Petar Ganev // 04 December 2025

Bulgaria is ending 2025, just before its planned entry into the euro area, in a new round of political and fiscal turmoil. The tension peaked in record protests on 1 December 2025 and led to the withdrawal of the draft budget for 2026. This was not a sudden shock. It is the latest episode in a longer pattern of fragmented parliaments, short-lived governments, deepening state capture, and irresponsible fiscal decisions. Together, these forces have repeatedly turned state budgets into tools for electoral survival rather than long-term planning, which makes the return to prudent public finances extremely hard.

The current crisis is rooted in the political instability of 2021-2024, when Bulgaria held seven parliamentary elections in four years - an unprecedented sequence in Europe. None of them produced a stable majority. Regular governments stayed for only a short while, caretaker cabinets became routine, and the Parliament was unable to set a consistent fiscal course. As a result, the budget process turned into a recurring source of uncertainty, and in three of the last four years - 2022, 2023, and 2025, the country entered the new year without an adopted state budget.

This instability has had direct fiscal consequences. Parties have competed for public support through costly promises as governments faced very short time horizons. Over time, Bulgaria drifted into the longest period of budget deficits in the past three decades since the introduction of the currency board. Instead of being treated as an inevitable consequence of external shocks or a recession, deficits became the new normal, and each political cycle added pressure for even higher spending. Throughout these years, the Institute for Market Economics (IME) has repeatedly raised early warnings and pushed back against proposals that threatened long-term stability.

There have also been clear cases in which draft budgets were proposed and then withdrawn. At the end of 2022, a caretaker cabinet presented a budget with a large planned deficit. It met strong resistance from experts and the public, including IME, and was eventually pulled back. In 2024, the same thing happened again: another caretaker government put forward a budget that was later withdrawn after broad criticism over excessive spending and a sizable deficit.

A similar picture emerged in 2025. The new regular government proposed a draft budget with record public spending (46% of GDP) and higher taxes on working people and businesses. The reaction from experts was almost unanimous, with IME, the Fiscal Council, and various employers’ organisations all speaking out against it. The budget quickly overwhelmed the public agenda and became the main focus of growing social frustration.

That frustration spilled into the streets. The country saw a major public backlash, culminating in a massive protest on 1 December 2025. The protest was directed against the draft budget and against the government more broadly, and it was not, in substance, a protest related to the euro adoption. After the demonstration, the draft budget was withdrawn. The government is now expected to revise it by the end of the year, with a recently made promise to abandon the proposed tax increases and to cut back its most extravagant spending increases.

The drama around the budget will not derail the euro adoption process. Bulgaria is set to become a member of the euro area on 1 January 2026. The bigger question is whether the country can find a sustainable solution to its political deadlock and reverse the budget trajectory so that Bulgaria’s model of low taxes and low public debt can be sustained. IME has laid out its view on how this can happen, proposing a package of measures on the spending side and calling for a clear political commitment to restoring fiscal stability.

IME proposes adopting a revised 2026 budget by year-end or at the latest in early January, scrapping the planned hikes in social security contributions and the dividend tax, and committing not to raise the overall tax burden through 2028. The Bulgarian government needs to adopt a strict spending restraint – public debt cannot be higher than 40% of GDP, personnel costs should be kept under control for example by removing automatic mechanisms for pay increases in the public sector. Bulgaria needs a clear political commitment to adopt a long-term program to change the fiscal trajectory and rein in persistently large deficits in Bulgaria’s public finances.

Petar Ganev is a senior researcher at the Institute for Market Economics (IME).

The original version of this article was published on the Institute for Market Economics' website.