Bulgaria's first state budget after joining the eurozone has become one of the most discussed topics in the economic debate. Are the measures set to guarantee fiscal sustainability sufficient, what signal does the budget deficit send to investors and what policies are needed for the country to remain competitive in the face of increasing global competition? Iliya Krastev, chairman of the Bulgarian Employers' Association for Innovative Technologies (BRAIT), spoke to FACTI.
- Mr. Krastev, you defined the 2026 budget as the first real test for Bulgaria after entering the eurozone. Does the country pass this test in your opinion, or are we sending the wrong signal to investors in the first year?
- The 2026 budget is the first real test for Bulgaria as a member of the eurozone, because for the first time, markets and investors will assess not only whether the country meets the criteria for membership, but also what fiscal policy it will pursue in the future. That is why this budget has an importance that goes beyond the framework of a single budget year.
BRAIT welcomes the measures to limit some of the automatic costs and to optimize the public sector. At the same time, we believe that they are not enough to change the main problem - the high budget deficit and the lack of a sufficiently ambitious policy to increase competitiveness.
I would not say that Bulgaria has “passed“ or “failed“ this test. What is more important is what signal we are sending. When, in conditions of economic growth and low unemployment, the state plans a high deficit, investors logically ask themselves how sustainable public finances will be in more difficult economic periods. That is why we believe that the first budget after joining the eurozone should clearly demonstrate a commitment to fiscal sustainability, structural reforms and policies that increase the competitiveness of the economy. The goal is to build a more competitive economy that attracts investments, increases productivity and creates sustainable economic growth.
- BRAITH warns that the budget deficit of 5.7% is a sign of postponing reforms. What is the risk that Bulgaria will follow the example of countries that have been living with high deficits and growing public debt for years?
- We should not make direct analogies with other countries, because each economy has its own specifics.
But high deficits should not become the new normal.
If we finance our expenses through debt for years, this inevitably limits the state's ability to invest in education, infrastructure, innovation and policies that increase productivity.
There is another important aspect for Bulgaria. We are an open economy and we compete daily for investments, new projects and highly qualified talents. Investors do not only look at the tax rate, but also to what extent a country is predictable and pursues a consistent financial policy. When signals are that structural problems are being postponed, this inevitably affects confidence.
We live in an extremely dynamic global environment, and that is precisely why fiscal discipline is important. It is not just an accounting indicator, but an element of the country's competitiveness.
- Why do you think that the draft budget increases business costs but does not propose policies for higher productivity?
- Any increase in business costs must be balanced with measures that improve the competitiveness of the economy. If labor costs, administrative burdens or regulatory requirements increase, the state should simultaneously invest in digitalization, research and development, infrastructure and human capital development. Productivity is the factor that allows incomes to grow simultaneously, companies to remain competitive and the economy to attract new investments. This is the reason why BRAITH puts this issue at the focus of its opinion.
- What will be the price for the high-tech sector if this policy is maintained in the coming years?
- High-tech companies make investment decisions with a horizon of decades. They seek a predictable environment, access to talent, quality infrastructure and clear state policy in support of innovation. If Bulgaria does not consistently develop these advantages, the risk is not that existing companies will leave the country, but that some of the next large investments will be made elsewhere. In the conditions of strong international competition, every missed opportunity means fewer jobs with high added value, lower productivity and slower economic growth.
- You insist that instead of higher taxes and social security contributions, the state should invest in the digitalization of the National Revenue Agency, electronic invoicing and artificial intelligence. Why do you think governments continue to prefer the easier solution - increasing burdens instead of increasing collection?
- Increasing taxes and social security contributions usually gives a faster fiscal effect, while modernizing the administration requires time, investment and a change in the way of working. However, this does not mean that it is the better solution.
Today, we have technologies that allow for significantly higher collection rates through electronic invoicing, automated data exchange and intelligent risk analysis. More and more European countries are investing in such solutions because they improve the efficiency of the administration without increasing the tax burden.
In our opinion, the focus should be on increasing the efficiency of public administration. We should not assume that a process should remain unchanged just because "it has always been this way". The digital transformation of institutions is the more difficult path, but it is precisely this that leads to a sustainable increase in revenues without increasing the burden on honest taxpayers and businesses.
- Bulgaria is now part of the eurozone. Is this competitive advantage sufficient in itself, or do we risk wasting it due to the lack of predictable economic policy and structural reforms?
- Membership in the eurozone is an undeniable competitive advantage, but in itself it does not guarantee sustainable economic growth. It creates better conditions for investment, but success depends on what economic policy the country will pursue thereafter. Bulgaria already has important prerequisites - low government debt, a competitive tax system and a strong technology sector. The next step is to support these advantages with predictable policies, structural reforms and targeted investments in the knowledge economy.
- You have repeatedly said that decisions are currently being made around the world where new centers for artificial intelligence, development and high-tech production will be built. Is Bulgaria missing this historic window?
- Not yet, but the time for action is limited. Companies around the world are currently determining where their next centers for R&D, artificial intelligence, and high-tech manufacturing will be. These are investments that are planned for years ahead and are rarely moved later. Bulgaria has a real chance to be part of this process, but only if it offers a combination of a predictable business environment, qualified personnel, modern infrastructure, and consistent policies to support innovation. The decisions made today will determine the country's competitiveness over the next decade.
Southeastern Europe will become an increasingly attractive region for investment. The question is no longer whether capital will come to the region, but which countries will manage to attract the largest share of it. Bulgaria has all the prerequisites to be among them, but this requires a predictable business environment, consistent economic policy, and a clear commitment to competitiveness.
- BRAITH proposes the creation of a permanent consultative mechanism between the state and business. Have you received any real signal from the government so far that it is ready to conduct such a dialogue, or does business continue to be informed post facto about decisions already made?
- Even before the elections, BRAIT held a series of meetings with several of the main political forces, including representatives of the current ruling majority. The goal was to lay the foundations for a longer-term partnership between institutions and business on topics such as competitiveness, digitalization, education and innovation.
Our impression is that at a conceptual level there is an understanding of how important this dialogue is. However, the next step is for it to become permanent and be part of the policy-making process, and not to be held only after decisions have already been made.
Business expects predictability, timely dialogue and the opportunity to share expertise even at the stage of preparing decisions. In the technology sector, we work with global companies every day and see how such a partnership between the state and business functions in countries that manage to attract investments and build a strong innovation economy. This is precisely the model that we believe Bulgaria should strive for.
- It is increasingly being said that Europe is lagging behind in the global technology race with the USA and China. What should be Bulgaria's national strategy so that it does not remain just a market for foreign technologies, but becomes a place where they are developed?
- Europe is lagging behind in the technology race not because of a lack of talent, but because of regulatory fragmentation, limited access to capital and difficulties in scaling businesses. Instead of a single market, companies often face multiple regulators and different rules. To create global technology champions, the European Union needs to build a true single capital market, facilitate mergers and acquisitions at European level, and encourage investment in strategic areas such as artificial intelligence, defense, clean energy, and semiconductors. Without bolder and more coordinated policies, Europe will struggle to compete with the United States and China. For Bulgaria, this means making the most of its advantages as part of the European market and positioning itself as a place for R&D, high-tech manufacturing, and innovation. This requires predictable economic policies, investments in the knowledge economy, STEM education, digital infrastructure, and an environment that attracts long-term investment. This is how the country can be part of European technological development, and not just a market for ready-made solutions.
- If you had the opportunity to rewrite only three priorities in the 2026 budget, what would they be, so that in five years Bulgaria would be more competitive, more attractive for investment and with higher productivity?
- First of all, restoring fiscal sustainability by gradually limiting the structural deficit and more effective management of public spending. The second is the adoption of a national competitiveness package with an emphasis on research and development, artificial intelligence, digitalization, STEM education and a predictable business environment. And the third is the construction of a sustainable mechanism for partnership between the state and business.
The best economic policies are created when institutions use the expertise of companies at the stage of preparing solutions. This is exactly how higher productivity, more investment and sustainable economic growth can be achieved. Competitiveness is not built with a single measure or a single budget. It is the result of consistent policies, trust and partnership between the state and business.