of the Excessive Deficit Procedure launched by the European Commission against Bulgaria.
The Fiscal Council recommends fiscal consolidation and efforts to achieve a balanced budget through structural reforms. Its specific recommendations include increasing the share of social security contributions paid personally by public-sector employees to 40%, with the state covering the remaining 60%, in 2027, from a 20/80 ratio in 2026, bringing the arrangement in line with the private sector. The reform should also cover military personnel and police officers, the Council says.
It also recommends a lasting revision of the temporarily suspended numerical rules for wage and pension increases, which it says contribute to pro-cyclical and inflationary spending, with a view to achieving a lasting positive fiscal effect. Other recommendations include removing the exception to the rule limiting expenditure under the Consolidated Fiscal Programme for European accounting purposes and amending the Public Finance Act because the current provision is inconsistent with the economic rationale behind the rule, which is intended to limit fiscal expansion and the impact of budget spending on macroeconomic aggregates.
The Council also recommends optimizing current personnel spending and restructuring the administration to reduce the administrative burden associated with the large number of public-sector employees and a declining population. It calls for consolidation efforts to reduce personnel spending by more than the currently planned 10%, with the cuts designed to have a lasting effect.
Regarding the Public Social Insurance Budget, the Fiscal Council recommends reforming the pension model to encourage the second and third pillars and strengthen the funded component of pension income. It supports plans to align the distribution of social security contributions between civil servants and magistrates and the State budget with that in the private sector, which would ease the fiscal burden on the budget.
Regarding the National Health Insurance Fund (NHIF) budget, the persistent increase in spending on major items does not demonstrate greater efficiency in healthcare services, but reinforces dependence on rising transfers from the State budget to balance the NHIF budget. The Fiscal Council recommends presenting expenditure in a programme-based format to make it easier to track, while the link between the Health Ministry's policy and the NHIF as the payer of healthcare services should be clarified.
The key priorities identified by the Fiscal Council in the 2027 budget procedure are improving the budget balance and introducing lasting spending measures backed by realistic revenue projections, with the main focus on the efficiency and quality of public finances, the analysis said.