site.btaFiscal Council Expresses Reservations about Defence Spending Increase in Bulgaria

Bulgaria’s Fiscal Council has expressed reservations about the country’s potential activation of the national escape clause under the EU’s Stability and Growth Pact for the 2025–2028 period. This clause would allow increased defence spending without triggering an excessive deficit procedure. The Council also expresses reservations about the efficiency of defence spending and its potential contribution to Bulgaria’s economic development. These concerns were outlined in an opinion published Thursday, responding to the Finance Ministry’s annual report on the progress made in 2025 toward implementing Bulgaria’s national medium-term fiscal-structural plan for 2025–2028. The report has been submitted to the Council of Ministers for approval.

According to the opinion, the annual progress report was prepared under the revised rules of the Stability and Growth Pact, specifically Regulation (EU) 2024/1263 of the European Parliament and of the Council of April 29, 2024, on the effective coordination of economic policies and on multilateral budgetary surveillance. The report includes details on the implementation of planned net expenditure, with a particular emphasis on the 2025 budget forecast, which outlines expected capital and current spending, budget revenue, government debt, and one-off revenue measures.

The Fiscal Council highlighted planned changes in public defence spending, noting that new geopolitical realities require both EU and national policymakers to bolster defence capabilities.

The Council of the EU initiated a request for activation of the national escape clause under the Stability and Growth Pact as part of the ReArm Europe Plan/Readiness 2030, presented in March 2025. In April 2025, sixteen Member States, including Bulgaria, agreed to do so. Of the major EU economies, only Germany plans to use the clause, while countries like the Netherlands and Sweden expect to meet their defence targets -2% of GDP - through budget adjustments, the opinion said.

The clause covers a period of four years and a maximum of 1.5 percent of GDP in flexibility, as long as the extra spending is linked to increased defence investment, as measured by the Classification of the Functions of Government (COFOG) relative to 2021 levels.

In 2025, nationally financed capital expenditure is projected to rise to 3.5% of GDP, reflecting mounting pressure on public finances. Defence spending is projected to grow significantly - by 102.5% year-on-year - driven mainly by capital investments. Current defence spending is expected to increase by 42.9% compared to 2024, the Fiscal Council added.

The Council referenced information from the annual progress report on calculating a permitted military spending exemption for 2025: BGN 5.71 billion in defence expenditure on an accrual basis under COFOG, representing 2.6% of GDP.

According to the Council, the long-term economic impact of increased defence investment will depend on the extent of local industrial involvement. Sustainable economic benefits are more likely when domestic enterprises and workers are involved in defence investment, especially when the assets acquired are partly created or maintained in the country.

The Council added that there is a risk of a potential "crowding out" effect, where increased defence spending could divert funds from sectors with potentially higher economic returns, such as education or road infrastructure. The opinion criticized the lack of commitment to counter-cyclical fiscal policies, noting that Bulgaria has run chronic deficits over the past three years.

Any increase in defence spending should be at least partly balanced by restraining the growth of current expenditure, according to the opinion.

In late March 2025, the National Assembly appointed new members to the Fiscal Council, with former finance minister Simeon Djankov named as chairperson.