REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL CONVERGENCE REPORT 2025 on Bulgaria (prepared in accordance with Article 140(1) of the Treaty on the Functioning of the European Union)
Date: 2025-06-04
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Bulgaria, Economic and Monetary Union, convergence criteria, euro, euro area

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 4.6.2025  COM(2025) 303 final/2     DOWNGRADED ON 4.6.2025  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL CONVERGENCE REPORT 2025 on Bulgaria          (prepared in accordance with Article 140(1) of the Treaty on the Functioning of the European Union)        {SWD(2025) 154 final}  
 
 
1. 

PURPOSE OF THE REPORT 

The euro is meant to be the single currency of the European Union as a whole. It is  currently used every day 
by around 350 million people in the 20 Member States of the euro area. The practical benefits include more 
stable prices, lower transaction costs for people and businesses, more transparent and competitive markets 
and increased intra-EU and international trade. The euro is also the second most used currency worldwide. 

Article 140(1) of the Treaty on the Functioning of the European Union (TFEU) requires the Commission and the 
European Central  Bank (ECB) to report to the Council, at least once every  two years, or at the request of a 
Member State with a derogation1, on the progress that Member States have made in fulfilling their obligations 
to achieve economic and monetary union. The latest Commission and ECB convergence reports were adopted 
in June 2024. 

The  2025  Convergence  Report  on  Bulgaria  has  been  prepared  in  response  to  a  request  for  a  convergence 
assessment from Bulgaria, submitted on 25 February 2025. The staff working document accompanying this 
report provides a more detailed assessment of the state of convergence in Bulgaria2. 

Article 140(1) TFEU requires the reports to include an examination of the compatibility of national legislation, 
including  the  statutes  of  national  central  banks,  with  Articles  130  and  131  TFEU  and  the  Statute  of  the 
European  System  of  Central  Banks  and  of  the  European  Central  Bank  (‘the  ESCB/ECB  Statute’).  The  reports 
must also examine whether a high degree of sustainable convergence has been achieved in the Member State 
concerned by  means of: (i)  referring to the fulfilment of  the four convergence  criteria (price  stability, public 
finances, exchange rate stability and long-term interest rates); and (ii) taking account of other factors relevant 
to  economic  integration  and  convergence  mentioned  in  the  final  subparagraph  of  Article  140(1)  TFEU.  The 
four convergence criteria are developed further in a protocol annexed to the Treaties (Protocol No 13 on the 
convergence criteria). 

The convergence assessment in this report is presented against the background of recent economic and policy 
developments.  Following  the  EU’s  weak  economic  performance  in  2023,  when  GDP  grew  by  0.4%,  the 
economy returned to moderate growth of 1.0% in 2024, with stronger momentum at the end of the year than 
previously  expected.  Private  consumption  was  supported  by  continued  growth  in  real  wages  and  higher 
employment, with a remarkably strong labour market.  After the peak in EU inflation in October 2022, which 
was  driven  by  the  surge  in  energy  prices  from  around  mid-2021  until  the  third  quarter  of  2022,  a 
disinflationary  process  started  towards  the  end  of  2022.  This  process  progressed  in  2023  and  throughout 
much  of  2024,  with  EU  headline  inflation  averaging  2.6%  that  year,  and  is  expected  to  continue  in  2025. 
Inflation divergence across the EU Member States also narrowed significantly in 2024. With the disinflation 
process well on track, in April 2025 the ECB cut its policy rate for the seventh time since June 2024, to 2.25%.  

The economic outlook, including the Commission’s 2025 Spring Economic Forecast for HICP inflation for the 
EU  as  a  whole  and  for  individual  Member  States,  including  Bulgaria,  is  characterised  by  an  unusually  high 
degree  of  uncertainty.  In  early  2025, the  EU  and  global  economies  were  hit  by  the  most  significant  policy-
induced  trade  and  economic  uncertainty  shock  in  decades.  It  is  unclear  what  the  landing  zone  for  the  US 
tariffs vis-à-vis trading partners would be, which forces the Commission forecast to rely on several technical 
assumptions3.  Beyond  trade,  broader  geopolitical  tensions  remain  elevated,  heightening  risks,  weighing  on 
confidence, and posing significant risks to the economic outlook.  

In Bulgaria, economic growth accelerated from 1.9% in 2023 to 2.8% in 2024, driven by private consumption, 
which was, in turn, sustained by higher real wages, employment gains and increased social benefits. Real GDP 
growth in Bulgaria is forecast to slow down again from 2.8% in 2024 to 2% in 2025. Annual average HICP 
inflation in Bulgaria slowed to 2.6% in 2024, while inflation developments in 2025 and in 2026 are set to be 
driven  by  several  price  hikes  at  the  beginning  of  2025  and,  subsequently,  by  both  external  prices  and 
domestic cost factors exerting downward pressure on inflation. 

1   The Member States that have not yet fulfilled the necessary conditions to adopt the euro are referred to as ’Member States with a 
derogation’. Denmark negotiated an opt-out before the Maastricht Treaty was adopted and does not participate in the third stage of 
economic and monetary union. 

2   The  cut-off  date  for  the  data  used  in  this  report  is  19  May  2025.  The  convergence  assessment  is  based  on  a  range  of  monthly 

convergence indicators that have been calculated up to April 2025.  

3   Significantly, the individualised ‘reciprocal’ higher tariffs are assumed to not be reinstated at the expiry of the 90 days suspension. 
The forecast also assumes that the exceptionally high tariffs on Chinese imports, imposed after April 2, will be scaled back  to pre-
escalation levels, as they are deemed unsustainable. By the time the Commission forecast was published, on 19 May 2025, the new 
tariffs in place were lower than those assumed at the cut-off date. 

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The expected acceleration in implementing the recovery  and resilience plans (RRPs) and the  cohesion policy 
programmes  can  at  least  partly  offset  the  negative  consequences  of  the  weaker  international  environment 
and  play  a  crucial  role  in  the  convergence  process  of  many  non-euro  area  EU  Member  States.  Besides 
contributing  to  higher  growth  and  improved  public  finances  in  the  near  term,  the  Recovery  and  Resilience 
Facility (RRF) and cohesion policy programmes strengthen Member States’ long-term growth and resilience by 
supporting major reforms and investments that help address both long-standing and new challenges, such as 
diversifying energy supplies.  

In  November  2024,  the  Commission  launched  the  first  implementation  cycle  of  the  reformed  economic 
governance framework that entered into force on 30 April 2024. The main objectives of the new framework 
are  to  strengthen  Member  States’  debt  sustainability  and  promote  sustainable  and  inclusive  growth  in  all 
Member  States  through  growth-enhancing  reforms  and  priority  investments.  At  the  centre  of  the  new 
framework are the national medium-term fiscal-structural plans, which set the Member States’ fiscal paths, 
defined  in  terms  of  net  expenditure  growth  rates.  The  plans  contain  priority  reforms  and  investments  and 
cover an adjustment period of four years as a rule. An extended adjustment period (up to seven years) can be 
agreed  at  the  request  of  the  Member  State  which  commits  to  additional  reforms  and  investments  that  are 
conducive  to  economic  growth  and  fiscal  sustainability.  Bulgaria  submitted  its  four-year  national  medium-
term  fiscal-structural  plan  on  27  February  2025.  On  12  May  2025,  the  Commission  recommended  to  the 
Council to endorse Bulgaria’s plan.  

On  19  March  2025,  the  Commission  presented,  as  part  of  the  ReArm  Europe  Plan/Readiness  2030,  an 
ambitious  defence  package  providing  financial  levers  to  EU  Member  States  to  drive  higher  investment  in 
defence capabilities. As part of this plan, the Commission invited Member States to apply for the activation of 
the  national  escape  clause  (NEC)  of  the  Stability  and  Growth  Pact,  which  will  provide  them  additional 
budgetary space to transition to a durably higher level of defence expenditure, within the EU fiscal rules. The 
amount of the deviation under the escape clause will be capped  at 1.5% GDP, available for a period of four 
years. Bulgaria applied for the NEC on 2 May 2025. A new dedicated instrument - Security Action for Europe 
(SAFE)  -  has  been  established,  with  the  Commission  planning  to  raise  up  to  EUR  150  billion  on  the  capital 
markets  to  help  EU  Member  States  quickly  and  substantially  increase  investments  in  Europe’s  defence 
capabilities. Bulgaria submitted a request to the Council and the Commission to activate the NEC. On 4 June 
2025, the Commission recommended to the Council to activate the NEC for Bulgaria, allowing the country to 
deviate from, and exceed, the net expenditure path that will be set in the Council recommendation endorsing 
its medium-term fiscal plan. 

On 4 June 2025, the Commission published its European Semester Spring 2025 package.  To drive long-term 
prosperity and resilience, the EU is aligning its economic governance with a renewed focus on competitiveness 
as presented in the Competitiveness Compass. Through its country-specific recommendations, the European 
Semester reflects the new priorities to boost competitiveness and provides guidance, including to Bulgaria, on 
the  necessary  reforms  and  investments  at  national  and  regional  level.  As  part  of  the  European  Semester 
Spring 2025 package, the Commission recommends that  Bulgaria adheres to the maximum growth rates of 
net expenditure in its plan, while making use of the allowance under the NEC for higher defence expenditure.  

Convergence criteria 

The  examination  of  the  compatibility  of  national  legislation,  including  the  statutes  of  national  central 
banks  of  Member  States  with  a  derogation,  together with  Article  130  TFEU  and  the  compliance  duty  under 
Article 131 TFEU, includes an assessment of observance of the prohibition of monetary financing (Article 123 
TFEU) and the prohibition of privileged access to financial institutions (Article 124 TFEU); the consistency with 
the ESCB’s objectives (Article 127(1) TFEU) and tasks (Article 127(2) TFEU); and other aspects relating to the 
integration of national central banks into the ESCB. 

The first indent of Article 140(1) TFEU  defines the  price  stability criterion as ‘the achievement of a high 
degree of price stability; this will be apparent from a rate of inflation which is close to that of, at most, the 
three best performing Member States in terms of price stability’. 

Article 1 of the Protocol on the convergence criteria further provides that  ‘the criterion on price stability […] 
shall mean that a Member State has a price performance that is sustainable and an average rate of inflation, 
observed over a period of one year before the examination, that does not exceed by more than 1.5 percentage 
points that of, at most, the three best-performing Member States in terms of price stability. Inflation shall be 

2 

 
 
measured  by  means  of  the  consumer  price  index  on  a  comparable  basis,  taking  into  account  differences  in 
national definitions’4. 

The sustainability requirement implies that the satisfactory inflation performance must be attributed to the 
behaviour of input costs and other factors that influence price  developments in a  structural manner, rather 
than the influence of temporary factors. Therefore, the convergence examination includes an assessment of 
the  factors  that  affect  the  inflation  outlook  and  is  complemented  by  a  reference  to  the  most  recent 
Commission inflation forecast5.  

The inflation reference value was calculated as 2.8% in April 2025, with Ireland, Finland and Italy being the 
three ‘best-performing Member States’6. 

No Member States were identified as outliers in terms of inflation performance for calculating the reference 
value, as none of their inflation rates deviated by a wide margin from the euro area average due to country-
specific circumstances. 

The second indent of Article 140(1) TFEU defines the convergence criterion dealing with public finances is 
defined  in  the  as  ‘the  sustainability  of  the  government financial  position;  this  will  be  apparent  from  having 
achieved  a  government  budgetary  position  without  a  deficit  that  is  excessive  as  determined  in  accordance 
with Article 126(6)’.  

Furthermore, Article 2 of the Protocol on the convergence criteria states that this criterion means that  ‘at the 
time of the examination the Member State is not the subject of a Council decision under Article 126(6) of the 
said Treaty that an excessive deficit exists’. 

The TFEU refers to the exchange rate criterion in the third indent of Article 140(1) as ‘the observance of 
the  normal  fluctuation  margins  provided  for  by  the  exchange-rate  mechanism  of  the  European  Monetary 
System, for at least two years, without devaluing against the euro’. 

Article  3  of  the  Protocol  on  the  convergence  criteria  provides  that:  ‘The  criterion  on  participation  in  the 
exchange  rate  mechanism  of  the  European  Monetary  System  […]  shall  mean  that  a  Member  State  has 
respected  the  normal  fluctuation  margins  provided  for  by  the  exchange-rate  mechanism  of  the  European 
Monetary System without severe tensions for at least the last two years before the examination. In particular, 
the  Member  State  shall  not  have  devalued  its  currency’s  bilateral  central  rate  against  the  euro  on  its  own 
initiative for the same period’7. 

The relevant two-year period for assessing exchange rate stability in this report ran from 20 May 2023 to 19 
May  2025.  In  its  assessment  of  the  exchange  rate  stability  criterion,  the  Commission  takes  into  account 
developments  in  auxiliary  indicators  such  as  foreign  reserve  developments  and  short-term  interest  rates.  It 
also  takes  into  account  the  role  of  policy  measures  (including  foreign  exchange  interventions)  and 
international financial assistance (wherever relevant) in maintaining exchange rate stability.  

The fourth indent of Article 140(1) TFEU requires ‘the durability of convergence achieved by the Member State 
with a derogation and of its participation in the exchange rate  mechanism’ to be ‘reflected in the long-term 
interest rate levels’. 

Article 4 of the Protocol on the convergence  criteria further states that  ‘the criterion on the convergence of 
interest rates […] shall mean that, observed over a period of one year before the examination, a Member State 
has had an average nominal long-term interest rate that does not exceed by more than 2 percentage points 
that of, at most, the three best-performing Member States in terms of price stability. Interest rates shall be 
measured  on  the  basis  of  long-term  government  bonds  or  comparable  securities,  taking  into  account 
differences in national definitions’. 

4   For the purpose of the price stability criterion, inflation is measured by the Harmonised Index of Consumer Prices (HICP) defined in 

Regulation (EU) 2016/792. 

5   All forecasts for inflation and other variables in this report are from the Commission’s Spring 2025 Economic Forecast. The forecasts 
are  based  on  a  set  of  common  assumptions  for  external  variables  and  on  a  ‘no  policy  change’  assumption,  but  also  take  into 
consideration measures that are known in sufficient detail. 

6   The respective 12-month average inflation rates were 1.2%, 1.3% and 1.4%. 
7  

In assessing compliance with the exchange rate criterion, the Commission examines whether the exchange rate has remained close 
to the ERM  II central  rate.  Reasons for an appreciation  may  be taken  into account,  in accordance  with  the Common  Statement on 
Acceding Countries and ERM2 by the Informal ECOFIN Council held in Athens on 5 April 2003. 

3 

 
 
The interest rate reference value was calculated as 5.1% in April 20258. 

Article  140(1)  TFEU  also  requires  the  reports  to  take  into  account  other  factors  relevant  to  economic 
integration  and  convergence.  These  include  the  integration  of  markets,  the  development  of  the  balance  of 
payments on the current account and of unit labour costs and other price indices. The additional factors to be 
considered are important indicators of whether a  Member State  would integrate into  the euro area  without 
difficulties. They also broaden the view on the sustainability of convergence. 

The assessment of the degree of sustainable convergence for Bulgaria presented in this report draws on the 
Commission’s  Spring  2025  Economic  Forecast  and  the  policy  guidance  provided  under  the  European 
Semester. It is informed in particular by: (i) the fiscal surveillance carried out under the Stability and Growth 
Pact  and  (ii)  by  the  Macroeconomic  Imbalance  Procedure.  It  also  reflects  the  Commission’s assessments  of 
fiscal sustainability risks and of the national fiscal framework, as well as the implementation of the RRP. 

2. 

Bulgaria 

In  the  light  of  its  assessment  on  legal  compatibility  and  on  the  fulfilment  of  the  convergence 
criteria,  and  taking  into  account  the  additional  relevant  factors,  the  Commission  considers  that 
Bulgaria fulfils the conditions for adopting the euro. 

Legislation in Bulgaria is compatible with the compliance duty under Article 131 TFEU.  

Bulgaria  fulfils  the  criterion  on  price  stability.  The  average  inflation  rate  in  Bulgaria  during  the  12 
months to April 2025 was 2.7%, below the reference value of 2.8%. A review of a broad range of indicators 
does not identify causes for concern regarding the sustainability of price stability. 

Bulgaria’s  annual  HICP  inflation  rate  averaged  8.6%  in  2023  and  decreased  to  2.6%  in  2024.  Annual  HICP 
inflation declined from 14.3% in January 2023, flattening at around 2.8% in May-July 2024 before declining 
further and stabilising at 2.1% in October-December 2024. It then rose significantly at the beginning of 2025, 
peaking  at  4%  in  March  before  decreasing  to  2.8%  in  April  2025.  At  the  beginning  of  2023,  headline  HICP 
inflation  was  still  above  HICP  inflation  excluding  energy  and  food,  due  to  higher  energy  and  food  price 
inflation.  With  the  rapid  disinflation  of  fuel  and  gas  prices  in  2023,  overall  inflation  remained  below  core 
inflation for the rest of 2023. In 2024, headline HICP inflation and core inflation remained close to each other, 
as  the  fall  in  fuel  prices  in  the  second  half  of  2024  was  largely  offset  by  somewhat  higher  food  price 
inflation.  The  sharp  price  hikes  at  the  beginning  of  2025  covered  items  both  within  and  outside  the  core 
inflation basket. These price hikes were largely due to: (i) restored higher VAT rates for bread and restaurants; 
(ii)  higher  excise  duties  for  tobacco;  (iii)  increased  electricity  and  gas  prices  for  households;  and  (iv)  higher 

8   The reference value for April 2025  was calculated as the simple average of the 12-month average of long-term interest rates of 

Ireland (2.8%), Finland (2.9%) and Italy (3.7%), plus two percentage points. 

4 

 
 
 
 
 
food  prices  due  to  increased  international  food  prices.  The  subsequent  decrease  in  inflation  in  April  was 
largely due to reductions in hospital fees that are part of core inflation and in gas and fuel prices. 

The  Commission’s Spring  2025  Economic  Forecast  projects  that  average  annual  inflation  will  increase  from 
2.6% in 2024 to 3.6% in 2025 and gradually ease to 1.8% in 2026. The 12-month average inflation rate is 
projected to increase above the projected reference value by the end of 2025, fall back to the reference value 
in  the  first  months  of  2026  and  stay  below  it  for  the  rest  of  20269.  The  higher  VAT  rates  for  bread  and 
restaurants, higher excise duties for tobacco and other administered prices, including electricity, are estimated 
to have a full impact, including second-round effects, of  around 1.5  percentage points by the end of 2025. 
These factors, which explain a large part of the temporary rise of inflation in 2025, are not expected to have 
a lasting effect on inflation. Moreover, the higher inflation in 2025 also reflects higher international prices for 
certain  food  commodities.  The  growth  in  unit  labour  costs  moderated  significantly  in  2024  and,  looking 
forward, the disinflation process in the services sector is set to benefit from wage moderation. Overall, private 
sector wage growth, which directly influences price formation, is expected to moderate faster than aggregate 
wage dynamics. On the external side, the pass-through of lower international energy and other commodities 
prices is also projected to keep inflation down, including via second-round effects to transport services.  The 
relatively  low  price  level  in  Bulgaria  (about  57%  of  the  euro  area  average  in  2023)  suggests  potential  for 
price level convergence in the long term. 

Bulgaria fulfils the criterion on public finances. Bulgaria is not the subject of a Council Decision on the 
existence of an excessive deficit. The general government deficit widened from 2.0% of GDP in 2023 to 3.0% 
in 2024. The sizeable deterioration of the deficit in 2024 was in one part due to spending increases in public 
sector  salaries  and  in  social  benefits,  particularly  on  pensions,  which  were  not  fully  matched  by  revenue 
increases. The other part, 0.5% of GDP, was due to a one-off statistical recording of settled liabilities for road 
infrastructure works from 2020-2022. The Commission’s Spring 2025 Economic Forecast expects the general 
government  deficit  to  decrease  to  2.8%  of  GDP  in  2025  and  to  remain  at  2.8%  in  2026.  The  government 
debt-to-GDP  ratio  increased  from  22.9%  in  2023  to  24.1%  in  2024.  It  is  expected  to  increase  further  to 
25.1% in 2025 and 27.1% in 2026. On 27 February 2025, Bulgaria submitted its national medium-term fiscal 
structural plan to the Council and the Commission. The plan includes a commitment to fiscal consolidation in 
2025-2028  in  line  with  the  Stability  and  Growth  Pact  requirements.  On  12  May  2025,  the  Commission 
recommended to the Council to endorse Bulgaria’s plan. Accounting for the flexibility under the NEC, the net 
expenditure growth for  2025 is expected to be in line with the net expenditure growth ceilings contained  in 
Bulgaria’s  medium-term  plan.  Despite  the  low  projected  debt  level  by  2035  (39%  of  GDP),  Bulgaria’s  debt 
sustainability risks appear medium in the medium term, with high uncertainty on debt dynamics over the next 
five years based on historical  volatility. Bulgaria has the  key  components of a robust  fiscal framework, but 
some  difficulties in implementation remain. Bulgaria has a complex  system of national fiscal  rules in place 
and there is scope to improve key aspects, including further strengthening the mandate of the Fiscal Council.  

Bulgaria  fulfils  the  exchange  rate  criterion.  In  July  2020,  Bulgaria  entered  the  Exchange  Rate 
Mechanism II (ERM II) and had been participating in the mechanism for almost four years at the time of the 

9   The Commission’s Spring 2025 Economic Forecast does not include the impact of lower fees for hospital services and of decreases in 
other administered prices on inflation in April 2025. When taking into account these measures, the average inflation rate in Bulgaria 
would likely be close to the reference value by the end of 2025.  

5 

 
 
 
adoption  of  this  report.  The  Bulgarian  lev  observes  a  central  rate  of  1.95583  to  the  euro  with  a  standard 
fluctuation band of ±15%. The Bulgarian National Bank pursues its primary objective of price stability through 
an  exchange  rate  anchor  as  part  of  a  currency  board  framework.  Bulgaria  joined  ERM  II  with  its  existing 
currency board framework in place, as a unilateral commitment, thereby placing no additional obligations on 
the ECB. The lev exchange rate remained at the ERM II central rate for the 2 years covered by the assessment 
without any signs of tensions or devaluation against the euro. Additional indicators, such as developments in 
foreign  exchange  reserves  and  short-term  interest  rates,  suggest  that  investors’  risk  perception  towards 
Bulgaria has remained favourable. The (negative) spread of the Bulgarian benchmark short-term interest rate 
(i.e. the three-month base interest rate (BIR) to the Euribor) narrowed from -15 basis points at the beginning 
of  2023  to  virtually  no  differential  by  the  end  of  that  year.  It  then  widened  slightly  throughout  2024  and 
stood  at  3  basis  points  in  March  2025.  A  sizeable  buffer  of  official  reserves  continues  to  underpin  the 
currency board’s resilience. Upon entering ERM II, Bulgaria committed to implement a set of policy measures 
(known as post-entry commitments) to ensure that its participation in the mechanism is sustainable and that 
it achieves a high degree of economic convergence before adopting the euro. The measures cover four policy 
areas:  (i)  the  non-banking  financial  sector;  (ii)  the  insolvency  framework;  (iii)  the  anti-money  laundering 
framework; and (iv) governance of state-owned enterprises.  

Bulgaria fulfils the criterion on the convergence of long-term interest rates. The average long-term 
interest  rate  in  the  12-months  to  April  2025  was  3.9%,  below  the  reference  value  of  5.1%.  The  Bulgarian 
long-term interest rate has been stable at or close to 4% since April 2023, following two stepwise increases 
in February and  March 2023.  The long-term interest rate increased  from  1.9% in January 2023 to 4.2% in 
March. Thereafter, it remained unchanged at 4.0% for the rest of 2023 and at 3.9% throughout 2024 and up 
to April 2025. The yield spread relative to the German benchmark bond remained within a range of 1.4-1.9% 
from March 2023 to April 2025. 

The  Commission  has also  examined  additional  factors, including  balance  of  payments  developments, the 
integration  of  markets  and  the  institutional  environment.  Bulgaria’s  external  balance  (the  combined  current 
and capital account) improved to 0.7% of GDP in 2023 and was almost in balance (-0.1% of GDP) in 2024. 
The Bulgarian economy is well integrated with the euro area through trade and investment linkages. Selected 
indicators related to  the institutional environment show that Bulgaria performs worse than many euro area 
Member  States.  There  are  significant  challenges  related  to  the  rule  of  law,  fight  against  corruption  and 
regulatory quality. However, as part of its participation in the ERM II and in accordance with its RRP, Bulgaria 
has  taken  measures  to  improve  its  institutional  framework  and  the  business  environment,  including  in  the 
four areas covered by the post-entry ERM II commitments. The financial sector in Bulgaria is smaller and less 
developed than in the euro area. It is dominated by the banking sector, which is well integrated into the euro 
area’s  financial  sector  (particularly  through  a  high  level  of  foreign  ownership).  The  underdevelopment  of 
market-based  financing is reflected in the very small markets for equity and private  sector debt. Continued 
policy action, including Bulgaria’s entry into a ‘close cooperation’ agreement with the ECB in 2020, combined 
with  a  favourable  macroeconomic  environment  have  reduced  risks  to  and  vulnerabilities  in  the  financial 
sector. As part of the Macroeconomic Imbalance Procedure, the Commission concluded in its Alert Mechanism 
Report for 2025 that it was not necessary to carry out an in-depth analysis for Bulgaria, while pointing to the 
need  to  monitor  developments  in  the  country’s  cost  competitiveness,  house  prices  and  credit  flows  to 
households. 

Bulgaria’s RRP includes measures to address a series of structural challenges, in synergy with other EU funds, 
including  cohesion  policy  funds,  to  boost  its  competitiveness  and  stimulate  sustainable  growth,  and  reduce 
the country’s regional and social disparities. The RRF funding provides Bulgaria with EUR 5.7 billion in grants 
over the 2021-2026 period. Bulgaria received one disbursement of EUR 1.37 billion on 16 December 2022. In 
April  2025,  Bulgaria  submitted  a  comprehensive  revision  of  its  RRP  with  the  aim  to  bring  it  back  on  track. 
Implementing key outstanding reforms in the areas of decarbonisation, business environment and rule of law 
remains important for achieving the plan’s objectives. It would thus be important for Bulgaria to urgently step 
up its implementation of reforms and investments in order to deliver on the plan’s commitments. In addition, 
cohesion  policy  funding  provides  Bulgaria  with  EUR  10.7  billion  for  the  2021-2027  period.  Cohesion  policy 
financing  aims  in  particular to  further support  Bulgaria’s  competitiveness,  green  transition,  including  energy 
independence, the just transition and climate change resilience. It also aims to support the country’s upward 
social  convergence,  including  by  addressing  labour  shortages,  further  developing  educational  and  training 
systems  and  making  them  more  inclusive  for  disadvantaged  groups.  Bulgaria  has  made  progress  in 
implementing EU cohesion policy but challenges remain. 

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