BNB Governor Dimitar Radev Warns of Significant Challenges for 2026 Budget and Higher Inflation

BNB Governor Highlights Fiscal and Inflationary Pressures

Dimitar Radev, Governor of the Bulgarian National Bank (BNB), has publicly warned of serious difficulties facing the 2026 state budget and predicted that Bulgaria's annual inflation will exceed the eurozone average. Speaking in interviews with BNT and BTA, Radev underscored the critical need for careful management of budgetary expenditures and a shift away from pro-cyclical fiscal policies that have contributed to inflationary pressures. The 2026 budget is seen as a pivotal moment for reversing negative fiscal trends and ensuring stability as Bulgaria prepares to join the eurozone.

Inflation Outlook: Bulgaria vs. Eurozone

Governor Radev stated that Bulgaria's annual inflation is expected to surpass previous forecasts and remain higher than the eurozone average. He noted that while public concern over rising prices is understandable, it does not reflect a systemic macroeconomic imbalance. Radev also stressed the importance of curbing 'irresponsible talk' around inflation, suggesting that public discourse itself can influence price trends. The BNB's Macroeconomic Forecast from July 2025 projected harmonized consumer price inflation (HICP) to reach 3.8% in both 2025 and 2026. This contrasts with earlier BNB forecasts from April 2025, which projected annual average inflation to slow to 2.4% in 2026. The European Commission, in January 2025, expected Bulgarian inflation to fall to 2.8% in 2026. For eurozone entry, the Maastricht criteria require inflation not to exceed 1.5% above the average of the three best-performing EU member states, which has been cited as a threshold of approximately 2.57%.

Budgetary Discipline and Fiscal Policy Directives

The 2026 state budget is anticipated to be Bulgaria's first as a eurozone member and is considered by Radev to be 'perhaps more important than any budget in the last five years.' He emphasized that the budget will serve as a test of political will and common sense in reversing fiscal deterioration that began during the post-2020 political crisis. Radev distinguished between 'good debt,' which finances strategic investments and economic growth, and 'bad debt,' which accumulates from borrowing to finance consumption, such as increasing public sector salaries without reform. He advocated for salary increases in the public sector to be accompanied by reforms, noting that in some public systems, 70-90% of total spending goes towards salaries, leaving little room for investment. Bulgaria's revenue system is designed to sustainably fund government spending up to roughly 40% of GDP; exceeding this would necessitate debt accumulation or tax increases. The BNB previously expressed strong opposition to the 2025 draft budget due to planned total expenditures reaching an unprecedented 46% of GDP, a level not seen since 1998, and a lack of sustainable fiscal consolidation measures.

Bulgaria's Path to the Eurozone

Bulgaria is on track to adopt the euro from January 1, 2026, having met the budget deficit criterion (3% of GDP in 2024) and the inflation criterion earlier in the year. Positive reports on Bulgaria's readiness have been published by the European Commission and the European Central Bank. Despite some economists raising concerns about a potential 'Greek scenario' due to growing budget deficits and public debt, Governor Radev has dismissed these fears, reiterating that fiscal discipline is a 'cornerstone' of the country's macroeconomic framework that 'should not change.' He stressed that national policies must remain robust even within the eurozone framework. The National Association of Municipalities in the Republic of Bulgaria (NAMRB) has proposed a 13% increase in the subsidy for municipalities in the 2026 State Budget, highlighting the need for increased funding for municipal administrations where salaries are among the lowest in the public sector.