On the eve of the introduction of the euro and in the absence of public debate on the 2026 budget cycle, signs of political instability and growing macroeconomic risks are emerging in Bulgaria. The deadlock in the ruling majority, warnings of possible early elections and the apparent lack of trust between institutions create additional uncertainty. In parallel, inflationary pressures remain tangible, and the implementation of the 2025 budget shows an accelerated accumulation of the deficit, driven mainly by an increase in current personnel costs, maintenance and social security payments. In such an environment, the state budget for 2026 is not just a financial plan of the state, but a key instrument for economic growth, for protecting the vulnerable and for restoring trust in institutions by investors and society.
This is stated in an official position of the AICB.
The aim of this document is to propose a pragmatic package of measures for financing reforms and policies, which combines fiscal discipline and stimulating economic growth. The aim is to fix a clear trend for public finances: a decline in the deficit below 3% already in 2026, limiting the growth of public debt and accelerating investment — especially those with high added value and European co-financing.
We realize that such a framework requires political will and sustainable public consensus, and therefore the recommendations are designed as a basis for an agreement between the government, the National Assembly and social partners, which should be bound by a clear timetable and measurable performance indicators.
AIKB warns that if the state budget continues to finance permanently growing current expenditures with deficit and debt, without reforms and discipline, then the collapse of public finances is inevitable. On the other hand, Bulgaria has a competitive tax system, which is focused on collection and efficiency and which is ranked 5th in the ranking of tax systems of 32 European countries (32nd place - Italy, 31st place - France). To avoid the chaos of political instability and the risks of a fiscal crisis and excessive deficit procedure, we recommend several categorical measures and policies for Budget 2026.
In the baseline macroeconomic scenario for 2026, we expect moderate growth in external consumption and better absorption of European funds to support real economic growth of 2.5 to 3%, with a focus on investment and exports, with inflation at 3-4% and unemployment at 4.0-4.5%. In order to eliminate secondary inflationary effects, we insist on freezing budget salaries and the minimum wage.
The fiscal goal of Budget 2026 should be a budget deficit lower than or equal to 2.9%, with a clear goal of consolidation and achieving a budget deficit value below 2% in 2027, at the same time, the budget's revenues and expenditures should be planned realistically and fiscal buffers should be provided for automatically reducing non-priority expenses in the event of a lag in revenues or European payments.
AIKB believes that the consolidation of the budget deficit involves preventing growth in the general fund "Wages" in public administration (with the possibility of internal redistribution and linking to results), targeted social payments, prioritizing capital expenditures and increasing revenues through higher collection, without increasing tax and social security rates. It is necessary to reduce the dynamics of government debt growth and stabilize it below 30% of GDP, as well as strive for a trend towards its relative reduction in the coming years, supported by a positive budget balance and economic growth. The calculations show that with a 3% expected GDP growth, in order to maintain the debt/GDP ratio at 25%, the budget deficit must not exceed 0.75% of GDP. Alternatively, if we want the ratio of 25% to be maintained with a 3% budget deficit, the economy must grow by 12%, which is practically impossible. This proves that budget consolidation is the only alternative to avoid a debt spiral.
We also recommend maintaining a sufficient liquidity buffer in the fiscal reserve to finance temporary imbalances in public finances.
AIKB insists on not changing the tax system because it is effective, balanced, competitive and neutral, and this is precisely what gives us a strategic advantage over our competitors in attracting investments. It is effective because it collects sustainable revenues with low administration and collection costs. It is balanced with a reasonable ratio between direct and indirect taxes, ensuring a predictable budget flow. It is competitive with some of the lowest rates in Europe, attracting investments that accelerate economic growth. It is neutral because it has a relatively broad tax base, without wasteful tax breaks and exemptions, which also makes it easy to apply, encouraging investment and employment. All this places us in 5th place among 32 European countries in the Tax Foundation index (Scorecard 2024/2025).
Increasing tax and social security rates does not guarantee more revenue, but will reduce disposable income and investment, slow down growth and ultimately - budget revenues themselves. The OECD emphasizes that corporate taxes are the most harmful to growth, followed by income taxes, and property taxes are the least harmful. The IMF for Bulgaria (September 2025) recommends a non-expansionary stance, collection and base broadening before discussing rate increases.
AIKB recommends accelerating work on the National Recovery and Resilience Plan (NRRP) and the EU-funded cohesion programs as the main source of public investment and a multiplier of private investment. The accelerated implementation of investments financed with European funds will increase nominal GDP, activate VAT in supply chains, increase taxable profits and employment, and thus support the revenue side without an additional tax burden - in full harmony with the principle of “more collection and efficiency, not higher rates“.
AIKB believes that public enterprises should be more efficient and provide a predictable cash flow to the budget, without depriving them of financial resources for modernization. We recommend the introduction of the OECD standard for good corporate governance in state-owned enterprises, such as professional and independent boards, competitive selection supported by performance contracts, and publication of quarterly reports, so that the market and society can see the real efficiency of public enterprises. Thus, the public sector will begin to operate according to the rules of good corporate governance and support the fiscal in a sustainable manner.
To avoid a fiscal crisis, AIKB insists on strict fiscal discipline in 2026. To achieve this, urgent structural reforms are needed. The focus should be on the efficiency of budget spending, prioritizing reforms that reduce unnecessary spending and support economic growth, and not simply mechanical cost cutting.
An important step towards fiscal stability is the introduction of mandatory annual reviews of spending by function. We recommend that each ministry and department annually submit a savings plan of at least 5% of current operating expenses.
A major problem with public sector wage costs is the automatic link between salaries in some budget structures and the average wage in the country. These formulas lead to inertial growth, unrelated to productivity or budget capacity. This connection needs to be removed and a transition to payment for achieved results with differentiated scales and measurable indicators should be made. The goal for Budget 2026 should be that the general fund "Salary" in public administration does not increase compared to 2025 in nominal terms, and according to the results, internal redistribution of funds between individual administrations is allowed.
AIKB believes that the optimization of the state administration should be differentiated, with cuts being made in public institutions where there are significant reserves (including permanently vacant staff positions), and if necessary, in other units with high workload, even an increase in the number of personnel should be envisaged. The net goal should be to reduce the total administrative staff by at least 5% in 2026 and another 5% in 2027. A functional audit should identify duplicative structures in the state apparatus, and internal activities such as accounting, human resources and IT in ministries and departments should be centralized. Accelerated digitalization, e-government and e-services will speed up the work of the administration and save funds for the state budget.
AIKB again proposes that civil servants start paying insurance contributions at the expense of the employee while maintaining the amount of the net remuneration received, and that the quarterly and six-monthly practices of additional material incentives for employees be abolished and replaced by an annual bonus for achieved results and fulfilled goals. The maximum value of maintenance costs in 2026 should remain limited to its nominal amount for 2025.
Serious optimization of costs is needed in the security sector. In our opinion, the urgent reform of the system includes the gradual release of employed pensioners, and that the first category of labor be retained only for employees of the Ministry of Internal Affairs in the field, with all administrative staff moving to the third category of personnel. The digitalization of processes will increase efficiency and control.
AIKB proposes that the budget of the judiciary (including the prosecutor's office) for 2026 remain at the nominal level of 2025. Mechanical additional financing should not be allowed, but only after reforms have been implemented and results achieved according to public indicators.
The pension system needs to restore fairness, which has been sharply eroded in recent years, and to repair the relationship between the amount of the pension and the insurance contribution of the insured person. The category of "minimum pension" should be abolished, and the amount of pensions should be determined entirely according to the insurance contribution of the persons. For pensioners receiving income below the poverty line, targeted social assistance should be provided after an income and property test. This will restore the fairness of the pension system and limit the growth of pension costs, without leaving vulnerable pensioners without support. We propose that the pensions be updated on July 1, 2026 only with accumulated inflation, which will preserve the purchasing power of pensions.
AIKB insists that the minimum wage remain unchanged in 2026 until an objective mechanism is adopted, consistent with the European directive. This will interrupt the automatic wage-inflation spiral and return the social partners to meaningful negotiations to develop a mechanism for determining the minimum wage. We recommend maintaining the amount of the maximum insured income.
At the same time, it is necessary to eliminate distortions in the labor market. The first two days of sick leave at the expense of the employer should be transferred entirely to the National Social Security Institute. The mandatory "service time classes" in the private sector should be eliminated and remain as an option for internal company policy. To eliminate "leave for leave", by not accruing paid annual leave for periods of maternity.
AIKB is convinced that the mandatory state matriculation exam in mathematics should be introduced in secondary education. This measure will increase the quality of secondary education. We propose that the admission plan in higher education institutions be reduced and restructured according to the needs of the economy and society, while maintaining the amount of funding for higher education, and that the saved financial resources be directed to improving the quality of student education. Changing the principle "money follows the student" to "money follows the result" with targeted scholarships and dual training will improve the quality of education and compliance with labor market needs.
A structural reform is needed in healthcare, including restructuring spending towards more prevention and screening of diseases at the expense of hospital care and medications, and full digitalization with e-files, e-prescriptions and a single patient identifier will eliminate paper chaos in the system. The new National Health Card and payment by activity and quality with control over over-hospitalizations will bring additional savings to the healthcare system.
At the local level, determining the amount of the municipal waste fee must urgently move to introducing the "polluter pays" principle - determining the fee depending on the actual amount of waste, and not on the tax assessment of properties. This will stimulate recycling and reduce waste disposal costs.
The 2026 Budget should provide for funding for an automatic mechanism to compensate non-household consumers in the event of a significant increase in electricity prices above the average European prices. The mechanism is temporary and budget-neutral, with automatic activation. This will preserve the competitiveness of Bulgarian enterprises.
In order to reduce the administrative burden on businesses, we propose a one-year postponement of the Corporate Sustainability Reporting (CSRD) and the obligation to submit the Standard Audit File (SAF-T) for a smooth implementation without significant software integrations and shock costs for SMEs.
The proposed reforms are in line with the recommendations of the IMF, OECD, World Bank and European Commission. They will lead to a structural improvement in the primary balance of at least one percentage point and will support economic growth without raising taxes. Additional instruments such as public-private partnerships, automatic brakes in case of revenue lags and acceleration of investment of European funds will enhance the effect. The focus is clear - efficiency, accountability and reforms with measurable results.
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