Chorus of criticism of Bulgarian government’s proposed Budget

The proposed Budget tabled in Parliament by Prime Minister Roumen Radev’s government has been the subject of weeks of sharp criticism by leading economists, private sector bodies and trade unions, the independent Fiscal Council and even the head of the central bank.

Parliament’s draft Order Paper shows the Budget as the first item on July 15 in the National Assembly, where Radev’s Progressive Bulgaria commands enough votes on its own to approve the legislation.

On July 2, Bulgarian National Bank (BNB) governor told Bulgarian news agency BTA that the proposed Budget, which envisages a deficit of 5.7 per cent, deepens rather than reverses the negative fiscal trend that has developed since 2020.

This is while BNB’s own economic forecast points to slower growth, higher inflation and domestic imbalances.

The proposed Budget also has been criticised by BNB deputy governor and former finance minister Petar Chobanov and Fiscal Council member Lyubomir Datsov, who called for significantly bolder restraint on spending, warning that unless this is done, the EU’s excessive deficit procedure on Bulgaria would continue beyond 2028.

The Fiscal Council has described the proposed Budget as “relying on cosmetic spending corrections and aggressive debt financing, rather than real reform”.

Institute for Market Economics chief economist Latchezar Bogdanov, in a July 6 article headlined “A catastrophe of political opportunism” said that government was proposing a Budget with a deficit on 5.7 per cent of GDP, in a country with the lowest unemployment in the EU, the fastest catch-up with average European incomes since the pandemic, the fastest wage growth in the EU, the highest growth in consumption in the EU and with new records in household lending and the real estate market.

“For an economy in such a period of growth to blow its budget is a financial, political, and social catastrophe,” Bogdanov said.

“Especially in the most favorable possible macroeconomic environment that any finance minister could dream of. This is a failure that will be studied in economic history textbooks,” he said.

A persistently large budget deficit, caused by an enormous increase in spending, leads to high inflation, Bogdanov said.

The state is pouring additional fuel into an already overheating economy, and combined with the continuing credit expansion by banks, it is pushing up domestic prices and significantly increasing imports, he said.

“If you are wondering why Bulgaria has the highest inflation in the eurozone, we can attribute half the blame to fiscal policy.”

Any external shock, any deterioration in the economic environment, will reduce expected revenues, and from there — inflate the deficit again, he said.

IME senior research fellow Petar Ganev said on July 6 that the proposed Budget does not translate the government’s promises for consolidation of public spending and reduction of the excessive deficit into concrete legislative measures.

Ganev said that although numerical targets for spending control are included in projections for the next two years, there is no explanation of how these goals will be achieved.

IME executive director Krassen Stanchev, speaking to Bulgarian National Radio at the beginning of July, said that ublic spending continues to increase without sufficient transparency regarding how large portions of capital expenditures and municipal funding will be used.

Stanchev said that the government is exaggerating budgetary problems while simultaneously concealing the intended allocation of significant public resources. The fiscal framework was risking fuelling further inflation through higher spending and borrowing.

Economist Associate Professor Shteryo Nozharov of the University of National and World Economy criticised the proposed Budget as containing mathematical absurdities and outright manipulations.

The government had presented a schedule for reducing the budget deficit from 5.7 per cent in 2026 to the three per cent threshold in 2028. “This is mathematically absurd – there is no way we can reduce the deficit while the debt explodes by 18 billion euro compared with 2025,” Nozharov said.

Nozharov, speaking to bTV on June 25, said: “This budget cannot be fixed. It must be torn up and thrown in the bin”.

Economist Nicola Yankov, senior associate fellow at the Centre for the Study of Democracy, told bTV that Bulgaria faces no recession, war, pandemic, or migration shock and therefore has no reason to run such a high deficit.

At the end of June, the Confederation of Independent Trade Unions in Bulgaria and the Podkrepa labour confederation protested outside the Cabinet building in Sofia, saying that the Budget would mean cuts in personnel spending and shifts part of the burden of social security contribution on to public servants.

Stanislav Popdonchev, vice present and chief financial officer of the Bulgarian Industrial Association, criticised the expected deficit and the growing state debt.

“In our opinion, the deficit should also be lower,” he said. The association wanted to see a clearer structure of expenses, including the so-called “financial operations below the line” and capital increases of state-owned enterprises, for which “there is no data on who they are”.

“Our problem is not primarily in the system’s revenues, our problem is in the expenses,” Popdonchev said.

Temenuzhka Petkova, an MP for Boiko Borissov’s opposition GERB-UDF and former finance minister has described it as “a Budget of political hypocrisy and irresponsibility towards the trust that Bulgarian citizens had put in Radev’s Progressive Budget”.

The revenue projections were similar to those set in the Zhelyazkov government’s proposed Budget, but spending was 2.74 billion euro higher, while the deficit and debt ceiling were higher, she said.

Democratic Bulgaria (DB) MP Ivailo Mirchev said that Finance Minister Gulub Donev should withdraw the Budget and rewrite it, to provide for a three per cent deficit and no increased spending.

“This Budget lacks any meaningful reforms, and even worse, it is inflationary and will not lead to anything positive,” Mirchev said.

DB MP Martin Dimitrov, an economist, said the draft Budget carried risks for financial stability and inflation. Dimitrov said that the deficit is the highest since the time of Zhan Videnov, who headed an ill-fated socialist government in the 1990s.

Assen Vassilev, leader of the opposition We Continue the Change and a former finance minister, has made numerous media appearance criticising the proposed Budget, which he has described as “extremely bad” and even worse than that tabled in the past by Zhelyazkov and Petkova.

Vassilev has argued that the Budget deficit could be cut to three per cent by removing the unclear spending buffer in the draft.

He said that billions of euro were being allocated without clearly defined projects. Vassilev said that an additional 737 million euro had been earmarked for nine ministries and departments, without it being clear what they will be spent on.

He said that there was a serious discrepancy between the funds allocated in the capital programme and the projects described.

The Budget provides for 3.1 billion euro in capital spending, while the annex with the specific projects describes investments for about 1.4 billion euro, which leaves nearly 1.7 billion euro for which there is no clear purpose, Vassilev said.

The Budget also has been criticised by Parliament’s smallest party, Vuzrazhdane.

Fitch Ratings said on July 13 that the 2026 budget approved by Bulgaria’s new government highlights the risks posed to the economy and public finances from fiscal easing in recent years.

Significant deficit reduction is envisaged for 2027-2028, but expenditure rigidities and opposition to tax increases, as evidenced by demonstrations that led to the collapse of the previous government, pose challenges to fiscal consolidation, the ratings agency said.

(Photo: government.bg)