TO
THE MINISTRY OF FINANCE
CC: Budget and Finance Committee
BY: The BULGARIAN ENTREPRENEURIAL ASSOCIATION
Re: The published draft Law on the State Budget of the Republic of Bulgaria for 2026
DEAR MR DONEV,
DEAR MEMBERS OF THE NATIONAL ASSEMBLY,
The Bulgarian Entrepreneurial Association (BESCO) brings together more than 1,000 companies from dozens of industries. The organisation works to improve the business environment in Bulgaria through effective policies, the promotion of innovation and the introduction of modern mechanisms for economic growth.
BESCO believes that sound budget policy must meet three core criteria:
If Bulgaria is to exceed the European Union's average levels of income and productivity, it must become one of the most attractive places for entrepreneurship in Europe, and its economy must sustain a significantly higher rate of growth than at present. This cannot be achieved through an increase in public consumption alone, but through the accelerated development of innovation, high-tech industries and companies with high value added. The model based predominantly on low production costs has gradually exhausted its potential. The next step is a transformation towards an economy of knowledge, entrepreneurship, innovation, export industries and high value added.
The technological revolution is already reshaping the global economy. The question facing Bulgaria is not whether it will be part of it, but whether it will be among the countries that create the new technologies or among those that merely consume them. This is precisely why we emphasise our expectation of a more ambitious budget for 2026.
This is the first state budget following Bulgaria's accession to the euro area. Under a common currency, sustainable growth will depend increasingly on the quality of institutions, human capital and innovation. The budget should therefore be assessed not only through the lens of fiscal discipline, but also through its capacity to create the conditions for higher productivity, competitiveness and investment. For BESCO, this means an analysis of:
BESCO welcomes some of the stated priorities but considers that the present draft does not display the ambition required to turn Bulgaria into a competitive economy based on knowledge and innovation. The headline corporate and personal income tax rates are being maintained, which is important for the country's predictability and competitiveness. Some of the automatic mechanisms for increasing remuneration in the public sector are also being curtailed, and a reduction in part of staff costs is envisaged as of 1 September. The draft law places a focus on research and development, technology transfer, venture capital, high-tech industries and digital transformation. The introduction of a tax relief for R&D expenditure is likewise a positive step, one that should be built upon.
These positive elements are not sufficient, however, to offset the central challenge: the excessively rapid growth of expenditure and the absence of a sufficiently clear link between the rising deficit and the country's economic development as measured against the points set out above.
The 2026 budget provides for record-high public expenditure and a record capital programme. Revenues under the Consolidated Fiscal Programme (CFP) increase from EUR 44.0 billion in 2025 to EUR 49.6 billion in 2026 – an increase of approximately EUR 5.6 billion. At the same time, expenditure rises from EUR 47.5 billion to EUR 56.8 billion – an increase of approximately EUR 9.3 billion. The state not only spends the entire additional revenue resource but adds substantial debt financing on top of it, while redistribution through the budget reaches 45.8% of GDP. Capital expenditure of EUR 9.36 billion grows by nearly 60% compared with 2025, and the planned deficit of EUR 7.2 billion, or 5.7% of GDP, reaches its highest level in more than two decades.
Government debt is projected to rise from EUR 24.2 billion in 2024 to EUR 37.7 billion in 2026 and EUR 50.5 billion in 2028. In just four years, the nominal size of the debt more than doubles. Interest expenditure already reaches around 1% of GDP in 2026 and will continue to grow in the years ahead.
Considerably less attention is devoted to the reforms capable of durably reducing the need for high public expenditure: improving the efficiency of spending, streamlining administrative structures, digitalising public services, evaluating the effectiveness of budget programmes, and redirecting resources towards policies with a high economic return.
The draft envisages real economic growth of 2.6% and unemployment of 3.4%. In a period of economic growth, Bulgaria should be striving for a budget close to balance. Maintaining a sound fiscal reserve, a low deficit and low levels of debt is an insurance policy that enables the state to support vulnerable groups and the economy in force majeure circumstances such as war, an energy crisis, a recession, a pandemic or natural disasters. At the same time, in a scenario of slowing economic growth and contracting revenues due to domestic or geopolitical causes, the structural deficit could increase sharply and Bulgaria could face the need to raise taxes and/or cut social and other expenditure. Recent examples from countries such as Romania, Hungary and Slovakia show that higher deficits used to cover current expenditure do not lead to economic development, but only to more expensive debt servicing, less flexible fiscal policy, a slowdown of the economy and, subsequently, the freezing or reduction of social spending.
The tax and social security model remains one of Bulgaria's principal competitive advantages. It is particularly important for technology companies, highly qualified labour, research and development hubs, and entrepreneurs in industries with high value added and export potential.
BESCO does not support the increase of the maximum insurable income (the social security contribution ceiling) to EUR 2,300 as of 1 August 2026. The measure is being introduced mid-year, undermines the predictability of companies' already planned budgets, and raises the cost of precisely that labour which is most highly qualified and delivers the highest value added to the economy.
We urge that efforts be made towards the following:
In parallel with optimising expenditure, tackling the grey economy and improving revenue collection, the state must structure its future budgets towards a transformation of the country's economic model. In practice, this means that future budgets and medium-term budget forecasts should allocate significantly greater resources to research and development, and should provide both the funding and the delivery mechanisms for key policies on technology transfer, start-ups and innovative companies, angel investment, venture capital and other proven financial instruments – because it is precisely these that have the greatest potential to mobilise many times more private capital, to raise productivity and exports, to accelerate economic growth and, consequently, to deliver a stronger rate of GDP growth and higher revenues for the state treasury. The European Innovation Council (EIC) reports that the companies it has supported have attracted over EUR 12 billion in follow-on private investment on the back of more than EUR 6 billion in public support, which demonstrates the strong multiplier effect of investment in innovation. The experience and data of the European Investment Bank (EIB) and the European Investment Fund (EIF) show that the use of well-designed financial instruments to promote innovation leads to higher investment activity by recipients relative to their competitors, attracts 1.5 times more additional financing in the case of specific financial instruments, and draws in larger volumes of private and institutional capital. The EIF's model shows that, on average, every euro of public resource spent through financial instruments generates an additional EUR 5 of private capital. These are the standards, the measurability, the transparency and the returns that Bulgaria must strive for and adhere to. Similar conclusions and concrete recommendations are also set out in the latest World Bank report on economic growth in Bulgaria and the challenges it faces.
A thorough analysis of the draft reveals a systemic problem that has accumulated over the years: the key budget documents and data are scattered across different websites, are presented predominantly in formats that are difficult to process, and do not allow for easy comparison between planned and executed expenditure.
As part of the public campaign "Budget in the Open", in collaboration with the Institute for Market Economics and "Active Policies", BESCO proposes the creation of:
The portal must not be merely another page with PDF files; it must allow tracking by institution, function, programme, economic classification item, region and source of funding. For every significant measure, it must show the cost, the timeframe, the recipients, the expected result and the actual execution.
For us, as representatives of the business community, the creation of a single map of public investment is particularly important. Total capital expenditure amounts to approximately EUR 9.36 billion, yet the detailed annex on priority national strategic projects covers only around EUR 1.44 billion, or approximately 15% of the entire capital programme. Over EUR 1.1 billion is earmarked for the municipal investment programme, without the final list of projects being approved together with the budget. For a significant share of the remaining capital expenditure financed from national and European sources, the information exists across various programmes and institutions but is not consolidated into a single project portfolio – which directly affects the efficiency with which these funds are deployed and gives rise to concerns about a lack of transparency.
As part of the "Budget for Growth" campaign, BESCO, the Institute for Market Economics and "Active Policies" stand ready to assist the institutions in developing the standard, structure, functionalities and design of such tools.
Bulgaria has the opportunity not merely to catch up with Europe, but to be among the countries that create the next wave of technological growth. This requires greater courage, a long-term vision and a budget that invests in building a competitive economy. To that end, every euro of public funds must have a clear purpose and a measurable result in terms of economic return, higher-quality social and public services, and a lighter administrative burden for citizens and businesses.
Yours sincerely,
Alexander Nutsov
Executive Director
Leadership & Advocacy Academy doesn’t only develop individual participants. For BESCO, it is a long-term investment in a stronger ecosystem - building capacity where it matters most: within the organizations, institutions, and communities that shape the public environment.
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