Bulgaria’s income has continued to converge to the OECD advanced economies, but the productivity gap remains large. Growth has been supported by robust consumption, private and public, underpinned by steady wage increases. Fiscal discipline has resulted in low public debt but pressures on the fiscal balance are mounting and front-loaded consolidation is warranted. In the longer term, Bulgaria needs to address fiscal pressures from defense spending, the green transition and ageing. Bulgaria joined the euro area in 2026, implying that the onus to decrease short-term inflationary pressures is on fiscal policy. Investment has long been lagging behind peer countries. Productivity needs to be boosted by improving the business environment and removing obstacles to setting up a business, more effective supports to enter international markets and innovation, boosting competition and stepping up the fight against corruption. Education outcomes are weak. Major education reforms to raise outcomes are ongoing and reforms in further areas needed. Delaying tracking, rotating good teachers to disadvantaged areas and providing workplace-based training would help. Greenhouse gas emissions have declined but remain high. A clearer plan for coal phase out, reforms to vehicle taxation and accelerating grid investments would help achieve further reductions while maintaining energy security.
SPECIAL FEATURE: PRODUCTIVITY
