Bulgaria

Europe

GDP per Capita ($)
$15764.6
Population (in 2021)
6.4 million

Assessment

Country Risk
B
Business Climate
A3
Previously
B
Previously
A3

suggestions

Summary

Strengths

  • Diversified and sizeable agricultural production base (Bulgaria is a major producer and exporter of cereals and is virtually self-sufficient in food)
  • Tourism potential
  • Low production costs and good price competitiveness
  • Low public debt
  • Member of the EU (2007), Schengen Area (2025), and the eurozone (2026)

Weaknesses

  • Fragmentation of the political landscape complicates the creation of a stable government
  • Inefficient public services and judicial system (influence of business community), weak infrastructure
  • Corruption and organised crime (Transparency International Corruption Perceptions Index 2024 scores of 76 and rank of 43/100, making it the second-lowest ranking country in the EU)
  • Lack of skilled labour
  • Declining and relatively poor population (GDP per capita = 41% of the EU average in 2024, the lowest of the EU)
  • Large informal economy
  • Heavy dependence on coal and hydrocarbons for electricity

Trade exchanges

Exportof goods as a % of total

Germany
15%
Romania
10%
Italy
8%
Turkey
6%
Greece
6%

Importof goods as a % of total

Germany 13 %
13%
Turkey 8 %
8%
Romania 7 %
7%
Italy 7 %
7%
Russia (Russian Federation) 7 %
7%

Outlook

The economic outlook highlights the opportunities and risks ahead, helping to anticipate major changes. This analysis is essential for any company seeking to adapt to changes in the business environment.

Economic growth is projected to moderate in 2025 before slightly picking up in 2026, but will remain around its historical average. Private consumption will be once again the primary driver, supported by rising real wages, low unemployment, and frontloading of consumption ahead of euro adoption. Gradual monetary easing is also expected to enhance household spending capacity by alleviating debt servicing costs. However, consumption growth will be less robust than in 2024, partly due to the higher price level after the expiration of inflation-stabilising measures, including reduced VAT rates and electricity subsidies for the corporate sector. Net exports are expected to deteriorate in 2025, but may gradually recover in 2026, driven by an anticipated rebound in the German economy.

Bulgaria’s political instability, which is dominated by short-lived coalition governments, has delayed reforms needed to access the full EUR 5.5 billion from the EU’s Recovery and Resilience Facility (RRF). These reforms aim at improving the quality of the institutions and addressing labour and skills shortages. The delay in implementing these changes has prompted a loss of approximately EUR 600 million in grants, with expected remaining inflows now estimated at EUR 3-3.5 billion (i.e., 2.9-3.4% of GDP). Following political stabilisation, the resumption of EU fund absorption is projected for 2025-2026, which should boost public investment. However, the 15-month delay in reforms will expose the country to further funding cuts unless the government accelerates reforms or secures an extension beyond the August 2026 deadline. In terms of the private sector, investments are expected to grow due to monetary easing and a more stable political climate, provided such stability persists.

Inflation rose at the start of 2025 due to the reinstatement of standard VAT rates and adjustments to administrative prices. Inflation is expected to fall in 2026 as these temporary effects diminish. However, upward pressure on inflation will persist due to rising real wages amid a tight labour market. Additionally, in the beginning of 2026, the transition to the euro may result in modest price increases, as price re-evaluations during the conversion process could trigger upward adjustments, which will either be driven by economic factors or rounding effects. These increases are likely to be more pronounced in sectors such as tourism and retail, where menu costs and rounding practices may have a notable impact.

Bulgaria’s euro and Schengen gains offset by trade war pressures

Fiscal policy will continue to be stimulative, although not excessively. The budget for 2025 was structured to be aligned with the convergence criteria for euro adoption, requiring the deficit to stay below 3% of economic output. The expiration of VAT reductions and increased tobacco excise duties are expected to bolster fiscal revenues. On the expenditure side, policies will continue to support consumption through higher public sector wages and increased social spending. These budgetary adjustments are projected to slightly reduce the public deficit compared to 2024, which will remain at moderate levels. Bulgaria's relatively low debt servicing costs will be compounded by the euro adoption as the latter is expected to further lower financing costs. An early indication of improved investor confidence is the recent upgrade of Bulgaria’s sovereign credit rating by some of the major rating agencies.

Bulgaria’s integration into the European economy is expected to yield sustained positive effects on its international trade. It is anticipated that the accession to the Schengen Area at the start of 2025 will lower logistical costs for trade and remove barriers to the expansion of Bulgarian transport sector companies in European markets, a sector where Eastern European firms typically hold a dominant market share due to the competitive advantage of lower labour costs. While the benefits of euro adoption – planned to take effect on 1 January 2026 – are somewhat limited due to the Bulgarian lev’s existing peg to the euro, joining the eurozone will eliminate currency conversion costs, which will further support international trade, particularly in the tourism sector. However, these integration benefits will not fully offset the cyclical factors that are dampening external demand in 2025. Economic growth in Germany, a key trading partner, is expected to remain stagnant this year, while growth in Romania’s economy will fall short of its potential. Despite Bulgaria’s relatively lower exposure to demand from the US compared to other Eastern European economies, the trade war is likely to pose challenges to external demand, with indirect effects through third-party countries, notably Germany. Meanwhile, imports will rise due to import-intensive increases in defence spending, which have been facilitated by an exemption clause excluding such expenditures from the Stability and Growth Pact. Collectively, these factors are projected to widen Bulgaria’s trade deficit in 2025, with an anticipated improvement taking place in 2026.

Political volatility and institutional challenges amid eurozone transition

In 2025, Bulgaria’s political landscape remains turbulent and has been dominated by a prolonged crisis that has seen seven parliamentary elections since 2021, with a looming risk of an eighth snap election. The October 2024 elections again failed to produce a clear majority and thus a stable government, reflecting deep fragmentation and voter apathy. The centre-right GERB party, led by Boyko Borisov, secured the most seats (69/240) but fell well short of a majority, while the reformist PP-DB coalition and ultranationalist Revival trailed in the seat tally. On 16 January 2025, Rosen Zhelyazkov of the GERB party was elected Prime Minister and leads a minority government with BSP (centre-left) and ITN (populist, social -conservative), with the support of the liberal APS party, a faction resulting from the breakup of the DPS party. However, the coalition is fragile, is built on ideologically disparate parties and faces challenges in addressing systemic issues like corruption and judicial reform. This was quickly illustrated by the defection in April 2025 of APS, which was unhappy with the government support shown by the DPS-NN, the other faction from the DPS. The leader of DPS-NN, Delyan Peevski, who was sanctioned by the US and the UK for alleged vote-buying and electoral fraud, has become essential to the coalition. The situation has further eroded trust in institutions, with only 10% of Bulgarians believing that the country’s elections are fair. President Rumen Radev’s influence, though curtailed by 2023 constitutional reforms, remains significant, notably through interim governments.

Bulgaria’s accession to the eurozone, which is scheduled for 1 January 2026, represents a critical milestone in the nation’s integration into the European economic framework. The objective is a unifying force for the governing coalition and serves to garner occasional support from other pro-European political parties, such as PP-DB, which advocate for deeper EU alignment. However, the adoption of the euro has met with significant public opposition fuelled by concerns over potential price manipulation, the erosion of monetary autonomy and delays in implementing EU-mandated reforms. The growing influence of nationalist parties, including Revival and MECH, sustained by widespread disillusionment with the political establishment, is exacerbating these concerns and poses a risk of further democratic backsliding, which poses a threat to the stability of Bulgaria’s European integration efforts.

Looking to 2026, the political outlook hinges on whether the Zhelyazkov government can stabilise its coalition once the country accesses the eurozone and benefits from EU funds, or if another election will revive the crisis. Eurozone accession may boost investor confidence but could exacerbate the political divisions if inflation spikes. Persistent corruption, constraints on media freedom and judicial inefficiency threaten Bulgaria’s EU integration goals, including full Schengen membership. The split in the DPS party and the declining influence of traditional parties such as BSP bode for a volatile political landscape, with populist and far-right groups gaining ground. Without a cohesive coalition that can address public distrust and external pressures such as Russia’s influence, Bulgaria risks prolonged instability, which will undermine its democratic and economic progress.

Last updated: July 2025

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