Washington, DC – November 24, 2025: The Executive Board of the International Monetary Fund (IMF) completed the 2025 Article IV Consultation for Bulgaria[1] and endorsed the staff appraisal on a lapse-of-time basis without a meeting.[2]
Domestic demand is driving a robust expansion of the Bulgarian economy. GDP grew by 3.4 percent in 2024 and by 3.2 percent in the first half of 2025, propelled by sustained private consumption underpinned by strong credit growth and fiscal easing. Inflation accelerated in early 2025 and remains elevated. With record low unemployment the labor market is tight, and real wages are growing rapidly.
The near-term growth outlook is positive. Growth is projected to...
remain at around 3 percent in 2025 and 2026, supported by domestic consumption and public investment funded under the Resilience and Recovery Plan (RRP). Headline inflation is projected to average around 3½ percent in 2025 and 2026, before declining. Risks to the outlook arise mainly from domestic policy uncertainty, domestic demand pressures, and heightened external volatility.Executive Board Assessment
Economic momentum is strong, the labor market is tight, and inflation is elevated. High wage growth has driven income convergence, and credit is expanding rapidly, but productivity growth is lagging. External demand is subdued, reflecting slower growth in key EU markets and global uncertainty. Still, the external position in 2024 is assessed to be broadly in line with fundamentals and desirable policy settings. Looking ahead, the current account is projected to remain negative in the near term.
The adoption of the euro is a major milestone and an opportunity to strengthen institutions, enhance policy credibility, and raise medium-term growth. Euro adoption prospects provide a near-term boost to the outlook. The transition to the euro is expected to strengthen institutional credibility and investor confidence while reducing currency risk and transaction costs. Some of these benefits are already visible in narrowing sovereign spreads and recent upgrades to Bulgaria’s credit rating.
Fiscal tightening in 2026 would help cool the economy. Fiscal policy is expected to remain expansionary in 2025–26. Considering underlying demand strength and the economy’s cyclical position, a neutral stance is recommended, which can be achieved by a combination of expenditure and revenue measures. Moderating public wage growth and benefit indexation in particular would generate significant fiscal savings and ease inflationary pressures. The substantial recapitalization of SOEs contributes to fiscal easing and underscores the need for greater transparency. More generally, increasing the consistency and transparency of public policies would reduce distortions and strengthen the credibility of fiscal reporting.
Pension reform should focus on sustainability and adequacy. The deficit of the pay-as-you-go pension scheme is widening, and population aging will further increase the shortfall. Financial sustainability needs to be strengthened by increasing contribution revenues, with a key measure being removing the cap on insurable income, which has not kept up with wage growth. At the same time, improving the adequacy of pensions to reduce old-age poverty remains a priority. Meanwhile, efforts to strengthen the system's second and third pillars should continue.
Maintaining fiscal space amid rising spending pressures will require prudent policies and forward-looking reforms. While the overall risk of debt distress remains low, public debt is increasing, owing to sustained deficits and sizeable recapitalizations of SOEs. Addressing spending pressures from aging, defense, infrastructure, and the energy transition will also require fiscal space. The revenue-generating capacity of the flat-tax regime appears insufficient to meet increasing demands for quality services; in the medium term, more revenue could be raised by increasing tax rates for both personal and corporate income and moving to progressive income taxation.
Macroprudential policy will need to remain nimble. The financial sector remains resilient. Still, rapid growth of consumer credit, particularly mortgage loans, has increased systemic risks in the real estate market. The BNB’s close monitoring of the housing market is therefore welcome. Looking ahead, with the drop in reserve requirements following euro adoption, some liquidity may eventually flow into lending and further propel household credit, adding to market pressures. Therefore, macroprudential policy, notably through borrower-based measures, will have to proactively manage credit market risks.
Durably raising living standards will require continued structural reforms, enhanced governance, and strategic investments in human and physical capital. Growth dividends from scaling up quality public investment and reducing structural policy gaps could be substantial, particularly through the RRP. Improving governance and institutional quality is essential for long-term growth and building trust. Addressing productivity and demographic challenges will require sustained investment in human capital and increased labor market participation. Reform is also crucial for the transition to a more resilient, more efficient, and cleaner energy sector, with stronger governance and reduced fiscal vulnerabilities.
Bulgaria: Selected Economic Indicators, 2024–26 (Annual percent change, unless otherwise indicated) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
