As a result of Bulgaria’s economic development and unpredictable factors—including

As a result of Bulgaria’s economic development and unpredictable factors—including the EU exemption allowing for increased defense spending—the country’s budget deficit could exceed 3% of GDP in both the current year (2025) and next year (2026). This was stated by Fabian Bornhorst, head of the regular IMF mission in Bulgaria, during a meeting in Parliament with members of the Budget and Finance Committee, BTA reported.

Presenting the IMF’s analysis and assessment of the Bulgarian economy, Bornhorst said that in order to improve its fiscal position, Bulgaria should consider tightening fiscal policy and enhancing revenue collection. The IMF pointed to several possible measures, including: introducing a progressive tax system, eliminating the cap on maximum social security income, raising pension contribution rates, containing public sector wage costs, and revising the model of social spending, much of which is linked to the minimum or average wage.

“Given the cyclical developments in the economy, our position is that fiscal policy next year should not be expansionary but instead should aim for fiscal tightening, ” Bornhorst said.
“Our recommendation is to identify measures and policies that would reduce expenditures by up to 1% of GDP. This can be achieved through a combination of revenue and expenditure-side measures, ” he added.

According to him, fiscal policy should shift its focus from supporting consumption to supporting investment.

Bornhorst began his presentation by highlighting three “important achievements ” for Bulgaria in 2025: the adoption of the state budget, renegotiation of Recovery and Resilience Plan funds, and accession to the eurozone.

He noted that the economy is performing strongly, with GDP growth projected at around 3%, driven mainly by rising incomes, expansionary fiscal policy, and credit growth. Record-low unemployment shows that Bulgaria’s labor market is very tight.

As a result, the IMF mission considers that Bulgaria’s economy is operating above potential, contributing to higher inflation. Another inflation driver, Bornhorst said, is wage dynamics—particularly the rise in the minimum wage, which is linked to average earnings and to social payments, causing knock-on indexation in the private sector.

He also pointed out that Bulgaria will face mounting pressures in the future from an aging population, defense spending, education, and the water sector—all of which will require higher investment.
“Once expenditure efficiency is improved, the question arises whether the tax model is adequate to finance all needs, ” Bornhorst said.

“In the medium term, and in this context, we again raise the issue of whether Bulgaria should consider moving toward a more progressive taxation model, which on the one hand would increase revenues and on the other would help reduce social inequalities, ” he added.

Other recommendations included improving the design of the second and third pension pillars by introducing a multi-fund model. On raising pension contributions, the IMF suggested starting with a 1% increase in 2026—one year earlier than planned in the government’s current medium-term forecast.

Regarding the cap on maximum social security income, the IMF noted that while wages have been consistently rising, the threshold has remained relatively unchanged.

Bornhorst emphasized that regardless of what Bulgaria decides regarding taxation and social payments, policies to improve revenue collection must continue, particularly since the pension system will face recurring challenges in the coming years.

At the end of the meeting, Budget Committee Chair Delyan Dobrev (GERB-SDS) thanked the IMF mission for its professional approach. He stated that the government does not support two of the IMF’s recommendations—introducing progressive taxation and removing the maximum social security income cap—and clarified that these steps will not be taken.

“Everything else you recommend will be incorporated in the next budget. We agree that measures are needed to contain rising inflation, ” Dobrev said.

“You have very accurately identified that what needs to be controlled is the growth of wages in the public and social sectors, many of which rise automatically because they are tied to the minimum wage, ” he added.

The regular IMF mission, led by Fabian Bornhorst, is visiting Bulgaria from 10 to 23 September 2025, holding meetings with the Ministry of Finance, the Bulgarian National Bank, other state institutions, the private sector, and NGOs.