SOFIA – Bulgaria’s new government is facing the same pitfalls that brought down its predecessor, with budgets becoming a political headache for the eurozone’s newest member.

Last Wednesday, Finance Minister Galab Donev submitted Bulgaria’s draft 2026 state budget to parliament – projecting a deficit of 5.7% of GDP, or €7.2 billion, the highest in nearly three decades and the highest in the eurozone.

Public debt is projected to reach €50.5 billion by 2028, with expenditure rising nearly 20% compared to 2025.

Donev has framed the deficit as inherited. “The budget looks this way because it shows what was hidden for years”, he told the bTV broadcaster, implying previous governments concealed the true state of public finances to meet the fiscal criteria for eurozone entry.

Without corrective measures already included in the draft, the deficit would have reached 7.4% of GDP, he said.

His critics are unconvinced. Bulgaria’s Fiscal Council (BFC), the independent body tasked with monitoring public finances, said the budget relies on “cosmetic spending corrections and aggressive debt financing, rather than real reform”.

The path to the eurozone’s 3% deficit rule by 2028, the council added, rests on optimistic assumptions rather than structural change – and with interest payments expected to reach €1.78 billion annually by 2028 (up from under €350 million in 2022), debt servicing will increasingly crowd out spending on education and healthcare.

One figure captures the imbalance. The government’s flagship restraint measure – a 10% cut in personnel costs across the public administration from September – would save €85 million, but total expenditure is still set to rise by €9.3 billion. The BFC warned that any effect would be diluted by compensatory pay rises intended to protect civil servants’ take-home pay.

The centre-right Democratic Bulgaria party compared the deficit to that of the Zhan Videnov government – a period in the late 1990s that ended in hyperinflation, empty shelves and a currency collapse, stabilised only through an IMF rescue programme and a currency board.

MP Martin Dimitrov warned on Thursday that the deficit could trigger “a Romanian scenario” – the country, once a model of fiscal discipline, has seen its deficit balloon to 7.7% of GDP, its government collapse over austerity cuts, and its currency weaken sharply.

The deficit paradox

The sharpest critique is structural. According to the Institute for Market Economics, Bulgaria is running its largest peacetime deficit in conditions any finance minister would envy: the lowest unemployment in the EU, the fastest wage growth, and record household consumption.

“In the most favourable possible macroeconomic environment, blowing up the budget is a financial, political and social catastrophe”, the institute wrote, arguing fiscal policy bears at least half the blame for Bulgaria’s inflation – still nearly double the eurozone average despite easing to 5.3% in June.

The budget has already produced two protests. On 27 June, hundreds gathered outside the Council of Ministers in the first demonstration against Prime Minister Rumen Radev since he took office. The following day, the two main trade union confederations staged their own protest, objecting to cuts in personnel spending.

It was the budget that ended the previous Zhelyazkov government in December 2025 – brought down by mass protests over tax increases, despite a deficit of just 3% of GDP.

Radev, then still president, called publicly for its resignation. Less than seven months later, his own budget forecasts a deficit nearly double that level.

European dimension

The Council of the EU formally established on 25 June that “an excessive deficit exists in Bulgaria due to non-compliance with the deficit criterion” – the first time a new eurozone member has faced fiscal surveillance immediately after joining.

Valdis Dombrovskis, the EU economy Commissioner, noted that “from this year onwards, the excess above 3% of GDP is no longer explained by additional defence spending.”

France, Italy and eight other member states are under similar procedures, but Bulgaria’s position is more delicate: the Commission had projected a 4.1% deficit for 2026, well below the 5.7% now proposed. Sofia has until 15 October to submit corrective measures.

The parliamentary debate begins now. The bill comes later.

(bw, 0w)