site.btaEuropean Commission: Bulgaria Should Spend More on Defence, Rely Less on Fossil Fuels

The spring package of documents published by the European Commission within the European Semester on Wednesday featured five recommendations addressed to Bulgaria to fulfil the conditions for adopting the European single currency. The conditions are reinforced defence spending; timely completion of the reforms and investments set out in the Recovery and Resilience Plan, and urgent acceleration of its implementation, as well as of the implementation of the Cohesion Policy programmes; creating favourable conditions to boost competitiveness by improving the functioning and capacity of public administration; reducing reliance on fossil fuels; strengthening competence-based teaching and learning.

Per the Convergence Report 2025 economic growth in Bulgaria accelerated from 1.9% in 2023 to 2.8% in 2024, driven by private consumption, which was, in turn, sustained by higher real wages, employment gains and increased social benefits. In a context of a tight labour market and falling inflation, real wages continued to expand in 2024. The continued growth in aggregate employment, as well as increased social transfers underpinned strong nominal income expansion in 2023 and 2024. Combined with abating inflation, this led to robust growth in real disposable income, which fuelled private consumption. The strong growth in consumer credit also supported private consumption in 2023 and 2024.

Goods exports contracted in 2023, due to the decline in external demand, the strong negative base effect from 2022 and some one-off factors, such as the planned maintenance in the steel industry and the nuclear power plant and the ban on exports of petroleum products processed from Russian oil. In 2024, exports of goods and services contracted both in nominal and in real terms, while the terms of trade deteriorated. Investment also shrank after strong growth in previous years.

The Commission Spring 2025 Forecast projects real GDP to grow by 2% in 2025 and 2.1% in 2026.

Harmonised Index of Consumer Prices inflation is projected at 3.6% in 2025 and 1.8% in 2026.

General government debt rose from 22.9% of GDP at the end of 2023 to 24.1% at the end of 2024. The general government debt-to-GDP ratio is set to increase to 25.1% by the end of 2025. The ratio is projected to increase to 27.1% by the end of 2026.

According to the Commission Spring 2025 Forecast, net expenditure in Bulgaria is projected to grow by 9.2% in 2025. Based on the Commission Spring 2025 Forecast, the net expenditure growth of Bulgaria in 2025 is projected to be above the recommended maximum growth rate. These higher projections of net expenditure growth than in the Annual Progress Report are due to a lower projected EU funded expenditure as well as a smaller anticipated impact of discretionary revenue measures, albeit against lower total expenditure, in the Commission Spring 2025 Forecast for 2025. The projected deviation, however, is within the flexibility of the national escape clause based on current projections for defence spending.

The report points out that Bulgaria faces several additional challenges related to the quality of education and skills, healthcare, long-term care and social inclusion. Additional challenges, which undermine the business environment and competitiveness, include the functioning of the public administration, including the independence of regulators, the effectiveness of public procurement procedures and of the steering of research and innovation. Further challenges relate to the still high degree of reliance on fossil fuels, persistent energy poverty, underdeveloped sustainable transport infrastructure and poor waste and water management.

According to the Commission, Bulgaria continues to face challenges, including those relating to (energy) poverty and social inclusion, quality and inclusiveness of education, skills development, labour market integration of vulnerable groups and energy transition, which remains key to long-term resilience, and competitiveness.