The first month following the introduction of the euro and the period of dual circulation with the lev has now ended, providing a clearer picture of how the transition is unfolding. By January 30, 2026, around three quarters of lev cash in circulation had already been withdrawn, a pace fully in line with expectations. February began with more than EUR 6.1 billion in circulation, and this amount is expected to rise to roughly EUR 9–10 billion by the end of the first month in which payments are made exclusively in euros. Such volumes are considered sufficient to meet the daily needs of the economy and to stabilize cash transactions on the market.

Lev banknotes and coins will continue to be withdrawn, but their volume is unlikely to fall to zero. Once about 90 percent of lev cash has been removed from circulation, the process is expected to slow down significantly. At that stage, an estimated BGN 2–3 billion may remain unexchanged for a prolonged period, largely due to hoarded cash and a substantial quantity of coins. Experience from other countries supports this expectation: in Croatia, three years after adopting the euro, banknotes worth around 3 billion kuna and coins exceeding 1 billion kuna were still outside the system.

With the dual-currency phase now behind us and euro cash circulation stabilizing, attention has turned to price developments. According to the National Statistical Institute’s preliminary data, monthly inflation in January 2026 stood at 0.7 percent, with prices in restaurants rising by 1.6 percent. This increase is noticeably lower than in January 2025, when inflation reached 2 percent, driven mainly by higher indirect taxes, including VAT changes affecting bread, flour and catering services, as well as regulated prices. A comparison across major categories such as food, utilities, transport and restaurants shows that price growth was stronger a year earlier in all of them.

On an annual basis, inflation has eased markedly. In January 2026 it fell to 3.6 percent, down from more than 5 percent at the end of 2025. This deceleration was expected, as the sharp price jump recorded in January 2025 is now included in the base and no longer pushes annual figures upward. The same trend is visible under the EU methodology: harmonized inflation slowed to 2.3 percent. Eurostat data indicate that in January Bulgaria had lower annual inflation than nearly ten eurozone countries.

This improvement, however, does not mean that price pressures have disappeared. On the smaller scale, monthly data do suggest a modest increase linked to the euro transition, largely due to rounding effects, estimated at up to 0.5 percent and most noticeable in services. This effect is temporary and was anticipated. More concerning are broader inflationary drivers, including an expanding budget, strong wage growth and record levels of lending. These factors warrant close monitoring in the coming months.

Against this backdrop, fiscal policy and the state of public finances are becoming central issues. Execution of the 2025 budget shows that, at least on a cash basis, the deficit is being kept near the 3 percent threshold. This, however, excludes certain deferred payments and hidden liabilities, including operations through the Bulgarian Development Bank and postponed expenditures, often from the investment program. Despite solid tax revenue performance compared to the previous year, the shortfall of around BGN 3 billion in VAT revenues remains evident. It was widely understood by analysts that such optimistic VAT projections were unrealistic. The problem is that draft budgets for 2026 have relied on similarly ambitious, or even higher, VAT forecasts.

If expectations of extraordinary VAT revenues are set aside and politicians stick to their informal commitment not to raise taxes, the 2026 budget will require serious structural measures to control the deficit. Such decisions are unlikely to be taken by the current parliament, particularly amid proposals to rush through a new budget ahead of elections.

As a result, further budgetary work by the present legislature appears unavoidable. The extension budget that currently provides continuity and some stability, including higher public-sector wages, is likely to require another prolongation. With elections scheduled for April and the current framework covering only three months, a new parliamentary vote will probably be needed by the end of March 2026. This vote should remain strictly technical, avoiding ambitious new spending plans or long-term commitments that would place an additional burden on taxpayers.