Bulgaria's central bank opposed the draft budget for 2025

In connection with the forthcoming official submission of the Draft State Budget of Bulgaria for 2025 by the caretaker government to the Parlaiment, the Bulgarian National Bank has prepared an opinion on the Draft State Budget Law for 2025.

The Bulgarian National Bank expresses its firm position against the proposed draft state budget for 2025 and its adoption, the institution said.

According to the BNB, the parameters set in the expenditure part of the budget imply a significant increase in the redistributive role of the state in the economy in 2025, with planned total budget expenditure under the Consolidated Fiscal Programme at an unprecedented level of 46% of GDP, which has not been seen in the period from 1998 to the present.

In its position, the institution stresses that current budgetary expenditure is projected to reach the extremely high level of 38.2% of GDP.

"Without measures aimed at sustainable fiscal consolidation, particularly to curb the rapid growth of these expenditures, there is a strong likelihood of a rise in tax burdens for both businesses and households. As a result, the proposed fiscal framework for 2025 represents a comprehensive shift in Bulgaria's economic policy to date, based on maintaining low corporate and personal income tax rates that support economic growth and have a positive impact on labour supply and demand," the release said.

One of the key risks outlined by the BNB is the potential threat to Bulgaria's goal of adopting the euro.

The continuing rise in persistent budgetary expenditures and budget deficits hovering around 3% of GDP also lead to a significant increase in the risks to the country's fiscal sustainability and also threaten the achievement of the euro adoption target in Bulgaria as soon as possible, as risks are created for the fulfilment of both the Maastricht criterion for budget deficit and the criterion for price stability," the statement summarises.

The BNB expresses a general recommendation for a timely and lasting consolidation of the country's fiscal position through the implementation of budgetary measures that are realistic in terms of their expected effect, do not have a pro-inflationary impact, do not put additional stress on the labour market and do not create potential negative effects on economic growth.

"At the same time, many of the envisaged revenue measures are of a one-time in nature (such as the introduction of a tax amnesty), while those that are of a permanent nature (such as the envisaged increase in pension contributions) could create potential negative effects on the competitiveness of firms, price stability and the long-term growth potential of the Bulgarian economy. In addition, we consider that there are significant risks to the implementation of the revenue side of the budget in case of lower-than-targeted effects of the envisaged measures and in case of less favourable developments in the international economic environment," the BNB said.

If the planned capital expenditures in the 2025 draft budget are carried out as proposed, the realization of these risks could lead to a budget deficit exceeding the 3% of GDP limit, further threatening fiscal stability, it said.