Bulgaria’s Budget for 2026 and 2027 – “Alice in Wonderland” or “Through the Looking-Glass”

Bulgaria is entering the Excessive Deficit Procedure because the actual budget deficit is above the 3% of GDP threshold, while the European Commission’s forecasts indicate a deficit of 4.1% in 2026 and 4.3% in 2027. In order for the country to exit the procedure, it will require both a short-term fiscal “correction” and a medium-term plan that brings the deficit below 3% and stabilizes debt within the framework of the EU’s new fiscal rules.

What the Excessive Deficit Procedure means

The Excessive Deficit Procedure is triggered when the budget deficit exceeds 3% of GDP or government debt exceeds 60% of GDP and is not declining sufficiently quickly according to the criteria of the Stability and Growth Pact.

After the procedure is opened, the Commission issues recommendations under the “corrective arm” of the fiscal rules – the country must present and implement a medium-term consolidation plan that brings the deficit below 3% within an agreed timeframe.

The state of Bulgarian public finances – deficit and debt

According to Commission estimates, the budget deficit has already exceeded 3% of GDP in the past year and is expected to remain above the reference value in the coming years unless corrective measures are taken. The main drivers of the deficit are identified as:

• rising pension and social expenditure;
• strong pressure for wage increases (especially in defence and security);
• significant transfers to the energy sector.

Key recommendations of the European Commission

In an excessive deficit situation, the Commission usually gives a six-month period to take effective measures. The recommendations include:

• Fiscal consolidation by limiting the automatic growth of expenditure, especially wages and social payments.
• Review of public investments and stricter control over public procurement.
• Cuts and optimization in the public administration to reduce operating costs.
• Measures against the shadow economy and improving tax and excise collection.
• Preparation of a medium-term budget forecast with conservative revenues and realistic expenditure.

Proposed scenario: correction in 2026 and stabilization in 2027

Based on the data described above, a realistic “two-step” scenario can be outlined that would allow Bulgaria to exit the procedure within two years.

Step 1: A realistic 2026 budget recognizing accumulated expenses

The first necessary measure is to prepare and adopt a 2026 budget that:

• Includes all accumulated but unpaid expenses (around €3 billion), so that the deficit reflects the real fiscal position rather than artificially “compressed” figures.
• Provides for the issuance of new government debt of around €3 billion to cover these old obligations and normalize payments throughout supplier chains and public systems.

This would temporarily increase the deficit to around 4% of GDP in 2026, but it would clear the fiscal position of hidden deficits and deferred payments. This would stop the practice of “hiding” the deficit in liabilities of hospitals, roads, energy companies and other public structures, which is one of the reasons for the loss of confidence from the European Commission.

Step 2: A strict 2027 budget with a deficit of up to 3%

Alongside the implementation of the 2026 budget, preparation of the 2027 budget should begin. It should be:

• Built with a maximum deficit of 3% of GDP in line with EU criteria.
• Designed so that new borrowing is used only to refinance maturing old loans, not to finance an additional deficit.
• Accompanied by a three-year medium-term forecast showing a stable deficit below 3% and controlled growth (or stabilization) of debt.

It is critical that this 2027 budget is developed and adopted by the end of November 2026 in order to demonstrate in time to the European Commission and the EU Council that Bulgaria has a clear and achievable plan for returning to fiscal discipline.

How this leads to the termination of the procedure

If Bulgaria:

• demonstrates transparency through a 2026 budget that includes all deferred expenses and honestly finances the deficit with approximately €3 billion in debt;
• then presents a medium-term plan and a 2027 budget with a deficit of up to 3%, adopted at the end of 2026;
• and actually follows the consolidation path (limiting expenditure, improving revenue collection, controlling transfers),

then the European Commission may recommend that the EU Council terminate the excessive deficit procedure, because there will be a sustainable return below the 3% threshold within the three-year horizon.

Main conclusions from “Through the Looking-Glass” and the Bulgarian budget

The world does not always follow ordinary logic, and the same applies to the budget situation as of May 2026. In the Looking-Glass world, everything appears reversed — time, space, and rules. This shows that sometimes we need to think beyond standard approaches.

Power and rules can sometimes become absurd, and so can a cash-basis budget. Many of the characters act important, issue commands, or create rules without real meaning. This is a criticism of a society where rules are often followed simply because “that is how it must be” — meaning masking certain expenses in order to meet the 3% deficit criterion.

A journey requires the right approach, and so does a budget. Alice’s entire journey resembles a chess game. She moves forward, overcomes obstacles, and eventually reaches her goal. This shows that when difficulties arise, immediate reassessment and action are needed to solve problems.