site.btaFiscal Council: Revenues in 2026 State Budget Bill Are Overvalued

The Fiscal Council Friday published its opinion on the 2026 State Budget Bill, saying that the revenue projections in the draft budget are overestimated and indicate a risk of non-performance of tax revenues. The rapid increase in public debt carries the risk that Bulgaria will lose its reputation as a country with low fiscal risk in terms of its indebtedness, while the rise in government spending shifts the balance between the public and private sectors in a way that could constrain economic growth.

Regarding the 2026 forecast, the Fiscal Council has developed three scenarios: realistic, pessimistic and optimistic. The baseline scenario is deemed realistic with a probability of 60%, while the optimistic and pessimistic scenarios are each assigned a probability of 20%. The main scenario for the development of the economy in 2026 is very close to that of the Finance Ministry, both nominally and structurally.

For 2026, the Fiscal Council forecasts nominal GDP growth of 6.5%,  2.7% real growth and a deflator of 3.7. Harmonized inflation is estimated at 2.9% annual average and 3.3% at the year's end. 

The Fiscal Council considers it necessary to create higher cyclical buffers (above the regulatory 1.5% of GDP). A structural buffer is also needed to provide funds for urgent structural reforms.

The rule that the size of the public sector should not exceed 40% of GDP, net of EU funds, is breached in 2026 and remains so in the following years.

The expansion of government spending in 2026, amounting to about 5% of GDP, alters the public/private sector balance and pushes the public-sector share higher, despite the very strong performance of the economy. The public sector reaches 45.8% of GDP, exceeding the 40% cap set in the Public Finance Act. Even taking into account funding under the National Recovery and Resilience Plan and the requirement for projects to be completed by the third quarter of the year, this expansion of the public sector is irrational. A large public sector will constrain both economic growth and the capacity for post-crisis recovery.

The Fiscal Council warns that general government debt is rising at a worrying rate, from 29% of GDP this year to 37% by the end of next year. Interest costs are also climbing, from EUR 0.5 billion in 2024 to EUR 1.7 billion in 2028. The sharp increase in the debt burden will push up the cost of debt financing on international markets, putting at risk Bulgaria's reputation as a low-fiscal-risk country.

The Council reiterates the recommendations made during the 2025 budget process: revenue projections are overstated; automatic wage indexing in certain sectors should be removed as it generates budget imbalances; and the budget process must shift towards efficiency and the quality of public finances.

National Health Insurance Fund Budget Bill

The Fiscal Council notes that the authorities are pursuing a policy of increases across major spending categories. The planned rise is markedly higher than in previous years and for the first time exceeds EUR 5 billion, the largest increase on record. Although the sector is financially well resourced, optimizing the use of those funds is key to deliver better outcomes and ensure that the health system matches the population's needs.

Public Social Insurance Budget Bill

The challenge of low pension incomes should be addressed through targeted policies, the Fiscal Council says. However, the preferred approach in recent years - generating a higher deficit financed through additional borrowing - is unsustainable in the medium term, as rapid pension increases exacerbate the shortfall in the Public Social Security Fund.

The Fiscal Council notes that spending pressures have led to a need to raise contributions, particularly to the Pensions Fund, where the deficit is largest. The country's poor demographic situation will further increase this pressure. The Council recommends amending legislation that privileges civil servants, judges and police officers whose personal social contributions are paid from the state budget.

The Fiscal Council said the State Budget Bill for 2026 and the updated medium-term budget forecast for 2026-2028 have not been submitted to it and its opinions were prepared on the basis of publicly available documents.

Finance Minister Temenuzhka Petkova said on Friday that the dialogue within the National Council for Tripartite Cooperation had been restored and that another meeting with the social partners will take place in early December to discuss specific measures proposed by business and trade unions in order to reach a balanced solution acceptable to all.

Later in the day, GERB leader Boyko Borissov told reporters GERB will back down from raising the dividend tax and from a 2-percentage-point increase in the contribution to the Pensions Fund, instead proposing a 1pp rise. Plans to implement sales management software in retail outlets will be abandoned.