The Governor of the Bulgarian National Bank, Dimitar Radev, has warned that Bulgaria’s annual inflation will exceed expectations and surpass the eurozone average, highlighting the challenges the country faces in preparing the 2026 budget. In an interview with BNT, Radev emphasized that while income growth must continue, careful management of budgetary expenditures is essential to maintain fiscal stability.

Radev stressed the importance of stopping “irresponsible talk” around inflation, noting that public discourse itself can influence price trends. He called for focused efforts on the factors driving price increases, warning that the country must move away from the pro-cyclical fiscal policies of recent years, which have contributed to inflationary pressures. The governor highlighted that the upcoming budget will serve as a test of political will and common sense in reversing fiscal deterioration that began during the post-2020 political crisis.

Regarding inflation forecasts for 2025, Radev said that while it will remain higher than the eurozone average, it will stay within manageable limits. He noted that public concern over rising prices is understandable but does not reflect a systemic macroeconomic imbalance. On Bulgaria’s entry into the eurozone, the governor underlined the continued importance of sensible fiscal and macroeconomic policies, insisting that national policies must remain robust even within the eurozone framework.

Radev also addressed concerns about economic developments in France, noting that while structural fiscal imbalances there are significant, they do not pose catastrophic risks. Instead, they underscore the need for reforms and better fiscal coordination. He dismissed claims that Bulgaria might be forced to rescue struggling eurozone economies, calling such ideas speculative and unfounded.

On the IMF’s recent recommendations, which included freezing public sector salaries and raising taxes, Radev affirmed that Bulgaria retains the sovereign right to make its own fiscal decisions. He suggested that there is an opportunity to continue increasing real incomes while simultaneously rebuilding fiscal buffers, provided expenditure is managed prudently. Failure to act could place Bulgaria on a trajectory similar to Romania, where unchecked spending has strained the fiscal system.

Radev emphasized that Bulgaria’s revenue system, designed to sustainably fund government spending up to roughly 40% of GDP, would face strain if expenditures are persistently higher, requiring either debt accumulation, tax increases, or a combination of both, none of which are ideal solutions. He concluded that the 2026 budget is likely to be the most significant in at least the past five years, given its role in reversing recent negative fiscal trends and ensuring stability as the country enters the eurozone.

Source: BNT interview