The Ministry of Finance presented the 2026 Budget – with a 3% deficit and 45% redistribution

The Ministry of Finance has published the draft budget for 2026, which shows that a 3% budget deficit is again being targeted. The ministry, headed by Temenuzhka Petkova, expects the "hole" to remain within these limits until 2028, which means staying within the Maastricht criteria.

The projected budget balance seems quite optimistic given the developments this year. Petkova projected a 3% budget deficit, but data for September already show that the "hole" is 2.7%, and the heaviest payments for the year are still to come. Experts estimate a deficit of between 6 and 8%, depending on the tricks (according to Simeon Dyankov) that will be used to reduce it. One of Petkova's hopes for staying within the planned deficit in 2025 – the money from the Recovery Plan – is unlikely to happen this year.

Now, the first budget in euros is set at 45.8% of GDP, and in the next two years, spending will be 43.5% – still far from the limit in the Public Finance Act, which is up to 40% of the size of the economy. In 2025, redistribution was again planned at close to 45%, but the medium-term forecast suggests that not all spending will happen and it will be 42.6% of GDP.

Revenues and expenditures

Total revenues, aid, and donations in 2026 are expected to reach €51.5 billion (just over BGN 100 billion) and increase by €6.8 billion compared to the expected performance this year. For next year, the Ministry of Finance is proposing some new measures to increase tax collection, such as an increase in the tax on dividends from 5% to 10%, a broader scope of goods with high fiscal risk, electronic tracking of vehicles, and an increase in the gambling tax from 20% to 25%.

From 2026, there are also plans to increase the social security contribution to the Pension Fund by 2 percentage points, as well as higher minimum and maximum social security incomes. All this amounts to an increase in the social security burden, which Prime Minister Rosen Zhelyazkov categorically promised would not happen. He was so confident in this that he dismissed these claims as "fantasy."

Total budget expenditure will reach €55.1 billion, which is an increase of €7 billion compared to the forecast for 2025.

The main expenditure policies include:

• an increase in the minimum wage to €620.20;
• higher child-rearing allowances;
• modernisation of pensions according to the Swiss rule;
• 5% wage growth in the budget sector;
• more funds for education and municipalities.

According to the Ministry of Finance's estimates, defence spending will reach 3.6% of GDP in 2027, and the general government balance may temporarily deteriorate to -4.3% of GDP, with the effect considered temporary due to EU derogations for defense spending.

Bulgaria will also take advantage of the EU's SAFE instrument, through which it will receive up to €3.2 billion for investments in the defense industry. This amount is included in the public debt limit for 2026.

Debt and economy

After the state withdrew BGN 17 billion (nearly €7 billion) in new debt this year and has the possibility of borrowing another nearly BGN 2 billion, the next Zhelyazkov cabinet is betting on a net increase (new debt minus maturing debt) of €6.3 billion (BGN 12.3 billion). However, the maximum amount of new government debt that can be incurred next year under the Government Debt Act is €10.44 billion (BGN 20.4 billion). If the entire amount is borrowed, it will be an absolute record within a single year.

The Ministry of Finance expects the country's debt burden to jump to €38.6 billion (BGN 75.5 billion) in 2026. And that will not be the end of it – the government expects the amount of government loans to jump to €44.2 billion (BGN 86.5 billion) in 2027 and €49.6 billion (BGN 97 billion) in 2028.

Economic growth will slow to 2.7% in 2026, and inflation is expected to remain around 3.5%, with a gradual decline to 2.5% by 2028.

Translated with DeepL.