Bulgaria has adhered to fiscal discipline and prudent fiscal policy since the introduction of its currency board arrangement in mid-1997. The low level of public debt has been supported by relatively low fiscal deficits or even surpluses in some years. This has helped the fiscal system absorb recent shocks relatively unscathed and provided sufficient fiscal space to address emerging crises and limit the scarring on economic activity, the labor market, and incomes. Like its EU peers, Bulgaria saw its fiscal position worsen following the COVID-19 outbreak and the ensuing Russian invasion of Ukraine, which called for fiscal support measures to mitigate the pandemic and cost-of-living shocks.
Going forward the country faces significant demographic challenges, which will call for increased public spending in critical sectors. Furthermore, Bulgaria’s public finances will need to be placed on stronger footing to weather the sharp slowdown in growth that is underway and to meet fiscal targets related to eurozone accession.
What could be done and how can Bulgaria make the most of its public spending?
These were the guiding questions for a team of World Bank economists, that took a closer look at Bulgaria’s public finances. The Public Finance Review for Bulgaria has been co-authored by Desislava Nikolova and Collette Mari Wheeler with several background notes informing the analysis, as follow:
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