Bulgaria faces EU budget repair mandate

The Commission has decided to recommend an excessive deficit procedure for Bulgaria just after euro adoption, turning its first euro-year budget into a repair timetable. The deficit, the annual gap between state spending and revenue, rose from 3.0% of GDP, national output, in 2024 to 3.5% in 2025, and the Commission forecasts 4.1% in 2026 and 4.3% in 2027 in its 2026 European Semester Spring Package. Bulgaria joined the euro area on 1 January 2026, Eurostat says, and Fakti reported from Luxembourg that the Commission still intends to move ahead.

Debt, the stock of past borrowing, gives Sofia some room. Public debt is rising but remains far below the EU debt yardstick; the pressure sits in the annual deficit. Commission Executive Vice-President Valdis Dombrovskis also narrowed the defence argument: 2025 military spending can be treated under the escape clause, the allowance that softens the judgement for extra defence outlays, while the 2026 breach is no longer fully explained by defence spending, BTA reported.

The Budget Math Lands In Sofia

The working number now is net expenditure. That means state-funded spending after items such as EU money and some temporary costs are stripped out; Regulation 2024/1263 makes it the main spending gauge. Prime Minister Galab Donev told parliament the Commission had referred to a 0.5% of GDP reduction in net expenditure and said roughly 76% of spending went to salaries, social payments and pensions, with around 24% for investment, BTA reported.

That split is the fight. With 76% tied to wages and benefits, office savings cannot carry the adjustment. Sofia has to choose among slower payroll growth, pension indexation, the formula that lifts benefits over time, tougher tax collection, procurement cuts, delayed investment, new borrowing, or a mix. Each route sends the bill to a different group: public employees, pensioners, suppliers, construction firms, taxpayers, or future budgets.

Tax Collection Is The Cleaner Route

Donev’s preferred route is to collect more money without raising headline taxes. He has promised action against the shadow economy, business kept off the books, and better tax collection while saying basic taxes and social-security contributions, payroll charges that fund benefits, will not rise; his list also includes administrative mergers, moving services online, spending limits and wage-control tools, with most effects in 2027-2028, Investor.bg reported.

That route rewards compliant firms, because competitors paying cash off the books lose part of their price advantage. Administrative savings hit a different group. Public workers may face fewer posts or reorganised offices. Citizens may pay indirectly if merged services become slower or harder to reach.

Croatia shows why digital tax control appeals to governments. Its fiscalisation system, the digital recording of invoices and receipts, has processed more than 56 million e-invoices across over 325,000 businesses, including 96,000 small taxpayers using a free app, Poslovni reported. That suggests Bulgaria can make hidden activity visible without raising tax rates. The risk is design: if small firms carry most of the paperwork, the political cost rises quickly.

Borrowing Markets Are Watching

Romania shows the harder edge of delay. Termene reported a 7.9% deficit in 2025 and public debt at 59.3% of GDP, the kind of mix that can push up borrowing costs, the interest investors demand to lend. Malta shows the other end: proceedings were dropped after the deficit moved sustainably below the limit, Bluewin reported.

Bulgaria has more room than Romania because debt remains lower, but the budget mix makes the repair concentrated. The next budget has to show how much comes from tax collection, wages, pension formulas, procurement, investment timing or borrowing. The EDP makes the arithmetic public; Sofia still chooses whose income, services or margins absorb it.