EditEU opens excessive deficit procedure against Bulgaria seven months after eurozone accession
It is surprising that a country which had only just met the eurozone accession criteria is now registering such a significant budget deficit
The Council of the European Union on Friday formally opened an excessive deficit procedure (EDP) against Bulgaria, placing the newest eurozone member under the bloc’s fiscal surveillance mechanism after concluding that its budget deficit is set to remain above the EU’s 3% threshold over the coming years.
The decision follows a European Commission assessment published in early June, which found that Bulgaria met the conditions for launching the corrective procedure. Bulgaria joins Austria, Belgium, Finland, France, Hungary, Italy, Poland, Romania and Slovakia, which are already subject to the same mechanism.
According to the Council, the decision was justified by Bulgaria’s projected general government deficit of 4.1% of GDP in 2026, with the deficit expected to remain above the treaty reference value of 3% in 2027.
The Council recommended that Bulgaria take effective action to correct the excessive deficit and present the necessary measures by 15 October 2026.
Under the recommendation, Bulgaria should ensure that cumulative nominal net expenditure growth does not exceed 4.2% in 2026, 7.7% in 2027, 11.4% in 2028 and 15% in 2029.
Fiscal discipline under the EU’s revised rules
The excessive deficit procedure is the corrective arm of the EU’s Stability and Growth Pact and is designed to ensure that member states return to sustainable public finances whenever government deficits or debt exceed agreed limits.
Since the EU’s new economic governance framework entered into force in April 2024, the procedure places greater emphasis on medium-term fiscal adjustment paths tailored to individual member states.
Under the process, the European Commission first assesses whether a country exceeds the reference values or risks doing so. If it concludes that an excessive deficit exists, it proposes that the Council formally launch the procedure. Once the Council adopts the decision, it issues recommendations setting out the corrective fiscal path and deadlines for action.
Should a member state fail to take effective measures, the Council may ultimately impose sanctions. For euro area countries, these can include fines of up to 0.05% of GDP every six months until sufficient corrective action is taken.
Budget proposal fuels domestic debate
The Council’s decision comes only days after Bulgaria’s draft 2026 state budget cleared its first parliamentary hurdle.
On 7 July, Parliament’s Budget and Finance Committee approved the draft budget at first reading.
Presenting the bill, Deputy Prime Minister and Finance Minister Galab Donev said the draft envisages a deficit of 5.7% of GDP under the consolidated fiscal programme, arguing that this reflected fiscal imbalances accumulated over recent years rather than policies introduced by the current government.
While the deficit figure in the national budget is based on a different accounting framework from the general government balance used under EU fiscal rules, the proposal has nevertheless intensified debate over the pace of fiscal consolidation and the sustainability of public finances.
The Council’s recommendations also extend beyond fiscal policy.
Brussels called on Bulgaria to maintain expenditure growth consistent with correcting the excessive deficit while increasing investment in defence and security and ensuring debt sustainability. It also urged Sofia to phase out broad-based energy support measures, strengthen tax collection, reduce the size of the shadow economy and broaden the tax base.
Additional recommendations focus on accelerating implementation of the Recovery and Resilience Plan, improving public administration and public procurement, strengthening anti-corruption measures and judicial independence, modernising the energy sector, reducing dependence on fossil fuels and improving education and healthcare outcomes.
Opposition warns of future tax increases
The draft budget has triggered criticism from opposition parties, which argue that the planned deficit risks undermining long-term fiscal stability.
Martin Dimitrov, an MP from Democratic Bulgaria, warned during parliamentary debates that maintaining a deficit of 5.7% would increase the likelihood of future tax and social security contribution increases.
He also argued that financing the deficit through additional borrowing could fuel inflation and place further pressure on the economy unless accompanied by structural reforms and expenditure reductions.
GERB-SDS lawmaker Denitsa Sacheva likewise criticised the government’s fiscal approach, arguing that the proposed measures would increase labour costs for compliant businesses while failing to address Bulgaria’s large informal economy.
According to Sacheva, the planned changes would significantly increase employment costs for companies from August, making Bulgaria less attractive to investors by raising labour costs while leaving businesses operating in the shadow economy largely unaffected.
Economists expect gradual adjustment
Despite concerns over the short-term fiscal outlook, economists expect Bulgaria’s budget deficit to gradually move closer to the EU’s fiscal limits over the coming years.
Kristofor Pavlov, Chief Economist at UniCredit Bulbank, said during a briefing on the bank’s latest macroeconomic outlook that Bulgaria’s fiscal deficit is likely to remain relatively elevated in both the short and medium term before approaching the Stability and Growth Pact’s 3% threshold by 2028.
He said fiscal consolidation efforts are expected to accelerate after this year’s presidential election and are likely to focus primarily on reducing current expenditure, particularly public-sector wages and maintenance spending. Any tax increases, he suggested, would most likely affect taxes with a relatively limited contribution to overall budget revenues.
According to Pavlov, the gradual pace of fiscal consolidation should limit its impact on economic growth while helping to ease inflationary pressures in both 2026 and 2027.
That assessment broadly echoes recent comments by Bulgarian National Bank Governing Council member Iliya Lingorski, who has argued that inflation in Bulgaria is driven primarily by domestic factors.
Sources: BGNES, BTA, Council of the EU
Caption: Bulgaria’s government, led by Prime Minister Rumen Radev, approved the 2026 draft budget on 1 July before submitting it to parliament. The National Assembly is expected to pass the country’s regular budget by the end of July./Velko Angelov, Dnevnik.bg
Updated: July 10, 2026 - 18:52
