Bulgarian Central Bank's Governor: Uncertainty Remains High, Fiscal Discipline Needed

The institutional environment in which policy discipline and economic adjustment must operate is now changing. This places even greater weight on national policies—fiscal discipline, competitiveness and institutional effectiveness. This was stated by the Governor of the Bulgarian National Bank, Dimitar Radev, in remarks to heads of diplomatic missions in Bulgaria on March 31.

"This is especially true for the fiscal sphere. Bulgaria enters this period with a relatively low public debt and fiscal prudence remains an important part of its institutional credibility," he added.

Radev noted that uncertainty remains high, but is now manifesting itself with increasing immediacy. Developments that were until recently perceived as external shocks are now directly feeding into inflation expectations, energy prices, financing conditions and broader economic confidence.

The BNB Governor stressed that the risks affecting the region can no longer be described as external in the narrow sense of the term.

"They are transmitted through multiple channels - through energy, logistics, investor attitudes and perceptions of security," he said.

Radev also drew attention to the political environment, noting that the current pre-election period once again highlights a structural weakness in the national political landscape.

“Bulgaria has demonstrated strategic consistency in its core geopolitical and institutional choices. This consistency should not be underestimated. In this sense, the country’s strategic trajectory has proved more resilient than specific governing configurations,” he said.

"The current electoral cycle is unfolding against a broader realignment of the political landscape, including new coalition and institutional configurations and renewed competition for influence. This does not signify a breakdown of the institutional framework. But it does come at a cost. It shortens policy horizons, weakens the consistency of reforms and complicates the maintenance of medium-term fiscal and structural priorities with the necessary sustainability,” Radev warned.

He is adamant that for Bulgaria,membership of the eurozone strengthens a pillar that is already central to the framework of economic policy.

The BNB Governor outlined several scenarios:

"The baseline scenario still implies moderate growth and continued disinflation, especially in Europe. At the same time, uncertainty surrounding this scenario remains high - and increasingly closely linked to geopolitical and energy developments. Recent discussions at the level of the Governing Council of the European Central Bank have clearly underscored this. At the monetary policy meeting on 18–19 March, the potential effects of the conflict in the Middle East on euro area inflation were analysed in detail. The assessment was that the short-term impact would most likely be felt primarily through energy prices. However, medium-term effects will depend on the duration of the conflict and the extent to which these shocks are transmitted to consumer prices and economic activity.”

“The key conclusion is as follows: the current environment is not defined primarily by the baseline scenario. It is defined by the widening range of possible deviations around it. The transmission from geopolitics to macroeconomic variables is no longer indirect or delayed—it can be immediate. Adjustments in energy prices, disruptions to transport and trade, or a deterioration in the broader security environment can, within a relatively short period, affect inflation, growth and confidence,” the Central Bank Governor told diplomats.

Radev also pointed to the situation in Bulgaria:

“The country entered this period from a relatively solid starting position. Growth remains positive. The labour market is stable. The banking sector remains well-capitalised, liquid and resilient. At the same time, the inflation shock from previous episodes has left a lasting imprint. Even with a continuing process of disinflation from previous peaks, the accumulated effects on households and businesses remain significant.”

The Bulgarian National Bank has identified rising risks to inflation in the country due to the military conflict in the Middle East.

Radev also recalled the three scenarios prepared by the BNB in response to the conflict, which is already affecting energy commodity prices. The baseline scenario points to average annual inflation of around 3.7% in 2026, followed by a gradual slowdown. Under more adverse assumptions, however, inflation could be higher by between 0.7 and 1.2 percentage points in 2026, with effects that may prove more persistent in the years ahead.