site.btaRising State Spending and Need for Fiscal Discipline Highlighted at Sofia Forum

At a roundtable on the fiscal policy and economic vision of Bulgaria as a future eurozone member, held in Sofia on Friday, experts outlined the key risks to the country’s public finances and the principles that should guide fiscal policy in the coming years. The meeting was organized by the Bulgarian Employers Association Innovative Technologies (BRAIT) and the Institute for Market Economics (IME).

IME chief economist Lachezar Bogdanov said that the fundamental problem of Bulgaria’s fiscal policy is the political choice to significantly expand state redistribution and public expenditure. He noted that over the past quarter century, public spending had rarely exceeded 40% of GDP, averaging around 37%, while in 2025 it is expected to reach 42.5%. The initial draft budget for 2026 projected almost 46%, later revised to 45%.

Bogdanov warned that the expenditure growth is driving the widening budget deficit, officially projected at 3%, noting that the figure could be potentially higher in reality. He said that tax revenues and collection rates remain strong, but without political will and a broad consensus to curb the expansion of the state, tax increases will be unavoidable. Otherwise, Bulgaria risks a large deficit, a debt crisis and recession, which would again require tax hikes. He added that recent decisions to avoid raising the dividend tax and increasing the pension contribution by 2 percentage points merely postpone the issue, noting that such limited measures cannot sustain an expanding public sector. Bogdanov said the solution lies in structural reforms aimed at faster economic growth, a better investment climate and a more efficient public sector.

Lyubomir Karimanski, member of the Governing Council of the Bulgarian National Bank (BNB), outlined the core principles every government should follow in its fiscal policy, in drafting the budget and amending the medium-term framework. He stressed the importance of effective allocation of public resources, which requires strict adherence to fiscal rules. Karimanski criticized arbitrary interpretations of expenditure levels, noting that even after deducting EU-funded expenditure, consolidated public spending remains close to 42% of GDP.

He underscored the need to safeguard sound public finances on both the revenue and expenditure sides. Tax and social-security revenues are near their historical peak and cannot rise significantly further, he said, which makes the expenditure side the real problem. Any optimization should come through transforming activities in the public sector rather than through direct staff cuts, he argued, adding that thorough institutional assessments are needed to determine efficiency and the quality of available data.

IME noted that in November it presented its alternative view of the state budget for the 24th consecutive year, aiming to demonstrate that alternative approaches to fiscal policy are possible.