COMMISSION STAFF WORKING DOCUMENT CONVERGENCE REPORT 2025 on Bulgaria Accompanying the document 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  SWD(2025) 154 final/2     DOWNGRADED ON 4.6.2025  COMMISSION STAFF WORKING DOCUMENT CONVERGENCE REPORT 2025 on Bulgaria Accompanying the document 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)  {COM(2025) 303 final}  
 
 
European Commission 

Directorate-General for Economic and Financial Affairs 

Convergence Report 2025 on Bulgaria 

EUROPEAN ECONOMY 

Institutional Paper XXX 

 
 
 
 
ABBREVIATIONS 

Member States 

Bulgaria 
Euro area  

BG 
EA 
EA-20   Euro area, 20 Member States 
EA-19   Euro area, 19 Member States before 2023 
EA-18  Euro area, 18 Member States before 2015 
EA-17    Euro area, 17 Member States before 2014 
EU-28  European Union, 28 Member States 
EU-27  European  Union,  27  Member  States  before  July  2013  (i.e.  EU-28  excl.  HR)  and  from   
February 2020 (i.e. EU-28 excl. UK) 
EU-25  European Union, 25 Member States before 2007 (i.e. EU-28 excl. BG, RO and HR) 
EU-15  European Union, 15 Member States before 2004 

Currencies 

EUR  
BGN 
USD 

Euro 
Bulgarian lev 
United States dollar 

Central Banks 

BNB 

Bulgarska narodna banka (Bulgarian National Bank – central bank of Bulgaria) 

Other abbreviations 

AML       Anti-money laundering  
Alert Mechanism Report 
AMR 
Balance of Payments 
BoP 
Capital adequacy ratio 
CAR 
Currency board arrangement 
CBA 
Central and Eastern Europe 
CEE 
Corporate Income Tax 
CIT 
Consumer price index 
CPI 
Concentration ratio (aggregated market share of five banks with the largest market share) 
CR5 
European Community 
EC 
European Central Bank 
ECB 
Excessive Deficit Procedure 
EDP 
EMU 
Economic and monetary union 
ERM II  Exchange rate mechanism II 
ESA 
ESCB 
EU 
Eurostat Statistical Office of the European Union 
FDI 
FGS 
FSA 
GDP 
HICP 
IDR 
MFI 
MIP 
NCBs  National central banks 
NEER  Nominal effective exchange rate 
Non-performing loans 
NPL 
Official Journal 
OJ 

Foreign direct investment 
Funding for Growth Scheme 
Financial Supervisory Authority 
Gross domestic product 
Harmonised index of consumer prices 
In-Depth Review 
Monetary Financial Institution  
Macroeconomic Imbalance Procedure 

European System of Accounts 
European System of Central Banks 
European Union 

iii 

 
 
 
OJL 
PIT 
PPS 
REER 
RRF 
RRP 
SGP 
TFEU 
ULC  
VAT 

Official Journal Lex 
Personal Income Tax 
Purchasing Power Standard 
Real effective exchange rate 
Recovery and Resilience Facility  
Recovery and Resilience Plan 
Stability and Growth Pact 
Treaty on the Functioning of the European Union 
Unit labour costs 
Value added tax 

iv 

 
 
ACKNOWLEDGEMENTS 

The  Convergence  Report  and  its  Technical  Annex  were  prepared  in  the  Directorate-General  for 
Economic  and  Financial  Affairs.  The  main  contributors  were  Cvetan  Kyulanov,  Ivan  Lozev, 
Benedetta Martinelli, Alina Radut and Adriana Reut.  

Other  contributors  were  Cristiana  Belu  Manescu,  Pedro  Cardoso,  Alessandra  Cepparulo,  Ben 
Deboeck, Valeska Gronert, James Hinton, Ingo Kuhnert, Philipp Mohl, Arian Peric, Lucia Piana, Diana 
Radu, Ernesto Reitano and Sara Stoyanova.  

Statistical assistance was provided by Grzegorz Janowicz and Jannik Sielmann, and administrative 
assistance by Dicle Akbay, Simona State and Emel Yavuz. 

The  report  benefited  from  comments  and  suggestions  by  Declan  Costello,  Vierke  Hauke  and 
Massimo Suardi. 

The  report  was  coordinated  by  Adriana  Reut  under the  supervision  of  Eric  Ruscher,  Head  of  Unit 
and approved by Massimo Suardi, Director, Declan Costello, Deputy Director General, and Maarten 
Verwey, Director General. 

Questions and comments may be referred to Adriana Reut (adriana.reut@ec.europa.eu). 

v 

CONTENTS 

Convergence Report 2025 on Bulgaria 

Convergence Report 2025 on Bulgaria - Technical annex 

1. 

Introduction 

1.1. 

1.2. 

ROLE OF THE REPORT 

APPLICATION OF THE CRITERIA 

1.2.1. 

1.2.2. 

1.2.3. 

1.2.4. 

1.2.5. 

1.2.6. 

Compatibility of legislation 

Price stability 

Public finances 

Exchange rate stability 

Long-term interest rates 

Additional factors 

2. 

Bulgaria 

2.1. 

LEGAL COMPATIBILITY 

2.1.1. 

2.1.2. 

2.1.3. 

2.1.4. 

2.1.5. 

Introduction 

Central bank independence 

Prohibition of monetary financing and privileged access 

Integration into the ESCB 

Assessment of compatibility 

2.2. 

PRICE STABILITY 

2.2.1. 

2.2.2. 

2.2.3. 

Respect of the reference value 

Recent inflation developments 

Underlying factors and sustainability of inflation 

2.3. 

PUBLIC FINANCES 

2.3.1. 

2.3.2. 

Recent fiscal developments 

Medium-term prospects 

2.4. 

2.5. 

2.6. 

EXCHANGE RATE STABILITY 

LONG-TERM INTEREST RATES 

ADDITIONAL FACTORS 

2.6.1. 

2.6.2. 

Developments in the balance of payments 

Market integration 

2.7. 

SUSTAINABILITY OF CONVERGENCE 

1 

3 

5 

5 

7 

8 

8 

11 

13 

15 

16 

19 

19 

19 

19 

20 

20 

20 

20 

20 

21 

22 

26 

26 

27 

29 

30 

31 

32 

34 

38 

vii 

 
LIST OF TABLES 

2.1. 
2.2. 
2.3. 

2.4. 
2.5. 
2.6. 
2.7. 

Bulgaria - Components of inflation 
Bulgaria - Other inflation and cost indicators 
Bulgaria - Budgetary developments and projections (as % of GDP 
unless indicated otherwise) 
Bulgaria - Balance of payments 
Bulgaria - Market integration 
Bulgaria - Allocation of assets by financial sub-sector 
Bulgaria - Financing of the economy1) 

LIST OF GRAPHS 

Bulgaria - HICP inflation 
Bulgaria - Inflation criterion 
Bulgaria - Inflation, productivity and wage trends 
Bulgaria - Fiscal stance and its components 
Bulgaria - BGN/EUR exchange rate 
Bulgaria - Annual effective interest rate spread to 1-M Euribor 
Bulgaria - Long-term interest rate criterion 
Bulgaria - Long-term interest rates 
Bulgaria - Effective exchange rates 

2.2. 
2.1. 
2.3. 
2.4. 
2.5. 
2.6. 
2.7. 
2.8. 
2.9. 
2.10.  Bulgaria - World Bank's 2024 Worldwide Governance Indicators 
2.11.  Bulgaria - Foreign ownership and concentration in the banking 

sector 

LIST OF BOXES 

1.1. 
1.2. 
1.3. 
1.4. 

1.5. 

Article 140 of the Treaty 
Assessment of price stability and the reference value 
Excessive Deficit Procedures under the new EU fiscal framework 
A reinforced approach to ERM II participation by means of 
upfront policy commitments by the applicant Member States 
Data for the interest rate convergence 

22 
24 

28 
33 
34 
36 
37 

21 
21 
24 
28 
30 
30 
30 
30 
33 
34 

38 

6 
9 
12 

14 
16 

viii 

 
 
 
 
 
 
 
Convergence Report 2025 on Bulgaria 
(prepared in accordance with Article 140(1) of the Treaty) 

 
 
Report 

 
 
Convergence Report 2025 on Bulgaria 
Technical annex 

 
 
1. 

INTRODUCTION 

1.1.  ROLE OF THE REPORT 

The euro was introduced on  1 January 1999  by  eleven Member States, namely Austria, Belgium, 
Finland,  France,  Germany,  Ireland,  Italy,  Luxembourg,  the  Netherlands,  Portugal  and  Spain. 
Subsequently, Greece (2001), Slovenia (2007), Cyprus and Malta (2008), Slovakia (2009), Estonia 
(2011), Latvia (2014), Lithuania (2015) and Croatia (2023) also adopted the euro. 

Member States for which the Council has not yet decided that they fulfil the necessary conditions 
for the adoption of the euro are referred to as ‘Member States with a derogation’. Article 140 of 
the  Treaty  lays  down  provisions  and  procedures  for  examining  the  convergence  situation  of 
Member States with a derogation (Box 1.1). At least once every two years, or at the request of a 
Member  State  with  a  derogation,  the  Commission  and  the  European  Central  Bank  (ECB)  prepare 
Convergence Reports for such Member States. Denmark negotiated an opt-out arrangement before 
the adoption of the Maastricht Treaty (1) and does not participate in the third stage of EMU. Until 
Denmark indicates that it wishes to participate in the third stage and adopt the euro, it will not be 
the  subject  of  an  assessment  as  to  whether  it  fulfils  the  necessary  conditions  for  such  a 
participation. 

In 2024, the Commission and the ECB adopted their latest regular Convergence Reports ( 2). None 
of the Member States assessed in those reports was deemed to meet the necessary conditions for 
adopting the euro.  

On  25  February  2025,  Bulgaria  submitted  a  request  for  a  convergence  assessment.  This 
Commission  Staff  Working  Document  is  a  Technical  Annex  to  the  Convergence  Report  2025  on 
Bulgaria  and  includes  a  detailed  assessment  of  the  progress  with  convergence,  as  required  by 
Article 140(1) of the Treaty. 

The convergence assessment in this report is presented against the background of several major 
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.  In  2024,  private  consumption  was  supported  by  continued 
growth  in  real  wages  and  higher  employment,  with  a  remarkably  strong  labour  market.  The 
disinflationary  process  that  started  towards  the  end  of  2022  continued  to  progress  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 main 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, 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  assumptions  (3).  Beyond trade,  broader  geopolitical  tensions 
remain elevated, heightening uncertainty risks, weighing on confidence, and posing significant risks 
to the economic outlook.  

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  

(1)  Protocol (No 16) on certain provisions relating to Denmark. 
(2)  European  Commission,  Convergence  Report  2024,  COM(2024)  270  final,  26  June  2024;  European  Central  Bank, 

Convergence Report 2024, June 2024. 

(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. 

5 

 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 1 - Introduction 

international environment and play a crucial role in the convergence process of  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. The 
overall implementation of the RRPs progressed in 2024 and in the first four months of 2025. By 
the end of 2024, RRF disbursements reached EUR  306  billion, which is close to half of the total 
amount of support committed under the RRF. However, in a few Member States, including Bulgaria, 
there  are  significant  delays  in  the  RRF  implementation.  In  addition,  EU  Cohesion  Policy  funds 
provide EUR 378 billion to Member States for the 2021-2027 period. Cohesion policy concentrates 
in  fields  that  are  critical  for  promoting  convergence  and  competitiveness  through  long-term 

6 

Box 1.1: Article 140 of the Treaty ‘1. At least once every two years, or at the request of a Member State with a derogation, the Commission and the European Central Bank shall report to the Council on the progress made by the Member States with a derogation in fulfilling their obligations regarding the achievement of economic and monetary union. These reports shall include an examination of the compatibility between the national legislation of each of these Member States, including the statutes of its national central bank, and Articles 130 and 131 and the Statute of the ESCB and of the ECB. The reports shall also examine the achievement of a high degree of sustainable convergence by reference to the fulfilment by each Member State of the following criteria: — 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, — 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), — 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, — the durability of convergence achieved by the Member State with a derogation and of its participation in the exchange-rate mechanism being reflected in the long-term interest-rate levels. The four criteria mentioned in this paragraph and the relevant periods over which they are to be respected are developed further in a Protocol annexed to the Treaties. The reports of the Commission and the European Central Bank shall also take account of the results of the integration of markets, the situation and development of the balances of payments on current account and an examination of the development of unit labour costs and other price indices. 2. After consulting the European Parliament and after discussion in the European Council, the Council shall, on a proposal from the Commission, decide which Member States with a derogation fulfil the necessary conditions on the basis of the criteria set out in paragraph 1, and abrogate the derogations of the Member States concerned. The Council shall act having received a recommendation of a qualified majority of those among its members representing Member States whose currency is the euro. These members shall act within six months of the Council receiving the Commission's proposal. The qualified majority of the said members, as referred to in the second subparagraph, shall be defined in accordance with Article 238(3)(a). 3. If it is decided, in accordance with the procedure set out in paragraph 2, to abrogate a derogation, the Council shall, acting with the unanimity of the Member States whose currency is the euro and the Member State concerned, on a proposal from the Commission and after consulting the European Central Bank, irrevocably fix the rate at which the euro shall be substituted for the currency of the Member State concerned, and take the other measures necessary for the introduction of the euro as the single currency in the Member State concerned.’  
 
  
 
 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 1 - Introduction 

investment  in  line  with  EU  priorities  and  will  support  EU  GDP  growth,  with  a  particularly  high 
impact in the Member States and regions that are the main beneficiaries of the policy. 

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  an 
investment  surge  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  planned  deviation  under  the 
escape clause will be capped at 1.5% GDP, available for a period of four years. 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.  

The  remainder  of  the  first  chapter  presents  the  methodology  used  for  the  application  of  the 
assessment criteria. Chapters 2 to 7 examine the fulfilment of the convergence criteria and other 
requirements in the order in which they appear in Article 140(1) (see Box 1.1). The cut-off date for 
the statistical data included in this convergence report was 19 May 2025. 

1.2.  APPLICATION OF THE CRITERIA 

In  accordance  with  Article  140(1)  of  the  Treaty,  the  Convergence  Reports  shall  examine  the 
compatibility of national legislation with Articles 130 and 131 of the Treaty and the Statute of the 
European System of Central Banks (ESCB) and of the European Central Bank. The reports shall also 
examine  the  achievement  of  a  high  degree  of  sustainable  convergence  by  reference  to  the 
fulfilment  of  the  four  convergence  criteria  dealing  with  price  stability,  public  finances,  exchange 
rate stability and long-term interest rates as well as some additional factors. The four convergence 
criteria  are  developed  further  in  a  Protocol  annexed  to  the  Treaty  (Protocol  No  13  on  the 
convergence criteria). 

7 

 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 1 - Introduction 

1.2.1.  Compatibility of legislation 

In accordance with Article 140(1) of the Treaty, the legal examination includes an assessment of 
compatibility  between  a  Member  State’s  legislation,  including  the  statute  of  its  national  central 
bank, and Article 130 and 131 of the Treaty. This assessment mainly covers three areas. 

•  First, the independence of the national central bank and of the members of its decision-making 
bodies, as laid down in Article 130, must be assessed. This assessment covers all issues linked 
to  a  national  central  bank’s  institutional  and  financial  independence  and  to  the  personal 
independence of the members of its decision-making bodies.  

•  Second, in accordance with Articles 123 and 124 of the Treaty, the compliance of the national 
legislation is verified against the prohibition of monetary financing and privileged access. The 
prohibition of monetary  financing is laid down in Article  123(1) of the Treaty, which  prohibits 
overdraft  facilities  or  any  other  type  of  credit  facility  with  the  ECB  or  the  central  banks  of 
Member States in favour of Union institutions, bodies, offices or agencies, central governments, 
regional,  local  or  other  public  authorities,  other  bodies  governed  by  public  law,  or  public 
undertakings of Member States; and the purchase directly from these public sector entities by 
the ECB or central banks of debt instruments. As regards the prohibition on privileged access as 
set out in Article 124, the central banks, as public authorities, may not take measures granting 
privileged access by the public sector to financial institutions if such measures are not based 
on prudential considerations.  

•  Third, in accordance with Article 131, the integration of the national central bank into the ESCB 
has to be examined, in order to ensure that at the latest by the moment of euro adoption, the 
objectives  of  the  national  central  bank  are  compatible  with  the  objectives  of  the  ESCB  as 
formulated  in  Article  127  of  the  Treaty.  The  national  provisions  on  the  tasks  of  the  national 
central bank are assessed against the relevant rules of the Treaty and the ESCB/ECB Statute. 

1.2.2.  Price stability 

The  price  stability  criterion  is  defined  in  the  first  indent  of  Article  140(1)  of  the  Treaty:  ‘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 stipulates 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 measured by means of the consumer price index 
on a comparable basis, taking into account differences in national definitions. 

Since  national  consumer  price  indices  (CPIs)  diverge  substantially  in  terms  of  concepts,  methods 
and practices, they do not constitute the appropriate means to meet the Treaty requirement that 
inflation must be measured on a comparable basis. To this end, the Council adopted on 23 October 
1995  a  framework  regulation  (4)  setting  the  legal  basis  for  the  establishment  of  a  harmonised 
methodology for compiling consumer price indices in the Member States. This process resulted in 
the production of the Harmonised Indices of Consumer Prices (HICPs), which are used for assessing 
the fulfilment of the price stability criterion. 

(4)  Council Regulation (EC) No 2494/95 of 23 October 1995 concerning harmonised indices of consumer prices (OJ L 257, 
27.10.1995, pp. 1-4), amended by Regulations (EC) No 1882/2003 and No 596/2009 of the European Parliament and 
of the Council, and repealed by Regulation (EU) 2016/792 of the European Parliament and of the Council. 

8 

 
 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 1 - Introduction 

9 

(Continued on the next page) 

Box 1.2: Assessment of price stability and the reference valueThe numerical part of the price stability criterion implies a comparison between a Member State's average price performance and a reference value.  A Member State’s average rate of inflation is measured by the percentage change in the unweighted average of the last 12 monthly indices relative to the unweighted average of the 12 monthly indices of the previous period, rounded to one decimal. This measure captures inflation trends over a period of one year as requested by the provisions of the Treaty. Using the commonly used inflation rate – calculated as the percentage change in the consumer price index of the latest month over the index for the equivalent month of the previous year – would not meet the one-year requirement. The latter may also be excessively volatile from month to month and excessively affected by temporary factors.  The reference value is calculated as the unweighted average of the average rates of inflation of, at most, the three best-performing Member States in terms of price stability plus 1.5 percentage points. The outcome is rounded to one decimal. While in principle the reference value could also be calculated on the basis of the price performance of only one or two best performing Member States in terms of price stability, it has been existing practice to select the three best performers. Defining the reference value in a relative way (as opposed to a fixed reference value) allows taking into account the effects of a common shock that affects inflation rates across all Member States.           As Article 140(1) of the Treaty refers to ‘Member States’ and does not make a distinction between euro area and other Member States, the convergence reports select the three best performers from all Member States – EU-15 for the convergence reports before 2004, EU-25 for the reports between 2004 Table 1:Inflation reference value in previous and current convergence reportsConvergence ReportCut-off monthThree bestReferenceEuro area averageadoption dateperformers 1) 2)value 3)inflation rate 4)1998January 1998Austria, France, Ireland2.71.52000March 2000Sweden, France, Austria2.41.42002April 2002United Kingdom, France, Luxembourg 5)3.32.42004August 2004Finland, Denmark, Sweden2.42.12006 May March 2006Sweden, Finland, Poland2.62.32006 DecemberOctober 2006Poland, Finland, Sweden2.82.22007March 2007Finland, Poland, Sweden3.02.12008March 2008Malta, Netherlands, Denmark3.22.52010March 2010Portugal, Estonia, Belgium 1.00.32012March 2012 Sweden, Ireland, Slovenia3.12.82013April 2013Sweden, Latvia, Ireland2.72.22014April 2014Latvia, Portugal, Ireland1.71.02016April 2016Bulgaria, Slovenia, Spain0.70.12018March 2018Cyprus, Ireland, Finland1.91.42020March 2020Portugal, Cyprus, Italy1.81.12022April 2022France, Finland, Greece4.94.42024May 2024Netherlands, Italy, Latvia4.13.42025April 2025Ireland, Finland, Italy2.82.31) EU15 until April 2004; EU25 between May 2004 and December 2006; EU27 between January 2007 and June 2013; EU28 between July 2013 and January 2020;    EU27 (without UK) from February 2020 onwards.2) In case of equal rounded average inflation for several potential best performers, the ranking is determined on the basis of unrounded data.3) Reference values are only computed at the time of Convergence Reports. All calculations of the reference value between the Convergence Reports are purely    illustrative.4) Measured by the percentage change in the arthmetic average of the latest 12 monthly indices relative to the arithmetic average of the 12 monthly indices of      the previous period.5) Based on revised data, Germany would replace Luxembourg as one of the three Member States with the lowest 12-month average inflation in April 2002.    This change would not affect the price and long-term interest rate reference values in April 2002.Sources: Eurostat and European Commission calculations. 
 
 
  
 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 1 - Introduction 

Box (continued) 

As has been the case in  past convergence reports, a  Member State’s average rate of inflation is 
measured  by  the  percentage  change  in  the  arithmetic  average  of  the  last  12  monthly  indices 
relative to the arithmetic average of the 12 monthly indices of the previous period. The reference 
value is calculated as the arithmetic average of the average rate of inflation of the three ‘best-
performing EU Member States in terms of price stability’ plus 1.5 percentage points (see Box 1.2). 

Accordingly,  the  reference  value  is  currently  2.8%,  based  on  the  data  of  Ireland  (1.2%),  Finland 
(1.3%)  and  Italy  (1.4%)  over  the  12-month  period  covering  May  2024  –  April  2025.  No  Member 
States  were  identified  as  outliers  in  terms  of  inflation  performance  for  the  calculation  of  the 
reference  value,  as  none  of  their  inflation  rates  deviated  by  a  wide  margin  from  the  euro  area 
average due to country-specific circumstances (see Box 1.2).    

The Protocol on the convergence criteria not only requires Member States to have achieved a high 
degree of price stability but also calls for a price performance that is sustainable. The requirement 
of  sustainability  aims  at  ensuring  that  the  degree  of  price  stability  and  inflation  convergence 
achieved in previous years will be maintained after adoption of the euro. This  deserves particular 
attention as sustained divergences in price developments in one or more euro area Member States 
can  lead  to  the  emergence  of  competitiveness  losses  that  must  be  corrected  via  painful 
adjustment processes and can trigger negative spillover effects on other Member States. 

Inflation sustainability implies that the satisfactory inflation performance must essentially be due 
to the adequate behaviour of input costs and other factors that influence price developments in a 
structural manner, rather than reflecting the influence of cyclical or temporary factors. Therefore, 
this  Technical  Annex  also  takes  account  of  the  role  of  the  macroeconomic  situation  and  cyclical 
position in the inflation performance, of developments in unit labour costs as a  result of trends in 
labour productivity and nominal compensation per head, and of developments in import prices to 
assess how external price developments have impacted on domestic inflation. Similarly, the impact 
of administered prices and indirect taxes on headline inflation is also considered. 

From a forward-looking perspective, the report includes an assessment of medium-term prospects 
for  price  developments.  The  analysis  of  factors  that  have  an  impact  on  the  inflation  outlook  is 
complemented  by  the  projections  from  the  most  recent  Commission  inflation  forecast.  Medium-
term  inflation  prospects  are  also  assessed  by  reference  to  the  economies’  key  structural 
characteristics, including the functioning of the labour and product markets. 

10 

and 2006, EU-27 for reports between 2007 and 2013, EU-28 for reports between 2014 and 2018 and EU-27 for the reports between 2020 and 2024.  The notion of ‘best performer in terms of price stability’ is not defined explicitly in the Treaty. It is appropriate to interpret this notion in a non-mechanical manner, taking into account the state of the economic environment and country-specific factors at the time of the assessment. In particular, an outlier analysis should be performed to identify those countries whose inflation rates cannot be seen as meaningful benchmarks. These outliers are identified on the basis of two criteria taken in combination: i) an inflation rate substantially below the euro area average; and ii) an inflation rate driven by country-specific factors that cannot be seen as representative of the process that is driving inflation in the euro area. In this convergence report, no Member States were identified as outliers in terms of inflation performance for the calculation of the reference value, as none of their inflation rates deviated by a wide margin from the euro area average due to country-specific circumstances (1).    (1) For more details on past outlier analyses, see Box 1.2 on page 29 of the European Commission’s 2024 Convergence Report (https://economy-finance.ec.europa.eu/publications/convergence-report-2024_en).   
  
 
 
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1.2.3.  Public finances 

The convergence criterion dealing with the government budgetary position is defined in the second 
indent  of  Article  140(1)  of  the  Treaty  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 convergence assessment in the budgetary area is thus directly linked to the excessive deficit 
procedure which is specified in  Article 126 of the Treaty and further clarified in the Stability and 
Growth  Pact  (see  Box  1.3  for  further  information  on  the  excessive  deficit  procedure  as 
strengthened  by the 2024 reform of the Stability and Growth Pact). The details of the excessive 
deficit procedure are defined in Regulation 1467/97 as amended in 2024 which sets out the way 
in  which  government  deficit  and  debt  levels  are  assessed  to  determine  whether  an  excessive 
deficit exists, under Article 126 of TFEU. The convergence assessment of the budgetary position is 
therefore judged by whether the Member State is subject to a Council decision under 126(6) on the 
existence of an excessive deficit (5). 

On 4 June 2025, the Commission adopted a report under Article 126(3) of the TFEU for 4 Member 
States. The report did not cover Bulgaria, as its government deficit in 2024 did not exceed 3.0% of 
GDP.    

In  the  context  of  the  European  Semester,  the  country-specific  recommendations  for  2025  invite 
Member  States  to  reinforce  overall  defence  spending  and  readiness  in  line  with  the  European 
Council conclusions of 6 March 2025. Member States are called to adhere to the maximum growth 
rates of net expenditure recommended by the Council, while - where relevant - making use of the 
allowance under the national escape clause for higher defence expenditure. 

(5)  The  definitions  of  the  government  deficit  and  debt  used  in  this  report  are  in  accordance  with  the  excessive  deficit 
procedure,  as  was  the  case  in  previous  convergence  reports.  These  definitions  are  laid  out  in  the  amended  Council 
Regulation (EC) No 479/2009. In particular, government debt is general government consolidated gross debt at nominal 
value. Information regarding the excessive deficit procedure and its application to different Member States since 2002 
can be found at: http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm. 

11 

 
 
 
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(Continued on the next page) 

12 

Box 1.3: Excessive Deficit Procedures under the new EU fiscal frameworkThe new EU fiscal framework was adopted on 29 April 2024. The rules on the opening of a deficit-based Excessive Deficit Procedure (EDP) remain unchanged while the rules on the opening of a debt-based EDP are changed and clarified in the amended Council Regulation (EC) 1467/97. (1)  In order to simplify the EU fiscal framework and increase transparency, a single operational indicator (net expenditure) anchored in debt sustainability serves as a basis for setting the fiscal path and for carrying out annual fiscal surveillance. Net expenditure means government expenditure net of interest expenditure, discretionary revenue measures, expenditure on Union programmes fully matched by revenue from Union funds, national expenditure on co-financing of programmes funded by the Union, as well as cyclical elements of unemployment benefit expenditure. One-offs and other temporary measures will also be excluded from the net expenditure indicator.  The EDP is specified in Article 126 of the Treaty on the Functioning of the European Union (TFEU). Protocol 12 of the Treaty gives further details on the excessive deficit procedure, including the reference values on deficit and debt. Council Regulation (EC) 1467/97 on speeding up and clarifying the implementation of the EDP (the corrective arm of the Stability and Growth Pact) clarifies the implementation of the excessive deficit procedure. Together, these provisions determine the steps to be followed to reach a Council decision on the existence and correction of an excessive deficit. The Commission will produce reports under Article 126(3) of TFEU on the basis of the following criteria: • whether the ratio of the planned or actual government deficit to gross domestic product exceeds 3% of GDP, unless: − the ratio has declined substantially and continuously and reached a level that comes close to the reference value; − or, alternatively, the excess over the reference value is exceptional and temporary and the ratio remains close to the reference value; • when the ratio of the government debt to GDP exceeds 60% of GDP, the budgetary position is not close to balance (2) or in surplus and when the deviations recorded in the control account (3) of the Member State exceed the established annual or cumulative thresholds (0.3% and 0.6% of GDP respectively).  When assessing the existence of an excessive deficit in accordance with Article 126(3) TFEU, the Commission should take into account all relevant factors. Substantial public debt challenges in the Member State concerned should be considered a key aggravating factor. The increase of government investment in defence, where applicable, should be considered as a relevant factor when assessing the existence of an excessive deficit. The Commission shall give due and express consideration to any other factors which, in the opinion of the Member State concerned, are relevant in order to comprehensively assess compliance with the deficit and debt criteria and which the Member State has put forward to the Council and the Commission. In that context, particular consideration shall be given to financial contributions to fostering international solidarity and achieving the common priorities of the Union  (1) OJ L, 2024/1264, 30.4.2024, Council Regulation (EU) 2024/1264 of 29 April 2024 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure (europa.eu). The consolidated version of Regulation No 1467/97 can be found at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A01997R1467-20240430. (2) The budgetary position shall be considered close to balance if the general government deficit does not exceed 0.5 % of GDP. (3) The Commission  will set up a control account for each Member State to keep track of annual and cumulative upward and downward deviations of the net expenditure observed from the net expenditure path as set by the Council pursuant to the new preventive arm Regulation (see footnote 5).  
 
 
  
 
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Box (continued) 

1.2.4.  Exchange rate stability 

The  Treaty  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 2 years, without devaluing against the euro’. 

Article 3 of the Protocol on the convergence criteria stipulates: ’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  2  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’ (6). Based on the Council Resolution 
on the establishment of the ERM II  (7), the European Monetary System has been replaced by the 
Exchange  Rate  Mechanism  II  upon  the  introduction  of  the  euro,  and  the  euro  has  become  the 
centre of the mechanism. 

(6) 

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

(7)  97/C 236/03 of 16 June 1997, OJ C 236, 2.8.1997, p.5. 

13 

referred to in the new preventive arm Regulation. (4) For deficit-based EDPs, the relevant factors can be considered for i) those Member States with debt below 60% and ii) those Member States with debt exceeding 60% of GDP and satisfying the double condition of the overarching principle, i.e. that the general government deficit remains close to the 3% of GDP reference value and its excess over the reference value is temporary. In the next step of the procedure, the Economic and Financial Committee (EFC) should formulate an opinion in accordance with Article 126(4) TFEU within two weeks of the adoption by the Commission of a report issued in accordance with Article 126(3) TFEU. Taking fully into account this opinion, the Commission, if it considers that an excessive deficit exists, should address an opinion and a proposal to the Council in accordance with Article 126(5) and (6) TFEU and inform the European Parliament thereof. The Council should then decide on the existence of an excessive deficit in accordance with Article 126(6) TFEU, as a rule within four months of the reporting dates established in Article 3(2) and (3) of Regulation (EC) No 479/2009. When it decides that an excessive deficit exists, the Council should at the same time make recommendations to the Member State concerned in accordance with Article 126(7) TFEU.  In its recommendation, the Council shall request that the Member State implements a corrective net expenditure path which ensures that the general government deficit remains or is brought and maintained below the reference value within the deadline set in the recommendation. The corrective path should also ensure that the debt is kept on a plausibly downward path or remains at prudent levels below 60% of GDP in the medium term. In the case of a debt-based EDP, the corrective net expenditure path shall be at least as demanding as the net expenditure path under the preventive arm from which the Member State deviated and correct as a rule the cumulated deviations of the control account.(5)   (4) OJ L 1263, 30.4.2024, Regulation (EU) 2024/1263 of the European Parliament and of the Council of 29 April 2024 on the effective coordination of economic policies and on multilateral budgetary surveillance and repealing Council Regulation (EC) No 1466/97 (europa.eu). (5) OJ L 1264, 30.4.2024. Council Regulation (EU) 2024/1264 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure.  
 
 
  
 
 
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(Continued on the next page) 

14 

Box 1.4: A reinforced approach to ERM II participation by means of upfront policy commitments by the applicant Member StatesParticipating in ERM II is an essential step for a Member State with a derogation on the way to fulfil the exchange rate criterion and to euro adoption. Fulfilling the exchange rate criterion through the smooth participation in ERM II is provided for in Article 140 of the TFEU, Protocol No 13 to the TFEU on the convergence criteria and the Resolution of the European Council on the establishment of an exchange-rate mechanism in the third stage of economic and monetary union adopted in Amsterdam on 16 June 1997 (1). In accordance with this framework, ERM II entry of a Member State with a derogation requires a mutual agreement of all ‘ERM II parties’. These include the finance ministers of euro area Member States, the European Central Bank, and the finance ministers and the central bank governors of the non-euro area Member States participating in ERM II. The European Commission provides analytical support to the ERM II process, but has no voting right and no right of initiative in the ERM II entry process. In July 2018, learning from past episodes of economic overheating in ERM II and the euro-area crisis, the ERM II parties clarified the modalities of a reinforced approach for future ERM II participation with a view of ensuring a smooth transition to, and participation in, ERM II, in their statement on Bulgaria’s path towards ERM II, stating that this approach would apply to all Member States wishing to join ERM II from then onwards (2). The reinforced approach was confirmed in the later statement of the ERM II parties of July 2019 on Croatia’s path towards ERM II participation (3). According to this reinforced approach, the applicant Member State and ERM II parties agree on a number of policy commitments to be implemented by the former before joining ERM II. This package of so called prior policy commitments aims at maximising the country’s chances to operate smoothly in ERM II. It is country-specific, targeted and covers policy areas that are highly relevant for a smooth transition to and participation in ERM II including, for instance institutional quality, governance, the financial sector, fiscal policy, or the business environment. In particular, as being part of the euro area now also implies for a Member State to be part of the Banking Union’s pillars of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), the applicant Member State is expected to enter into ‘close cooperation’ with the ECB for banking supervision purposes at the latest by the time of its participation in ERM II. A Member State with a derogation can join the Banking Union before its euro adoption via an arrangement called ‘close cooperation’. Entering in close cooperation with the ECB means that the significant credit institutions established in the country concerned are supervised by the ECB via the involvement of the domestic national supervisor. Entering in close cooperation also implies participation in the Single Resolution Mechanism, including the Single Resolution Fund. In terms of process, the ECB and the Commission monitor the fulfilment of the prior-commitments undertaken by the applicant Member States in the respective areas of competence of the ECB and the Union and in close cooperation with the Member State concerned. The two institutions regularly inform ERM II parties on the progress made with the prior-commitments. A comprehensive assessment of the applicants’ banking sector is carried out by the ECB as part of the process of establishing close cooperation with the ECB. This includes an asset quality review and a stress test that aims at assessing whether banks are fundamentally sound. The results of the comprehensive assessment are made public on the ECB’s website (4).  (1) https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A31997Y0802%2803%29  (2) See: https://www.consilium.europa.eu/en/press/press-releases/2018/07/12/statement-on-bulgaria-s-path-towards-erm-ii-participation/  (3) See: https://www.consilium.europa.eu/en/press/press-releases/2019/07/08/statement-on-croatia-s-path-towards-erm-ii-participation/  (4) The results of the comprehensive assessment of six Bulgarian banks are available at:   https://www.bankingsupervision.europa.eu/press/pr/date/2019/html/ssm.pr190726~1b474e3467.en.html   
 
 
  
 
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Box (continued) 

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,  as  well  as  the  role  of  policy  measures,  including  foreign  exchange  interventions,  and 
international financial assistance wherever relevant, in maintaining exchange rate stability. 

The  assessment  of  this  criterion  verifies  the  participation  in  ERM  II  (see  Box  1.4  for  further 
information on ERM II participation) and examines exchange rate behaviour within the mechanism. 
The relevant period for assessing exchange rate stability in this Technical Annex is 20 May 2023 to 
19 May 2025. 

1.2.5.  Long-term interest rates 

The  fourth  indent  of  Article  140(1)  of  the  Treaty  requires  that  ’the  durability  of  convergence 
achieved  by  the  Member  State  with  a  derogation  and  of  its  participation  in  the  exchange  rate 
mechanism’  is  ’reflected  in  the  long-term  interest  rate  levels’.  Article  4  of  the  Protocol  on  the 
convergence  criteria further stipulates 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’ (see Box 1.5). 

15 

In line with the long-standing ERM II practice, ERM II parties also expect applicant Member States to take further policy commitments at the moment of joining ERM II with the aim of achieving a high degree of sustainable economic convergence by the time the euro will be adopted. At the time of writing this report, Bulgaria and Denmark were the only non-euro-area Member States participating in ERM II. Bulgaria joined the ERM II on 10 July 2020 after having completed its prior policy commitments (5). Bulgaria established close cooperation with the ECB. In addition, the prior policy commitments of the Bulgarian authorities covered measures related to the macroprudential framework, the supervision of the non-banking financial sector, the insolvency framework, the anti-money laundering framework and the governance of state-owned enterprises (6).  At the time of ERM II entry, the Bulgarian authorities also committed to pursue sound economic policies with the aim of preserving economic and financial stability and achieving a high degree of sustainable economic convergence. In particular, the Bulgarian authorities committed to implement specific policy measures (the so-called post-ERM II entry commitments) on the non-banking financial sector, state-owned enterprises, the insolvency framework and the anti-money laundering framework (7).   (5) For the details on the decision of the ERM II parties on Bulgaria see:   https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1321  (6) For more details on the prior-commitments taken by Bulgarian authorities see:   https://www.consilium.europa.eu/media/36125/st11119-en18.pdf  (7) See: https://www.ecb.europa.eu/pub/pdf/annex/ecb.pr200710_annex~29156bba37.en.pdf   
  
 
 
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For  the  assessment  of  the  criterion  on  the  convergence  of  interest  rates,  yields  on  benchmark 
long-term bonds have been taken, using an average rate over the latest 12 months. The reference 
value for April 2025 is calculated as the simple average of the average long-term interest rates in 
Ireland (2.8%), Finland (2.9%) and Italy (3.7%) plus 2 percentage points, yielding a reference value 
of 5.1%.  

1.2.6.  Additional factors 

Article  140(1)  TFEU  also  requires  that  the  reports  take  into  account  other  factors  relevant  to 
economic  integration  and  convergence.  These  additional  factors  include  financial,  product  and 
labour market  integration  and the  development  of  the  balance  of  payments.  The  analysis of  the 
development of unit labour costs and other price indices, which is also prescribed by Article 140 of 
the Treaty, is covered in the price stability section. 

The assessment of additional factors gives an important indication of a Member State’s ability to 
integrate into the euro area without difficulties. As regards the balance of payments, the focus is 
on  the  situation  and  development  of  the  external  balance  (8).  Market  integration  is  assessed 

(8)  The external balance is defined as the combined current and capital account (net lending/borrowing vis-à-vis the rest of 
the world). This concept permits in particular to take full account of external transfers (including EU transfers), which 
are  partly  recorded  in  the  capital  account.  It  is  the  concept  closest  to  the  current  account  as  defined  when  the 
Maastricht Treaty was drafted. 

16 

Box 1.5: Data for the interest rate convergenceThe fourth indent of Article 140(l) of the Treaty requires that the durability of nominal convergence and exchange rate stability in Member States should be assessed by reference to long-term interest rates. Article 4 of the Protocol on the convergence criteria adds that these ‘Interest rates shall be measured on the basis of long-term government bonds or comparable securities, taking into account differences in national definitions’. Article 5 of the Protocol requires that the Commission should provide the statistical data used for the application of the convergence criteria. However, in the context of the interest rate criterion, the ECB has developed the criteria for harmonising the series of 10-year benchmark bond yields on behalf of Eurostat and collects the data from the central banks. The selection of bonds for inclusion in this series is based on the following criteria: • issued by a central government; • a residual maturity as close as possible to 10 years; • adequate liquidity, which is the main selection criterion; the choice between a single benchmark or the simple average of a sample is based on this requirement; • fixed coupon; • yield gross of tax. For fifteen Member States, the residual maturity of the benchmark bond is at least 9.5 years. For twelve Member States, the residual maturity of the benchmark bond is below 9.5 years, in particular for Bulgaria with the residual maturity slightly above 6.55 years. All yields are calculated on the basis of secondary market rates, where available. For Czechia, Germany, Malta and Spain a basket of bonds is used, while a single benchmark bond is used in twenty-three Member States.  Data used in this Report can be found on Eurostat ("Maastricht criterion bond yields (mcby): EMU convergence criterion bond yields", code: tec00097). The same series is also published by the ECB's Statistical Data Warehouse (code IRS.M.Country Code.L.L40.CI.0000.Currency Code.N.Z) and in a dedicated page in the ECB website with additional information: http://www.ecb.europa.eu/stats/financial_markets_and_interest_rates/long_term_interest_rates/html/index.en.html.  
 
 
  
 
 
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through  trade,  foreign  direct  investment  and  a  smooth  functioning  of  the  internal  market. 
Moreover,  progress  in  financial  integration  is  examined,  together  with  the  main  characteristics, 
structures and trends of the financial sector. Given that Member States which adopt the euro also 
participate in the banking union, developments in national banking sectors are specifically looked 
at as well. 

Starting  with  the  2012  Convergence  Report,  the  convergence  assessment  is  aligned  with  the 
broader  European  Semester  approach  which  takes  an  integrated  look  at  the  economic  policy 
challenges facing EMU in ensuring fiscal sustainability, competitiveness, financial market stability 
and economic growth. 

The  section  on  additional  factors  makes  reference  to  the  surveillance  of  macroeconomic 
imbalances under the Macroeconomic Imbalance Procedure (9). 

(9)  The key elements of the Macroeconomic Imbalance Procedure are described in Box 1.7 of the European Commission’s 

2024 Convergence Report. 

17 

 
 
2.  BULGARIA 

2.1.  LEGAL COMPATIBILITY 

2.1.1.  Introduction 

The legal basis for the Bulgarska Narodna Banka (the BNB – Bulgaria’s central bank), the Law on 
the  Bulgarian  National  Bank  (the  BNB  Law)  of  2024  (10),  has  been  amended  since  the  2024 
Convergence Report by the Law on the State Budget of the Republic of Bulgaria for 2025 (Law on 
State  Budget)  (11).  The  Bulgarian  authorities  have  amended  the  BNB  Law  to  remedy  the 
incompatibility  highlighted  in  the  Commission’s  2024  Convergence  Report.  In  particular,  this 
concerns issues flagged in the section on central bank independence in relation to Article 99(5) of 
the  Bulgarian  Constitution  (12).  In  accordance  with  paragraph  14  of  its  transitional  and  final 
provisions, the BNB Law shall enter into force on the date specified in the Council Decision on the 
adoption of the euro by Bulgaria. The entry into force would therefore be automatic and would not 
require  further  action  from  the  Bulgarian  authorities.  The  BNB  Law  will  replace  and  repeal  the 
previous  BNB  Law  (13).  Once  it  enters  into  force,  the  BNB  Law  is  compatible  with  the  relevant 
provisions of the EU law. 

2.1.2.  Central bank independence 

Article 15(3) of the BNB Law provides that the grounds for the early dismissal of a member of the 
Governing  Council,  with  the  exception  of  the  Governor,  shall  be  established  by  a  decision  of  the 
Governing Council. A member of the Governing Council whose dismissal is proposed shall cease to 
exercise  their  powers  from  the  day  of  the  Governing  Council’s  decision.  The  Governing  Council’s 
decision is subject to appeal before the Supreme Administrative Court within 7 days. The Supreme 
Administrative Court gives its decision within 14 days of receipt of the appeal. This decision is final. 
Ensuring personal independence requires that national legislation should allow reasonable time for 
appealing a  dismissal decision as well as for the judicial  review to take place for appealing. The 
short  time-limit  for  the  appeal  and  the  very  constrained  timeframe  for  the  judicial  procedure  in 
Article 15(3) may be seen as a residual imperfection that Bulgaria should consider addressing in 
the near future.   

The  Bulgarian  Constitution  has  been  amended  in  January  2024  in  a  matter  that  could  indirectly 
impact the BNB’s independence. The new Article 99(5) of the Bulgarian Constitution provides that, 
in  a  case  where  no  agreement  is  reached  on  the  formation  of  a  government,  the  President, 
following  consultations  with  the  parliamentary  groups  and  acting  on  a  motion  by  the  caretaker 
prime  minister-designate,  appoints  a  caretaker  cabinet,  and  schedules  new  elections  within 
2 months.  A  caretaker  prime  minister  is  to  be  appointed  from  among  the  Chairperson  of  the 
National  Assembly,  the  Governor  or  a  Deputy  Governor  of  the  BNB,  the  President  or  a  Vice-
President of the Bulgarian National Audit Office, and the Ombudsman (or a deputy thereof). 

The appointment as caretaker prime minister of the Governor or one of the Deputy Governors of 
the BNB could disrupt its effective and independent functioning. This would be potentially a serious 
cause for concern. The appointment would only be for a limited period (until a regular government 
is formed),  but the caretaker government  could be reappointed for several successive periods as 
long as election results do not result in the formation of a government and new elections have to 
be  scheduled.  To  avoid  such  potential  disruption  and  its  possible  impact  on  the  BNB’s 
independence, one possible solution stated in the Commission Convergence Report 2024 was the 
amendment  of  the  BNB  Law  to  provide  sufficient  and  effective  safeguards  for  the  BNB’s 
independence  as  required  by  EU  law.  Firstly,  any  appointment  of  the  Governor  or  a  Deputy 

(10)  Law on Българска народна банка (Bulgarian National Bank), Darjaven vestnik issue 13, 13.2.2024. 
(11)  Law on the State Budget of the Republic of Bulgaria for 2025, Decree No. 53, 21.3.2025, Darjaven vestnik issue 26, 

27.3.2025. 

(12)  Constitution of the Republic of Bulgaria, Darjaven vestnik issue 56, 13.7.1991. 
(13)  Law on Българска народна банка (Bulgarian National Bank), Darjaven vestnik issue 46, 10.6.1997. 

19 

 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

Governor of the BNB as a caretaker prime minister should be conditional on their explicit consent 
and  they  should  be  empowered  to  refuse  such  an  appointment.  Secondly,  if  such  consent  is 
expressed,  the  rules  should  prevent  that  person  from  holding  both  positions  simultaneously, 
because  this  could  lead  to  conflicts  of  interest  and  lack  of  independence.  In  this  respect,  the 
effective  and  independent  functioning  of  the  BNB  must  be  preserved.  This  could  be  ensured 
through the person’s  resignation from their post at the BNB at the time of their appointment as 
caretaker prime minister.  

Article  13  of  the  BNB  Law  has  been  amended  by  paragraph  32  of  the  Transitional  and  Final 
provisions of the Law on the State Budget, published on 27 March 2025, and a new paragraph (5) 
has been added, stating that in the event that the Governor or Deputy Governor has expressed the 
explicit  consent  to  be  appointed  as  caretaker  prime  minister  (Acting  Prime  Minister)  under  the 
procedure of Article 99, paragraph 5 of the Constitution of the Republic of Bulgaria, he/she shall 
resign.  The  Governor  or  Deputy  Governor  has  the  right  to  refuse  to  be  appointed  as  caretaker 
prime  minister  (Acting  Prime  Minister)  under  the  procedure  of  Article  99,  paragraph  5  of  the 
Constitution of the Republic of Bulgaria. The Commission also welcomes the amendments made to 
paragraph (4) of Article 13 according to which, in the event of the appointment of the Governor or 
Deputy  Governor  as  caretaker  prime  minister  (Acting  Prime  Minister)  under  the  procedure  of  Art. 
99,  para.  5  of  the  Constitution  of  the  Republic  of  Bulgaria,  the  appointment  of  a  new  Governor, 
respectively Deputy Governor, shall be held no later than one month from the termination of the 
powers under the procedure of paragraph 8 of the BNB Law. Until the appointment, the powers of 
the Governor shall be exercised by a deputy designated by him from among the Deputy Governors, 
and  for  a  Deputy  Governor,  Art.  20,  paragraph  4  of  the  BNB  Law  shall  apply.  This  procedure 
ensures the continuity of central bank’s activities in case of appointment of the Governor or Deputy 
Governor as caretaker prime minister (Acting Prime Minister).  

Therefore,  the  incompatibility  mentioned  in  the  Commission’s  Convergence  Report  2024  in  this 
area has been resolved. 

2.1.3.  Prohibition of monetary financing and privileged access 

There are no incompatibilities and imperfections in the BNB Law with regard to the prohibition of 
monetary financing and privileged access, as enshrined in Article 123 and 124 of the TFEU. 

2.1.4.  Integration into the ESCB 

Objectives 

The objectives of the BNB  are compatible with the TFEU. 

Tasks 

There  are  no  incompatibilities and imperfections  in  the  BNB Law  with  regard  to  the  tasks  of  the 
ESCB and the ECB. 

2.1.5.  Assessment of compatibility 

The Bulgarian authorities have taken measures to remedy the incompatibility that was identified in 
the 2024 Convergence Report. The BNB Law is compatible with Article 130 and Article 131 of the 
TFEU and the ESCB/ECB Statute. 

2.2.  PRICE STABILITY 

2.2.1.  Respect of the reference value 

The  12-month  average  inflation  rate, which  is used  for  the  convergence  assessment,  was  above 
the reference value at the time of the last convergence assessment of Bulgaria in 2024. The 12-
month average inflation rate decreased gradually from a high of 14.1% in March 2023 to 2.6% in 

20 

Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

December 2024. In April 2025, the reference value was 2.8%, calculated as the average of the 12-
month  average  inflation  rates  in  Ireland,  Finland  and  Italy  plus  1.5  percentage  points.  The 
corresponding  inflation  rate  in  Bulgaria  was  2.7%,  below  the  reference  value.  The  12-month 
average inflation rate in Bulgaria 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 2026 (14). A review of a broad range of indicators does not identify causes for concern 
regarding the sustainability of price stability.  

2.2.2.  Recent inflation developments 

The  annual  HICP  inflation  rate  started  to  decline  from  14.3%  in  January  2023  and  flattened 
around  2.8%  in  May-July  2024  before  declining  further  to  2.1%  in  October-December  2024.  It 
then rose sharply 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 (core inflation), 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 in 
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  concerned  items  both  within  and 
outside the core inflation basket. These price hikes were largely due to restored higher VAT rates 
for bread and restaurants, higher excise duties for tobacco, increased electricity and gas prices for 
households,  other  utilities  and  administered  prices,  and  higher  food  prices  due  to  increased 
international food prices. The drop in April 2025 of the annual HICP inflation rate was largely due 
to a substantial reduction in hospital fees. Decreases in other administered prices and in gas and 
fuel prices also contributed to the drop. Inflation in Bulgaria has been reconverging with that of the 
euro area over the past 2 years. The average annual inflation rate in Bulgaria was 8.6% in 2023, 
3.2 percentage points above the euro area. It then declined to 2.6% in 2024, narrowing the gap to 
0.2 percentage point. 

HICP inflation excluding energy and food declined from 11.1% in January 2023 to 3% in the May-
August 2024 period, decelerated further to 2.5% in December 2024. It then increased to 3.8% in 
March 2025, before declining to 2.3% in April 2025. In 2023, services price inflation remained on 
average  1  percentage  point  above  non-energy  industrial  goods  inflation  while  both  components 
were on a declining path. Services inflation reached 3% in April 2024. It then increased, mainly due 
to tourism and transport services, and stabilised around 5% in the second half of 2024. Since mid-
2024,  annual  inflation  in  prices of  packaged  international  holidays picked  up  to  around  15%,  as 
VAT  rates  were  restored.  Apart  from  these  items,  services  inflation  in  2024  was  driven  by  price 

(14)  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. 

21 

-2024681012141618201920202021202220232024BulgariaEuro areaGraph 2.2: Bulgaria -HICP inflation(y-o-y percentage change)Source: Eurostat.-20246810121416Jan-19Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26BulgariaReference valueGraph 2.1: Bulgaria -Inflation criterion(percent, 12-month moving average)Note: The dots at the right end of the chart show the projected reference value and 12-month average inflation rate of Bulgaria in December 2025 and December 2026. The reference values for 2020, 2022 and 2024 refer to the reference values calculated in the previous convergence reports.Source: Eurostat, Commission's Spring 2025 Economic Forecast. 
 
 
   
    
Convergence Report 2025 on Bulgaria - Technical annex 
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increases in catering and accommodation services. Services inflation then rose to 7.2% in March 
2025  and  then  fell  to  3.5%  in  April  2025.  Higher  administrative  and  other  fees,  prices  in 
restaurants, and prices of communication services accounted for around 1.5 percentage points of 
the  acceleration  in  services  price  inflation  between  December  2024  and  March  2025.  In  April, 
hospital  fees were  reduced  from 5,8  BGN  to  1  BGN,  that  led  to  2.9  percentage  points decline  in 
annual services inflation. Other administered prices also contributed negatively to services inflation 
in April 2025. Annual inflation in non-energy industrial goods prices continued to abate throughout 
2024, and remained around zero in the September 2024 – March 2025 period, benefiting from low 
inflation in imported goods. Inflation in non-energy industrial goods then increased to 0.9% in April 
2025  due  to  a  base  effect  from the  decision  to  reduce  co-payments  for certain  medicines from 
April 2024.  

2.2.3.  Underlying factors and sustainability of inflation 

Macroeconomic policy mix and growth developments 

Economic growth accelerated from 1.9% in 2023 to 2.8% in 2024, driven by private consumption. 
In a context of a tight labour market and falling inflation, real wages continued to expand in 2024. 
The continued growth in aggregate employment, as well as increased social transfers underpinned 
strong nominal income expansion in 2023 and 2024. Combined with abating inflation, this led to 
robust growth in real disposable income, which fuelled private consumption. The strong growth in 
consumer credit also supported private consumption in 2023 and 2024. 

Goods exports contracted in 2023, due to the decline in external demand, the strong negative base 
effect from 2022 and some one-off factors (15). In 2024, exports of goods and services contracted 
both in nominal and in real terms, while the terms of trade deteriorated. The decline in exports was 
broad-based in terms of product categories, with somewhat deeper decline in cereals due to weak 
harvest, but more concentrated geographically with sharp declines in a few destination countries. 
The  Russian  war  of  aggression  against  Ukraine  and  the  economic  difficulties  in  other  countries 
have weighed on goods export.  

Services exports expanded robustly in 2023, benefiting from the continued recovery in the tourism 
sector and the expansion of services outsourced to Bulgaria. While these positive trends continued 
in  2024,  the  volume  of  international  transport  services  temporarily  declined.  Overall,  in  2024 
services exports contracted by 0.6% in real terms. 

Investment held up well in 2023, increasing by 10.2% with an important contribution from public 
sector investment and purchases of new equipment. In 2024, investment declined by 1.1% due to 
lower  public  spending  and  roughly  constant  private  sector  borrowing.  The  accumulation  of 
inventories turned  sharply  negative  in  2023.  Firms  accumulated  more  inventories in  the  form  of 

(15)  Notably planned maintenance in the steel industry and the nuclear power plant  and the ban on exports of petroleum 

products processed from Russian oil. 

22 

Table 2.1:weights  Bulgaria - Components of inflation(percentage change)1)in total   201920202021202220232024Apr-252025HICP2.51.22.813.08.62.62.71000Non-energy industrial goods0.2-0.10.77.18.51.30.5306Energy1.4-6.110.626.8-1.3-1.4-1.0108Unprocessed food 5.35.5-0.320.015.53.43.450Processed food4.04.12.917.212.03.34.0227Services3.22.32.08.29.44.85.4309HICP excl. energy, food, alcohol and tobacco1.81.21.47.68.93.13.0615HICP at constant tax rates 2.41.53.213.38.72.32.31000Administered prices HICP2.61.72.46.26.94.44.31481) Measured by the arithmetic average of the latest 12-monthly indices relative to the arithmetic average of the 12-monthly indices in the previous period.Source: Eurostat, European Commission calculations. 
 
    
 
 
 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

unfinished production and final goods in 2024, in parallel with the increase in imports and decline 
in finished construction.  

In  2023,  imports  contracted  sharply,  following  the  decline  in  exports  and  inventories  and  then 
expanded in 2024, reflecting the buoyant private consumption growth. 

Real GDP growth is forecast to slow down to 2% in 2025 and 2.1% in 2026 due to both external 
and  domestic  factors.  Private  consumption  is  set  to  grow  more  moderately,  as  lower  real 
disposable  income  growth  and  precautionary  savings  constrain  purchases  by  households.  The 
outlook for exports has also been revised downwards but is expected to accelerate moderately in 
2026. In addition to subdued external demand, exports of goods in 2025 are affected by planned 
maintenance  works  in  the  steel  production  and  oil  refining  industries.  Private  investment  is 
projected to contract in 2025 and 2026 due to the heightened economic uncertainty. The assumed 
acceleration  in  EU  funds  absorption  is  expected  to  support  moderate  investment  growth  that 
accelerates in 2026. Wage moderation in the private sector is expected to continue, accompanied 
by  limited  job  losses,  related  to  the  worsened  economic  environment  and  the  need  to  preserve 
competitiveness and profitability among firms. Public sector wages are projected to grow strongly 
in 2025, amid strong hiring in both years. 

Bulgaria’s fiscal stance (16) is estimated to have been broadly neutral in 2024 and, based on the 
Commission’s  Spring  2025  Economic  Forecast,  the  stance  is  expected  to  become  supportive  in 
2025 (-1.1 of GDP). It is projected to turn contractionary in 2026 (0.8% of GDP). 

The  BNB  pursues  its  primary  objective  of  price  stability  through  an  exchange  rate  anchor  in  the 
context of the currency board with the lev pegged to the euro. The currency board serves as a key 
macroeconomic  policy  anchor.  The  monetary  tightening  in  the  euro  area  has  affected  the  non-
financial corporations lending segment of the Bulgarian banking sector by increased interest rates, 
but  the  pass-through  to  the  mortgage  lending  segment  has  been  rather  muted.  Country-specific 
factors in the setting of interest rates, high domestic liquidity and competition in the sector explain 
the  continued  strong  lending  for  house  purchases.  The  deposit  base  continued  to  grow  due  to 
growing  disposable  income  and  as  households  prioritise  liquidity  and  remain  risk  averse,  while 
awareness  of  alternative  investment  options  remains  weak  in  a  context  of  low  financial  literacy. 
The  ample  liquidity  in  the  banking  sector  provided  cheap  and  abundant  funding  for  credit 
expansion.  Moreover,  mortgage  lending  interest  rates  are  predominantly  linked  to  the  domestic 
deposit interest rates, which has contributed to keeping down the lending rates, against a backdrop 
of  strong  competition  among  leading  banks.  In  2024,  with  the  easing  of  inflation  and  monetary 
conditions  in  the  euro  area,  the  practice  of  Bulgarian  banks  seeking  temporarily  higher  returns 
from arbitrage on financial markets abroad instead of expanding domestic market shares, appears 
to have declined. 

Given the  risks to the  debt-servicing capacity of borrowers, and the  quality of banks’  assets, the 
BNB  reconfirmed  the  systemic  risk  buffer  at  3%  on  11  December  2023.  Moreover,  the  BNB’s 
Governing  Council  increased  the  minimum  required  reserves  on  the  funds  attracted  from  non-
residents  from  5%  to  10%  as  from  1  June  2023.  The  minimum  required  reserves  on  the  funds 
attracted from both residents and non-residents were increased from 10% to 12% as from 1 July 
2023.  The  increased  reserve  requirements  were  motivated  by  high  inflation,  high  consumer 
demand, dynamic credit activity, and slow and weak transmission from the monetary tightening in 
the euro area to the domestic financial market. As of October 2024, the BNB imposed borrower-
based limits to commercial banks in the form of a maximum loan-to-value ratio of 85%, a limit of 
debt  service  to  disposable  income  of  50%  and  maximum  maturity  of  30  years.  The  measures 
appear targeted at the low-income higher-risk borrowers that would be the first and hardest-hit by 
adverse economic conditions. 

(16)  The fiscal stance is measured as the change in primary expenditure (net of discretionary revenue measures), excluding 
COVID-19-related  temporary  emergency  measures  but  including  expenditure  financed  by  non-repayable  support 
(grants)  from  the  Recovery  and  Resilience  Facility  and  other  EU  funds,  relative  to  medium-term  potential  growth.  A 
negative (positive) sign of the indicator corresponds to an excess (shortfall) of primary expenditure growth compared 
with medium-term economic growth, indicating an expansionary (contractionary) fiscal policy. 

23 

 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

Wages and labour costs 

rates  and  employment 

The  labour  market  remained  tight  in  2023  and 
2024,  with  the  unemployment  rate  fluctuating 
increasing 
between  4%  and  4.5%,  amid 
participation 
rates. 
Compensation  per  employee  grew  nominally  by 
13.4% 
in  2024. 
Throughout  2024  wage  growth  slowed  from 
13.8%  in  Q1  2024  to  4%  in  Q4  2024  and  the 
number of employees in  manufacturing  declined, 
as  inflation  pressures  subsided  and  firms  aimed 
improve  their  competitive  position  given 
to 
weakened external demand. 

in  2023  and  by  10.4% 

Given the relatively low-income levels in Bulgaria, 
the  setting  of  the  minimum  wage  has  an 
important  effect  both  on  income  inequality  and 
on labour market outcomes, such as participation 
rates  and  regional  disparities.  The  minimum  wage  was  increased  by  9.9%  at  the  beginning  of 
2023, still below the accumulated inflation since the previous update on 1 January 2021. As from 
1 January 2024 the minimum wage was increased by 19.6%, to BGN 933 (EUR 477), following an 
amendment  to  the  Labour  Code  aligned  with  Directive  (EU)  2022/2041  on  adequate  minimum 
wages. Accordingly, the minimum wage in 2024 has to amount to 50% of the average wage in the 
July 2022 - June 2023 period. The same rule led to a further increase in the minimum wage by 
15%  in  January  2025.  Aggregate  labour productivity  improved  by  0.9%  in  2023  and  by  1.7%  in 
2024, reflecting the stronger output expansion and some employment  gains. Overall,  unit labour 
costs (ULC) increased by 12.3% in 2023 and 8.5% in 2024.  

The  aggregate  ULC  dynamics  in  2023  and  2024  conceal  important  sectoral  developments.  In 
2023,  wage  growth  in  manufacturing  accelerated  to  23%  in  Q1  2023  (possibly  reflecting  the 
strong productivity gains in 2022) and then decelerated to 14% in Q4 2023 as firms tried to gain 
competitiveness  in  export  markets.  In  2024,  manufacturing  firms  optimised  production  costs 
through labour shedding to accommodate the sizeable wage increases that reached almost 24% 

24 

Table 2.2:Bulgaria - Other inflation and cost indicators(annual percentage change)20192020202120222023202420251)20261)HICP inflationBulgaria2.51.22.813.08.62.63.61.8Euro area1.20.32.68.45.42.42.11.7Private consumption deflatorBulgaria2.1-0.66.016.08.14.93.52.5Euro area1.20.62.36.76.32.51.91.7Nominal compensation per employeeBulgaria6.97.211.314.213.410.49.66.1Euro area2.3-0.44.34.55.34.53.32.7Labour productivityBulgaria5.4-1.57.73.00.81.71.71.8Euro area0.3-4.64.71.1-1.0-0.10.30.8Nominal unit labour costsBulgaria1.48.83.310.912.58.57.84.2Euro area2.04.4-0.43.46.44.73.01.9Imports of goods deflatorBulgaria-0.2-6.016.423.2-3.6-0.6-0.10.3Euro area-0.5-3.99.821.8-4.3-2.1-0.6-0.11) Commission's Spring 2025 Economic Forecast.Source: Eurostat, Commission's Spring 2025 Economic Forecast.-30369121520192020202120222023202420252026Productivity (real GDP per person employed)Nominal compensation per employeeNominal unit labour costsHICP inflation(y-o-y % change)Source: Eurostat, Commission's Winter2025Economic Forecast.Graph 2.3: Bulgaria -Inflation, productivity and wage trends 
 
  
 
 
      
Convergence Report 2025 on Bulgaria - Technical annex 
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on aggregate in the sector. Wages in key service sectors (e.g. trade, transport and hospitality) have 
been  growing  much  more  moderately,  especially  in  2024.  In  the  other  services  sectors,  buoyant 
domestic demand led to intensified hiring and strong wage increases. Consequently, domestic cost 
pressures  in  services  with  low  productivity  gains  contributed  to  higher  value  added  deflators  in 
these  sectors.  Wage  increases  in  the  public  sector  were  also  an  important  factor  in  the  strong 
aggregate wage dynamics in 2023 and 2024. 

External factors 

Import  prices  are  an  important  channel  through  which  external  price  shocks  affect  the  domestic 
price dynamics. The import deflator turned negative in 2023 and was almost constant in 2024. The 
disinflation  process  abroad  has  affected  consumer  prices  directly  via  imported  consumer  goods 
and indirectly through prices of raw materials, etc.  

The  lev’s  real  effective  exchange  rate,  which  is  determined  by  the  price  of  the  lev  vis-à-vis  the 
currencies  of  37  major  trade  partners,  appreciated  by  2.5%  in  2023  and  1.1%  in  2024.  The 
appreciation  in  2023  was  strongly  influenced  by  the  depreciation  of  the  Turkish  lira  against  the 
euro. Türkiye is Bulgaria’s most important trading partner outside the EU, accounting for 5.6% of 
total exports and 8.2% of total imports in 2023. In 2024, the appreciation of the Bulgarian lev was 
close to the long-term average and is explained by the higher domestic inflation compared to that 
of the major trading partners. 

Administered prices and taxes 

The  share  of  administered  prices  in  the  HICP  basket  in  2025  is  slightly  higher  at  around  15%, 
compared with 12% in the euro area. Prices of electricity and water were increased substantially in 
2023 and 2024 by the regulator. Electricity prices were subsequently increased by 8.4% in January 
2025. Heat energy prices were also increased in 2023, and were subsequently decreased in 2024, 
broadly  following  price  developments  for  natural  gas.  The  decision  to  reduce  co-payments  for 
certain  medicines  in  late  March  2024  has  also  brought  down  the  administered  prices  since  April 
2024.  Overall,  annual  administered  price  inflation  remained  on  average  1.9  percentage  points 
above  headline  HICP  inflation  in  the  November  2023-March  2025  period  and  then  fell  2.7 
percentage points below overall HICP inflation in April 2025. 

Indirect taxes had a slight negative effect on inflation in 2023 and a positive effect in 2024 and at 
the beginning of 2025. The energy measures (lower VAT rates for natural gas and central heating 
and exemption of excise duties for gas and electricity) expired only in mid-2023. As a result, HICP 
inflation  at  constant  tax  rates  was  above  headline  HICP  inflation  in  2023.  In  2023  and  2024, 
excise duties on cigars and cigarettes were increased cumulatively by almost 10%. Combined with 
the full effect from the abolition of energy support measures in mid-2023, these changes led to a 
negative gap between HICP inflation at constant tax rates and headline HICP inflation in 2024. This 
gap widened at the beginning of 2025, following the expiration of VAT decreases for bread, flour 
and restaurants and the increase in excise duties on tobacco products by 6% (17). Another increase 
of the excise duties on tobacco products of around 4% was introduced  in May 2025. In the euro 
area, annual constant-tax HICP was below headline inflation by 0.1 percentage point in 2023 and 
by 0.5 percentage point in 2024.   

A comparison between the HICP index and Eurostat’s measure of HICP at constant tax rates shows 
that the changes in indirect taxes in Bulgaria in January 2025 contributed directly to an increase in 
Bulgaria’s  month-on-month  headline  inflation  in  January  2025  by  around  0.6  percentage  point. 
This, together with the impact from higher regulated electricity and gas prices, which is estimated 
at  around  0.4  percentage  point,  drives  the  forecast  increase  in  annual  inflation  throughout  the 
current year. 

(17)  VAT rates of 20% were restored, after the expiration of the 0% VAT on bread and flour and the 9% on restaurants, 

introduced in mid-2020. 

25 

 
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Chapter 2 - Bulgaria 

Medium-term prospects  

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. After the price 
increases  in  Q1  2025,  as  discussed  in  Section  2.2.2.,  and  the  reduction  in  April  2025,  inflation 
developments  in  the  rest  of  2025  and  in  2026  are  set  to  be  driven  by  both  external  prices  and 
domestic cost factors. Food prices are projected to broadly follow international developments. The 
pass-through  of  lower  international  energy  and  other  commodities  prices  is  projected  to  keep 
inflation down, including via second-round effects on transport services. The disinflation process in 
the  services  sector  is  set  to  benefit  from  the  continuation  of  wage  moderation  and  the  need  to 
preserve  the  competitiveness  position  in  exported  services  in  a  context  of  a  worsened  external 
environment.  

Increased  inflation  in  2023  has  brought  the  consumer  price  level  in  Bulgaria  closer  to  the  euro 
area  average.  The  level  of  consumer  prices  in  Bulgaria  nevertheless  stood  at  about  57%  of  the 
euro area average in 2023. This suggests that there is potential for price level convergence in the 
long term, as GDP per capita in terms of purchasing power standards (about 61% of the euro area 
average in 2023) rises towards the euro area average. 

Medium-term  inflation  prospects  will  depend  on  the  containment  of  price  expectations  and  on 
wage-productivity  developments,  as  well  as  on  the  functioning  of  product  and  services  markets. 
These developments may be substantially affected by the cyclical position of the economy. 

2.3.  PUBLIC FINANCES 

2.3.1.  Recent fiscal developments 

The  Bulgarian  deficit  has  remained  within  the  3%  of  GDP  Treaty  reference  value  since  2022. 
However, after decreasing to 2.0% in 2023, the deficit returned to 3.0% in 2024. The expenditure-
to-GDP ratio increased from 38.8% to 39.8% whereas the revenue-to-GDP ratio in 2024 remained 
broadly  stable  at  36.7%  from  36.8%,  also  due  to  higher  social  security  contributions  and  direct 
taxes, which benefited from favourable employment dynamics.  

In  2023,  changes  in  income  policy  parameters  such  as  the  minimum  and  maximum  insurable 
income  drove  social  contributions  up.  Revenues  were  further  supported  by  the  introduction  of  a 
100%  dividend  policy  on  SOEs.  Increases  in  public  sector  salaries  and  pensions  that  had  been 
enacted  in  previous  years  started  to  have  a  budgetary  impact.  However,  the  outturn  deficit  for 
2023  was  also  affected  by  the  normalisation  of  energy  prices,  which  contributed  to  a  sharp 
decrease in subsidies (down by 46.7% from 2022, the equivalent of 2.2% of GDP).  

Declining  inflation  in  2024  resulted  in  more  moderate  revenue  increases,  while  the  expenditure 
side continued to  grow steadily due to legislative  changes from 2022 that  continued to have an 
impact  in  2024.  The  deterioration  in  the  deficit  was  partly  driven  by  the  sustained  spending 
increases  in  public  sector  salaries  and  in  social  benefits,  in  particular  on  pensions,  not  fully 
matched  by revenue increases. For pensions the  main  driver was the yearly indexation based on 
the so-called ‘Swiss rule’ (by 12% as of 1 July 2023 and by 11% as of 1 July 2024) and top-ups 
for  pensions  under  the  poverty  line.  Further  increases  were  recorded  in  sickness  and 
unemployment  benefits  among  others.  The  one-off  statistical  recording  of  settled  liabilities  for 
road infrastructure works from 2020-22 also contributed, by 0.5% of GDP, to the increase in the 
deficit.  Public  investment  decreased  compared  to  2023,  partly  due  to  the  base  effect  in  2023 
coming  from  the  end-of-period  absorption  of  the  EU  funds  of  the  2014-2020  programme. 
Measures on the revenue side included a package of measures to fight tax evasion and avoidance, 
including improved checks on goods with high fiscal risk and improved exchange of information on 
cross-border  payments.  On  the  other  hand,  SOE  dividends  collected  in  2024  were  lower  than  in 
2023, driving down other current revenues.  

The  fiscal  stance  was  broadly  neutral  in  2024,  driven  by  the  expansionary  contribution  of  net 
nationally financed primary current expenditure and of other capital expenditure that were largely 

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Convergence Report 2025 on Bulgaria - Technical annex 
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offset  by  lower  nationally  financed  gross  fixed  capital  formation  and  the  slightly  contractionary 
contribution  of  EU-funded  expenditure  compared  to  2023,  which  was  the  last  year  for  the 
absorption of the EU funds for the programming period 2014-2020. 

The  debt  ratio  increased  from 22.5%  in  2022  to  22.9%  in  2023.  The  primary  deficit  of  1.4% of 
GDP in 2023 and the impact of nominal GDP growth cancelled each other out, but the joint impact 
of  interest  expenditure  and  a  positive  stock-flow  adjustment  led  to  the  increase.  In  2024,  the 
general  government  debt-to-GDP  ratio  further  increased  to  24.1%,  mostly  driven  by  a  larger 
primary  deficit  (2.5%  of  GDP)  and  interest  expenditure,  which  more  than  offset  the  impact  of 
robust nominal GDP growth. 

2.3.2.  Medium-term prospects 

On  27  February  2025,  Bulgaria  submitted  its  national  medium-term  fiscal  structural  plan  to  the 
Council and the Commission, covering the 2025-2028 period.  

The  net  expenditure  growth  in  the  plan  averages  4.9%  over  the  2025-28  adjustment  period.  In 
terms of structural primary balance, the plan envisages a yearly adjustment of 0.16% of GDP. The 
indicative  strategy  to  meet  the  fiscal  targets  included  in  the  plan  is  heavily  reliant  on  revenue 
measures, and it envisages  expenditure increases, notably in  public sector salaries, pensions and 
social benefits. 

On 12 May 2025, the Commission recommended to the Council to endorse Bulgaria’s plan.  Based 
on the plan’s policy commitments and macroeconomic assumptions, the net expenditure path put 
forward  in  the  plan  is  consistent  with  the  requirements  as  set  out  in  Article  16(2)  of  Regulation 
(EU) 2024/1263. 

The 2025 budget was adopted by the National Assembly on 21 March 2025. On the revenue side, 
it  heavily  relies  on  the  yields  of  measures  to  fight  tax  evasion  and  avoidance  and  on  dividend 
policy,  but  it  is  also  supported  by  other  measures  such  as  planned  increases  in  excise  duties on 
tobacco products and by the reinstatement of standard VAT rates including for restaurants, bread 
and  flour.  A  positive  impact  on  the  budget  is  also  expected  from  increases  in  maximum  and 
minimum insurable income, resulting in higher social security contributions, and by improvements 
in arrears management. 

On the expenditure side, the budget for 2025 envisages public sector salaries to grow, in line with 
recent  trends,  with  the  largest  budgetary  impact  from  increases  in  the  remuneration  of  defence 
and security staff, followed by salary increases for teachers and increases in the minimum wage. 
Pension  spending  is expected  to  increase  further,  largely  due  to  the  impact  of  the  Swiss  rule, of 
other  pension  supplements  (for  instance  widow’s  supplements),  as  well  as  the  impact  of  newly-
awarded  pensions.  Public  investment  is  expected  to  increase  considerably  in  2025  compared  to 
2024, driven by the planned acceleration of RRP implementation, which needs to be completed by 
mid-2026,  and  also  driven  by  strong  increases  in  defence  investment  due  to  the  accrual  of 
planned deliveries of military equipment. 

On 2 May 2025 Bulgaria submitted its 2025 Annual Progress Report, reporting on relevant fiscal 
outturn  data  and projections,  and the  implementation  of  reforms and  investments  responding  to 
the  main  challenges  identified  in  the  European  Semester  country-specific  recommendations.  The 
2025 Annual Progress Report also reflects Bulgaria’s biannual reporting on the progress made in 
delivering  on  its  recovery  and  resilience  plan  in  accordance  with  Article  27  of  Regulation  (EU) 
2021/241.    

Based  on  the  Commission’s  2025  Spring  Economic  Forecast,  the  general  government  deficit  is 
projected at 2.8% of GDP in both 2025 and 2026. Net expenditure is expected to grow by 9.2% in 
2025,  above  the  recommended  growth  rate  of  6.2%  for  the  same  year.  This  is  due  to  the 
combination  of  expenditure  increases  on  pensions  and  public  sector  salaries  and  of  a  marked 
increase in expenditure on defence, including investment, as well as to higher public investment in 
other areas. On 2 May Bulgaria submitted a request to activate the National Escape Clause (NEC) 
for  increases  in  its  defence  spending.  On  4  June  2025,  the  Commission  recommended  a  Council 

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recommendation for the activation of the NEC for Bulgaria, allowing Bulgaria to deviate from, and 
exceed, the net expenditure path to be set in the Council recommendation endorsing its medium-
term fiscal 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. The general government debt-to-GDP ratio is forecast to increase to 25.1% in 2025 and 
to reach 27.1% in 2026. 

Based  on  the  Commission’s  estimates,  the  fiscal 
stance  is  projected  to  become  expansionary  in 
2025,  at  –1.1%  of  GDP.  The  expansionary  fiscal 
stance  in  2025  is  largely  driven  by  EU-financed 
expenditure.  The  contribution  of  net  nationally 
financed  investment  is  also  projected  to  be 
slightly expansionary (-0.2% of GDP) in 2025. The 
fiscal stance is expected to turn contractionary in 
2026  (0.8%  of  GDP),  mainly  on  account  of  the 
slower  growth  in  nationally  financed  primary 
current  expenditure  and  nationally  financed 
investment. 

fiscal  sustainability 

Medium-term 
assessed  as  medium.  Government  debt  is  projected  to  increase  from  24.5%  of  GDP  in  2024  to 
around  39%  in  2035  (18).  This  projection  assumes  that  the  structural  primary  deficit  (prior  to 
accounting for expected changes in the cost of ageing) will remain constant at 2.3% of GDP as of 
2025 (19). 

risks  are 

The  sensitivity  analysis  confirms  this  risk  assessment  since  negative  macro-fiscal  shocks  (i.e.  a 
lower structural primary balance, a higher interest-growth rate differential or a temporary interest 

(18)  For more details on the methodology, see European Commission (2025), Debt Sustainability Monitor 2024, Institutional 

Paper 306, March 2025. 

(19)  Bulgaria’s  medium-term  plan  implies  that  debt  would  reach  around  41%  of  GDP  in  2035,  broadly  similar  to  the 

baseline projection at unchanged policy in the Debt Sustainability Monitor 2024. 

28 

Table 2.3:Bulgaria - Budgetary developments and projections (as % of GDP unless indicated otherwise)Outturn and forecast 1)20192020202120222023202420251)20261)General government balance2.2-3.8-4.0-3.0-2.0-3.0-2.8-2.8- Total revenue38.637.537.538.336.836.738.838.4- Total expenditure36.441.341.541.338.839.841.641.2   of which: - Interest expenditure0.60.50.50.40.50.50.60.7p.m.: Tax burden30.530.330.731.129.930.932.231.8Primary balance2.7-3.3-3.5-2.6-1.5-2.5-2.2-2.1Fiscal stance 2)1.1-0.2-1.10.8Recommended growth in net expenditure (%)6.24.9Growth in net expenditure (%)9.21.7Government gross debt20.124.423.822.522.924.125.127.1p.m: Real GDP growth (%)3.8-3.27.84.01.92.82.02.11) Commission’s Spring 2025 Economic Forecast. 2) The fiscal stance is based on the increase in net expenditure (including that financed by the EU budget) relative to medium-term     potential GDP growth.  A positive (negative) sign indicates a contractionary (expansionary) fiscal stance (in % of GDP). The fiscal      stance profile in 2020-2023 does not include the temporary impact of COVID-19 emergency measures. Source: European Commission.-2-101232023202420252026Expenditure financed by RRF grants and EU funds (e)Other capital expenditure (d)Nationally financed investment (c)Net nationally financed  primary current expenditure (b)Fiscal stance (f=a+e) 2024 2025Net nationally financed  primary expenditure (a=b+c+d)ExpansionaryContractionarySource: Commission's Spring 2025 Economic Forecast.Graph 2.4:Bulgaria -Fiscal stance and its components(percent of GDP) 
 
  
 
 
 
 
  
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rate shock) would result in only somewhat higher debt  ratios by 2035. On the other hand, if the 
structural  primary  balance  were  to  return  to  its  historical  15-year  average  of  0.6%  of  GDP,  the 
debt ratio would be about 14 percentage points lower in 2035. The stochastic projections point to 
a large degree of uncertainty around the baseline projection. 

Several  factors  mitigate  risks,  including  the  low  share  of  short-term  government  debt  and  the 
small  amount  of  general  government  contingent  liabilities.  Risk-increasing  factors  include  the 
relatively high share of non-performing loans in the Bulgarian banking sector and the substantial 
share of public debt denominated in euro although this risk is mitigated by the currency board and 
the prospect for euro adoption. 

The  key  elements  of  a  robust  fiscal  framework  are  in  place  in  Bulgaria,  but  some  difficulties  in 
implementation remain. Bulgaria has a complex system of national fiscal rules in place, unchanged 
since the 2024 Convergence Report. Several rules target the same budget aggregates but the fact 
that they are expressed according to different accounting standards (accrual and cash-based) may 
create  conflicting  messages.  Moreover,  the  capacity  of  the  Ministry  of  Finance  to  monitor,  plan, 
forecast and report on the general government budget in both accrual and cash terms remains a 
challenge, especially with respect to the management and  planning of government finances. The 
Ministry  does  not  always  have  as  much  information  or  access  to  detailed  data  as  would  be 
desirable  for  budgetary  planning.  Information  is lacking  on  the  operations  of  entities outside  the 
central administration and occasionally even of some other ministries. The Ministry of Finance also 
has weaknesses in producing projections on an accrual basis (e.g. under the European System of 
National and Regional Accounts (ESA)).  

There is potential to enhance the capacity and independence of the  Bulgarian independent fiscal 
institution (IFI), the Fiscal Council of Bulgaria (FCB). It currently has a narrow mandate, monitoring 
compliance  of  fiscal  rules  and  assessing  the  macroeconomic  and  budgetary  forecasts  and  is 
supported by a thinly staffed Secretariat of only two full-time employees. The six-year mandates 
of Members are not staggered, increasing the need for transparency in the appointment process. 
The  mandates  of  the  current  Members  expired  in  November  2021  and  new  Members  were 
appointed in March 2025. The amended Budgetary Framework Directive (2011/85/EU) which is to 
be transposed by 31 December 2025, will affect some aspects of the Bulgarian fiscal framework, 
particularly relating to the Fiscal Council’s independence safeguards and tasks. 

The  planning  and  budgeting  of  public  investments  is  undergoing  reform,  but  implementation 
challenges remain. Bulgaria  shows scope for improvement on key dimensions such as (i) aligning 
investment  decisions  with  their  long-term  strategic  goals;  (ii)  vertical  (between  levels  of 
government) and horizontal (across sectors) coordination; (iii) the application of consistent value-
for-money  criteria  and  methodologies  to  investments  not  financed  by  EU-funds;  (iv)  limiting  the 
under-execution of capital expenditure; and (v) the carry-over of unspent funds. 

2.4.  EXCHANGE RATE STABILITY 

The Bulgarian lev joined the Exchange Rate Mechanism II (ERM II) on 10 July 2020. The Bulgarian 
National  Bank  (BNB)  entered  in  parallel  into  a  ‘close  cooperation’  agreement  with  the  ECB.  After 
joining,  Bulgaria  committed  to  pursue  a  set  of  policy  measures  (known  as  post-entry 
commitments) to ensure that its participation in the mechanism is sustainable and achieves a high 
degree of economic convergence before the adoption of the euro. The measures cover four policy 
areas:  (i)  the  non-banking  financial  sector;  (ii)  the  insolvency  framework;  (iii)  the  anti-money 
laundering framework; (iv) and governance of state-owned enterprises.  

Bulgaria introduced its currency board framework on 1 July 1997, pegging the Bulgarian lev to the 
German mark and subsequently to the euro (at an exchange rate of 1.95583 BGN/EUR). Under the 
currency board framework, the BNB has to fully cover its monetary liabilities with foreign reserves. 
The BNB is obliged to exchange monetary liabilities and euro at the official exchange rate without 
any limit. 

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Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

Bulgaria’s  international  reserves  are  large,  at  41%  of  GDP  in  2024  (down  from  around  44%  of 
GDP  in  2023).  International  reserves  increased  from  around  EUR  38  billion  at  the  beginning  of 
2023 to around EUR 42 billion at the end of 2023. The reserves decreased in the first half of 2024 
to around EUR 38 billion and then increased to around EUR 42 billion by the end of 2024. Most of 
the  inflows  to  the  reserves  in  2023  reflected  the  issuance  of  government  securities  on 
international financial markets. Positive contributions were also made by a net positive flow from 
purchases and sales of reserve currency by commercial banks. In 2024, sales of reserve currency 
by  banks  had  the  largest  negative  contribution  to  the  gross  international  reserves,  while 
Government and other depositors’ funds had a positive contribution.  

The  BNB  does  not  set  monetary  policy  interest  rates.  The  euro  area’s  monetary  policy  affects 
domestic  interest  rates  directly  through  the  operation  of  Bulgaria’s  currency  board.  The  BNB 
discontinued  the  production  of  short-term  reference  rates  (e.g.  SOFIBOR)  from  1  July  2018.  The 
BNB instead publishes a base interest rate (BIR) based on the LEONIA Plus (LEv OverNight Interest 
Average  Plus)  index,  which  is  a  reference  rate  of  concluded  and  effected  overnight  deposit 
transactions in Bulgarian lev on the interbank market in Bulgaria. The BIR stood at 1.8% in January 
2023. It increased throughout most of 2023, reaching 3.9% in October 2023 and remained at that 
level until May 2024. It decreased gradually to 2.4% in March 2025. The changes in the BIR closely 
tracked those of the 1-month Euribor rate. The interest rate differential between the BIR and the 
1-month  Euribor  narrowed  from  -15  basis  points  at  the  beginning  of  2023  to  virtually  no 
differential by the end of that year. The interest differential widened slightly throughout 2024 and 
stood at 3 basis points in March 2025. 

2.5.  LONG-TERM INTEREST RATES  

Long-term interest rates used for the convergence examination reflect the secondary market yield 
on a single benchmark Bulgarian government bond with a residual maturity of around 6.5 years. 

30 

1.81.92.02.1201920202021202220232024Graph 2.5: Bulgaria -BGN/EUR exchange rate(monthly averages)Source: ECB.-50-40-30-20-1001020304050201920202021202220232024Graph 2.6: Bulgaria -Annual effective interest rate spread to 1-M Euribor(basis points, monthly values)Source: Eurostat and National Bank of Bulgaria.0246Jan-19Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25BulgariaReference valueGraph 2.7: Bulgaria -Long-term interest rate criterion(percent, 12-month moving average)Source: European Commission.-20246201920202021202220232024BulgariaGermanyGraph 2.8: Bulgaria -Long-term interest rates(percent, monthly values)Source: Eurostat. 
 
 
         
    
         
         
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The  Bulgarian  12-month  moving  average  long-term  interest  rate  relevant  for  the  assessment  of 
the  Treaty  criterion  was  below  the  reference  value  in  the  2024  convergence  assessment  of 
Bulgaria.  The  average  interest  rate  increased  from 1.6%  in  January  2023  to  3.9% at  the  end of 
2024. It stood at 4.0% until September 2024 and slightly decreased to  3.9% since then. In April 
2025, the reference value, calculated as the average of long-term interest rates in Ireland, Finland 
and Italy plus 2 percentage points, was 5.1%. In that month, the 12-month moving average of the 
yield on the Bulgarian benchmark bond was  3.9%, i.e. 1.2 percentage  points below the reference 
value. 

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 increase in the long-term interest 
rate at the beginning of 2023 reflected the very high inflation that Bulgaria experienced in  2022 
and  the  tightening  of  monetary  policy  in  the  euro  area  that  year.  The  stability  of  the  long-term 
interest rate at the higher level is due to the use of a single benchmark bond at any point in time 
for  this  assessment  and  the  fact  that  the  bond  is  infrequently  traded  on  the  secondary  market. 
Financial  developments  are  therefore  not  seen  in  the  yields  until  the  bond  is  either  traded  or 
replaced by a new benchmark bond. The difference between the Bulgarian and German long-term 
interest  rates  remained  within  a  range  of  1.4-1.9%  from  March  2023  to  April  2025.  The  higher 
spread compared to its historical average of around 1.2% during the past decade likely reflects the 
combined  effects  of  higher  inflation,  heightened  political  uncertainty  in  Bulgaria  and  the  thin 
secondary market for Bulgarian government debt securities. 

2.6.  ADDITIONAL FACTORS 

The  Treaty  (Article  140  TFEU)  calls  for  an  examination  of  other  factors  relevant  to  economic 
integration and convergence that the Commission should take into account in its assessment. The 
assessment of the additional factors (including  balance of payments developments, and product, 
labour and financial market integration) gives an indication of a Member State’s ability to integrate 
into the euro area without difficulties. 

In December 2024, the Commission published its 14th Alert Mechanism Report (AMR 2025) under 
the Macroeconomic Imbalance Procedure. The report concluded that it was not necessary to carry 
out  further  in-depth  analysis  on  Bulgaria  in  the  context  of  the  Macroeconomic  Imbalance 
Procedure.  Developments  related  to  cost  competitiveness,  dynamic  household  borrowing,  and 
strong house-price growth remain a concern and require continued close monitoring. Nevertheless, 
nominal  wage  growth  has  been  on  a  declining  path  with  sharp  deceleration  in  Q4  2024.  House 
prices have continued to increase. They have been growing more slowly than income since 2013 
but are estimated to be overvalued by around 10-15%. Household debt remains low as share of 
GDP despite dynamic credit flows that are supported by very low interest rates on mortgages. In 
terms of financial stability, in February 2024, the European Systemic Risk Board concluded that the 
residential  real  estate  market  in  Bulgaria  was  subject  to  medium  risks  and  the  macroprudential 
policy  mix  was  partially  appropriate  and  partially  sufficient  to  mitigate  the  situation.  Borrower-
based  macroprudential  measures  were  introduced  by  the  Bulgarian  National  Bank  in  September 
2024.  

Bulgaria’s  recovery  and  resilience  plan  (RRP)  includes  measures  to  address a  series of  structural 
challenges by reforming the energy sector, investing in sustainable transport and green transition, 
promoting deployment of 5G networks, strengthening rule of law and the fight against corruption, 
promoting  entrepreneurship  and  e-governance,  improving  the  quality  and  inclusiveness  of 
education and reforming the minimum income scheme. The plan is supported by EUR 5.7 billion of 
RRF funding. 

Bulgaria  has  implemented  23%  of  the  plan’s  milestones  and  targets  and  received  one 
disbursement of EUR 1.37 billion or 24% of the overall allocation.  

31 

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Chapter 2 - Bulgaria 

On  16  April  2025,  Bulgaria  submitted  a  request  to  revise  its  RRP  in  line  with  Art.  21  of  the  RRF 
Regulation. The revision concerns nearly all measures in the RRP and aims to  bring the plan back 
on  track  and  deliver  on  the  original  plan’s  key  objectives.  Together  with  its  request  for  revision, 
Bulgaria has submitted a proposal for a REPowerEU chapter.  

Some  important  reforms  in  areas  such  as  anti-money  laundering,  insolvency  framework,  SOE 
governance  reform  and  education  have  progressed.  Implementing  key  reforms  in  the  areas  of 
energy,  business  environment  and  rule  of  law,  is  crucial  to  deliver  on  the  RRP  commitments. 
Investments  providing  support  for  small  and  medium  enterprises,  industrial  modernisation  and 
healthcare  have  progressed.  However, overall  implementation  faces significant  delays  and needs 
to accelerate in order to complete all measures by August 2026.    

In addition, cohesion policy funding helps tackle Bulgaria’s growth and competitiveness challenges 
and  aims  to  reduce  the  country’s  territorial  and  social  disparities.  In  the  current  2021-2027 
programming  period,  cohesion  policy  provides  Bulgaria  with  EUR  10.7  billion  to  further  support 
Bulgaria’s competitiveness, green transition, including energy independence, the just transition and 
climate  change  resilience,  as  well  as  upward  social  convergence,  including  by  addressing  labour 
shortages, further developing educational systems and skills and making them more inclusive for 
disadvantaged groups. Bulgaria has made progress in implementing cohesion policy but challenges 
remain. 

2.6.1.  Developments in the balance of payments 

Bulgaria’s external balance (i.e. the combined current and capital accounts) turned positive to 0.7% 
in 2023 and deteriorated to -0.1% in 2024. Net services exports improved markedly in 2023 with 
the  recovery  in  tourism  exceeding  pre-pandemic  levels  and  other  services,  including  those 
outsourced to Bulgaria (e.g. IT and business services). It then slowed down in 2024 largely due to a 
temporary  decline in transport services exports to Germany and Greece in Q2 and Q3 2024. The 
trade  balance  improved  in  2023  as  imports  declined  more  steeply  than  exports  on  account  of  a 
deep  contraction  in  inventories  accumulation  and  more  moderate  private  consumption.  In  2024 
trade  balance  deteriorated  as  external  demand  remained  constrained,  while  imports  of  goods 
increased  on  account  of  stronger domestic  demand.  The  Russian  war  of  aggression  continued  to 
weigh  on  the  export  performance  in  2024,  with  goods  exports  to  the  Russian  Federation  and 
Ukraine  contracting  by  26%  and  38%,  respectively,  in  nominal  terms.  The  terms  of  trade 
deteriorated in both 2023 and 2024. The primary income deficit widened to 6.6% of GDP and then 
shrank to 5.1% in 2024, driven by the rise and the subsequent decline in foreign direct investment 
(FDI) income. Secondary income balance deteriorated as a share of GDP in 2023 and  2024, while 
capital  account  balance  improved  in  both  years.  The  developments  in  the  secondary  income 
balance were largely determined by the current transfers from the EU to the government, including 
direct payments under the Common Agricultural Policy and other non-investment grants. In 2023, 
the capital account balance improved mostly  due to lower value of  purchases of land abroad by 
residents.  In  2024,  capital  transfers  from  the  EU  in  the  form  of  investment  grants  account  for 
most of the increase in the capital account balance.  

The  financial  account,  net  of  official  reserves,  deteriorated  to  –2.5%  of  GDP  in  2023  and  then 
turned slightly positive in 2024. FDI, notably in the form of reinvested earnings, made the largest 
negative  contribution  to  the  financial  account  balance  in  both  years.  Net  investments  in  debt 
securities abroad contributed by 1% of GDP and 1.5% of GDP to the financial account in 2023 and 
2024, respectively. The improvement in 2024 is largely attributable to the increased investments 
in  long-term  debt  securities  abroad  by  the  banking  sector,  related  to  the  high  domestic  liquidity 
and  higher  returns  on  foreign  financial  assets.  The  balance  of  other  investments  had  a  limited 
impact on the financial account balance, with gross inflows and outflows of currency and deposits 
roughly  offsetting  each  other.  The  BNB’s  reserve  assets  increased  by  3.5%  of  GDP  in  2023  and 

32 

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Chapter 2 - Bulgaria 

then  decreased  by  0.9%  of  GDP  in  2024,  largely  mirroring  the  developments  of  the  external 
balance and financial account (20). 

The  net  international  investment  position  further 
improved to –5% of GDP in 2024, having stood at 
-50%  of  GDP  a  decade  ago.  The 
over 
improvement  reflects  both  nominal  GDP  growth 
as well as higher growth in foreign assets than in 
liabilities on the back of subdued FDI inflows. 

The  real  effective  exchange  rate  deflated  by  the 
HICP appreciated in 2023 and then depreciated in 
2024  as  domestic  inflation  abated.  By  contrast, 
the  real  effective  exchange  rate  deflated  by  unit 
labour costs (ULC) accelerated, as domestic wage 
growth outstripped the wage dynamics abroad. 

With  the  deterioration  of  external  demand  in 
2023,  exporters  sharply  reduced  inventory  accumulation  and  cut  purchases  from  abroad.  Wage 
growth  also  decelerated  throughout  2023  and  2024,  reflecting  firms’  efforts  to  secure 
competitiveness gains against the backdrop of deteriorated foreign demand. In an environment of 
deteriorating  world  exports in  2023,  Bulgarian  export  market  share  improved  by  1.8%, driven  by 
services exports.  

The  Commission’s  Spring  2025  Economic  Forecast  projects  that  the  current  account  will  remain 
slightly negative at to –1.1% of GDP in 2025 and -1% of GDP 2026 as imports grow faster than 
exports.  

(20)  Valuation  changes  (exchange  rate  or  price  changes)  of  the  country’s  external  assets  and  liabilities,  as  well  as  other 

changes, e.g. arising from changes in residence, are not included in the balance of payments. 

33 

Table 2.4:Bulgaria - Balance of payments(percentage of GDP)201920202021202220232024Current account1.70.4-1.1-2.7-0.9-1.8of which: Balance of trade in goods-4.7-3.1-4.0-5.9-4.2-5.2               Balance of trade in services8.15.76.57.08.37.5               Primary income balance -4.8-3.7-4.8-5.6-6.6-5.1               Secondary income balance3.11.61.31.81.61.0Capital account1.51.40.70.91.61.7External balance 1)3.11.9-0.4-1.70.7-0.1Financial account3.64.23.92.71.0-0.6of which: Direct investment-2.0-4.1-1.6-4.1-4.2-2.2               Portfolio investment2.61.23.21.21.32.3               Other investment 2)3.9-2.2-2.81.00.40.1               Change in reserves-0.99.45.14.63.5-0.9Financial account without reserves4.5-5.1-1.2-1.9-2.50.2Errors and omissions0.52.34.34.50.3-0.6Gross capital formation20.720.120.722.719.720.4Gross saving22.420.720.520.120.419.5Net international investment position-30.8-23.4-15.6-8.7-6.3-3.71) The combined current and capital account.2) Including financial derivatives.Sources: Eurostat, European Commission calculations, the Bulgarian National Bank.95100105110115120125130201920202021202220232024Graph 2.9: Bulgaria -Effective exchange ratesNEERREER, HICP-deflatedREER, ULC-deflated(vs 36 trading partners; monthly averages;index numbers, 2019 = 100)Source: European Commission. 
 
  
 
 
 
 
   
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

2.6.2.  Market integration 

The economy is well integrated with the euro area through trade and investment linkages. After a 
decline  between  2019  and  2020,  the  ratio  of  trade  openness  (see  Table  2.5  for  a  definition) 
rebounded to close to 71.2% in 2022, which was a new peak. It decreased to 61.5% in 2023 and 
further  to  55.6%  in  2024.  Bulgaria  is  a  relatively  open  economy.  Trade  with  the  euro  area  was 
around  25%  of  total  trade  in  2024.  Germany,  Italy  and  Greece  were  the  main  trading  partners. 
Outside the euro area, Bulgaria’s main trading partners were Türkiye and Romania. 

Net FDI inflows have remained low, at 5.5% of GDP in 2023 and then declined to 3.1% of GDP in 
2024.  Reinvested  earnings  accounted  for  most  the  FDI  inflows  in  those  two  years,  while  direct 
investment  in  equity  from  abroad  contracted  in  2024.  The  low  inward  FDI  since  the  2008-09 
global  financial  crisis  reflects  low  investor  appetite  and  difficulties  to  attract  fresh  capital.  The 
stock of inward FDI  as a  share of GDP  continued to decline to  62% in  2024,  down from 65% in 
2023,  due  to  both  low  FDI  inflows  and  sustained  nominal  GDP  growth.  In  2024,  financial  and 
insurance, real estate and manufacturing constituted around 60% of the total inward FDI stock, in 
almost equal proportion. 

business 

environment 

Unsupportive 
and 
institutional  quality  remain  important  challenges. 
According  to  the  World  Bank’s  2024  Worldwide 
Governance  Indicators,  Bulgaria  ranks  markedly 
lower in rule of law,  fight against corruption and 
regulatory  quality  than  the  average  of  the  five 
euro  area  Member  States with  the  lowest  scores 
(21). Political favouritism has been shown to have 
a  strong  impact  on  public  tenders  and  to  have 
adverse 
and 
on 
competitiveness  (22).  The  Bulgarian  RRP  includes 
several  measures 
the  business 
environment.  These  include  ambitious  reforms  of  the  judiciary  and    anti-corruption  reforms 
(including on whistle-blowing), the overhaul of the public procurement framework, the liberalisation 
of the electricity market, and strengthening the frameworks for insolvency, anti-money laundering 
and  the  governance  of  state-owned  enterprises.  The  last  three  are  also  part  of  the  post-entry 

productivity 

improve 

effects 

to 

(21)  A Member State is considered to have a ‘low’ (‘high’) ranking compared with the average five euro area Member States 
with  the  lowest  scores  for  each  indicator  if its  score  is  at  least  0.3  percentage  point  lower  (higher)  than  that  of the 
average  of  this  group  of  five  euro  area  Member  States.  See  also  European  Commission,  2024  Rule  of  Law  Report, 
Country Chapter on Bulgaria.  

(22)  Fazekas, M., Poltoratskaya,V., Schiffbauer, M.T., and Tóth, B., ‘Procuring Low Growth: The Impact of Political Favoritism 
on Public Procurement and Firm Performance in Bulgaria’, Policy Research Working Paper, Prosperity Washington, D.C.: 
World Bank Group, 2025. 

34 

Table 2.5:Bulgaria - Market integration201920202021202220232024Trade openness 1) (%)64.456.862.071.261.555.7Trade with EA in goods & services 2)+3) (%)29.025.728.030.727.524.5IMD World Competitiveness Ranking 4)484853535758Internal Market Transposition Deficit 5) (%)0.61.62.21.81.71.6Real house price index 6)118.3124.4127.5125.1127.1141.1 1) (Imports + Exports of goods and services / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics, Balance of Payments). 2) (Imports + Exports of goods with EA-20 / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics). 3) Trade in services with EA-20 (average credit and debit in % of GDP at current prices) (Balance of Payments). 4) International Institute for Management Development (IMD). 5) Percentage of internal market directives not yet communicated as having been transposed, relative to the total. 6) Deflated house price index (2015=100) (Eurostat). Sources: Eurostat, World Bank, International Institute for Management Development, European Commission calculations.-0.60.00.61.2Voice andaccountabilityPolitical stability andabsence ofviolence/terrorismGovernmenteffectivenessRegulatory qualityRule of lawControl of corruptionBulgariaEuro area average five lowestEuro area averageGraph 2.10:Bulgaria -World Bank's 2024 Worldwide Governance IndicatorsNote: Estimate of governance ranges from -2.5 (weak) to 2.5 (strong). The values in this chart are for 2023. Source: World Bank. 
 
   
 
 
 
  
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

commitments  that  Bulgaria  made  when  it  entered  ERM  II.  After  considerable  delays,  the 
implementation  of  several  of  these  RRP  reforms  is under  way  and  progressing  (see  also  Section 
2.7. on the Sustainability of Convergence). 

Bulgaria has taken action to improve the framework for preventing and fighting money laundering, 
its predicate offences and the financing of terrorism. These actions include amending the Law on 
Measures Against Money Laundering to strengthen the capacity of national anti-money laundering 
and countering  the  financing  of  terrorism (AML/CFT)  supervisory  authorities to  act  where  obliged 
entities  fail  to  comply  with  their  obligations  and  adopting  an  action  plan  for  countering  money 
laundering and terrorism financing (2023-2027) whose implementation is underway. 

Bulgaria  has  also  taken  steps  to:  enhance  the  accuracy  of  beneficial  ownership  information 
through  a  mechanism  for  the  reporting  of  discrepancies;  reinforce  the  analytical  capacity  of  the 
Financial Intelligence Unit to make better use of suspicious transaction reports (STRs) through the 
implementation of new IT software for the submission of STRs and other reports and information 
which  became  operational  in  March  2024;  communicate  swiftly  targeted  financial  sanctions 
adopted  and  amended  by  the  UN  Security  Council;  and  to  identify  the  subset  of  non-profit 
organisations which are likely to be at risk of abuse for terrorist financing. Bulgaria underwent an 
assessment  of  the  effectiveness  of  its  AML/CFT  framework  against  international  standards 
developed  by  the  Financial  Action  Task  Force.  As  a  result,  Bulgaria  was  placed  under  increased 
monitoring and adopted an action plan, in October 2023 to address the deficiencies. The Bulgarian 
authorities are in the process of implementing the action plan. 

The education system faces serious difficulties to ensure quality and inclusiveness. Around half of 
15-year-old students lack basic numerical and reading competences according to the Programme 
for International Student Assessment. Socio-economic background has a major impact on students’ 
performance,  with  children  from  disadvantaged  groups  performing  considerably  worse.  To  tackle 
some of these challenges, the Bulgarian RRP supports the creation of STEM learning centres, which 
is  ongoing.  The  lack  of  basic  skills  translates  to  significantly  fewer  students  entering  higher 
education than the EU average, while quality standards for admission are lower.   

Labour  and  skills  shortages  remain  a  significant  challenge  and  risk  worsening,  considering  the 
educational  attainment  and  negative  demographic  trends.  This  in  turn,  combined  with  the  high 
inactivity  rates  for  Roma  and  persons  with  disability, poses challenges  for  economic  growth  and 
social outcomes.  

Bulgaria  also  scores  low  on  digital  skills  and  the  update  of  digital  technologies.  Only  35.5%  of 
Bulgaria’s population has basic digital skills, which is among the lowest rates in the  EU.  Bulgaria 
scores very low on the digitalisation of businesses, with small and medium enterprises particularly 
affected. One of the priorities of both Bulgaria’s RRP and Cohesion policy investments is to improve 
digital skills with significant investment to adapt the skill set of the workforce. Moreover, the RRP 
includes  measures  such  as  a  voucher  scheme  for  the  digitalisation  of  small  and  medium  sized 
enterprises and is complemented by targeted Cohesion Policy investments. 

Public  and  private  R&D  investments remain  amongst  the  lowest  in  the  EU  as  share  of  GDP.  The 
public  research  landscape  is  very  fragmented  with  many  educational  institutions  and  research 
organisations  receiving  limited  funding.  Linkages  between  academia  and  business  are  not  well-
established and make commercialisation of research results difficult. 

Regional  disparities  in  Bulgaria  remain  high.  GDP  per  capita  in  the  capital  Sofia  is  around  three 
times  higher  than  in  the  other  regions.  Similar  differences  are  observed  in  labour  productivity, 
demographics, education and training, employment, healthcare and infrastructure. In addition, the 
lower  administrative  capacity  in  some  regions  further  impairs  their  ability  to  organise 
procurements,  implement  investments  and  to  deliver  public  services  and  policies  Addressing 
territorial  disparities  is  one  of  the  high-level  objectives  laid  down  in  the  Bulgaria’s  2021-2027 
Partnership Agreement. 

35 

Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

Bulgaria’s  financial  sector  is  smaller and  less  developed  than  the  euro  area’s.  The  assets  of  the 
financial sector amounted to 169% of GDP in 2023,  which was much less than in the euro area 
(698% of GDP) but  broadly similar to the average of the five euro  area Member States with the 
smallest financial sectors. As in the euro area, the size of the financial sector as a share of GDP 
has shrunk  in  Bulgaria  since  2019.  Banking  dominates  the  Bulgarian  financial  sector,  making  up 
55%  of  the  financial  sector’s  assets  in  2023.  The  BNB  is  the  second  largest  holder  of  financial 
assets  with  a  share  of  26%  in  2023,  more  than  all  non-banking  financial  intermediaries  taken 
together. These shares are larger than in the euro area, reflecting a relative underdevelopment of 
non-bank  financial  intermediaries  and  investment  funds,  similar  to  that  of  the  five  euro  area 
Member  States  with  the  smallest  financial  sectors.  At  the  same  time,  the  relative  share  of  the 
insurance and pension-fund sector in Bulgaria is similar to that in the euro area. 

36 

Table 2.6:Bulgaria - Allocation of assets by financial sub-sectorRatio to GDP (%)BGEAEA 5 smallest201920232019202320192023Financial corporations (total)172169721698177189Central bank414452564653Monetary financial institutions95902712788689Other financial intermediaries16151921721720Non-MMF investment funds1)1211311355Insurance co. and Pension Funds191894792323Share of total (%)BGEAEA 5 smallest201920232019202320192023Central bank2426782628Monetary financial institutions555338404947Other financial intermediaries992725910Non-MMF investment funds11161633Insurance co. and Pension Funds1111131113121) MMF stands for money market funds.Source: Eurostat. 
 
   
 
 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

As to the financing of the economy, outstanding liabilities are much lower than in the euro area 
(345% of GDP in 2023 vs 725% of GDP in the euro area) but higher than those of the euro area 
Member States with the lowest financing needs. As in the euro area, loans are the dominant source 
of funding. However, Bulgaria has less developed bond and equity markets than the euro area and 
market  financing  (debt  securities  and  listed  shares)  is  relatively  underdeveloped.  Equity  and 
private-sector-debt  markets  represented  2%  of  liabilities  in  2023  (and  only  11%  of  GDP 
altogether), compared with 19% of liabilities in the euro area (where private-sector debt and listed 
stocks amounted to 72% and 65% of  GDP respectively).  Bulgaria’s financing structure is broadly 
similar to that of the five euro area Member States with the smallest financial needs, except for 
the smaller size of its bond market. The latter mostly reflects  the low level of public  debt in the 
country. Trade credits and advances play a bigger role in the financing of the economy in Bulgaria 
than in the euro area, even when compared with the five euro area Member States with the lowest 
financing needs. 

37 

Table 2.7:Bulgaria - Financing of the economy1)Ratio to GDP (%)BGEAEA 5 smallest201920232019202320192023Total liabilities361345762725318301Loans1149323521910494Non-financial co. debt securities32121232Financial co. debt securities11676035Government debt securities181979714842Listed shares10870651311Unlisted shares72691911895352Other equity849572736061Trade credits and advances615935363435Share of total (%)BGEAEA 5 smallest201820232019202320192023Loans332731303331Non-financial co. debt securities102211Financial co. debt securities009812Government debt securities5510101514Listed shares329943Unlisted shares212025261819Other equity25289101819Trade credits and advances18175511111) The table focuses on the financing needs of a country and how these are met by the financial system. The table is constructed    from the liabilities of all economic sectors, but only considers loans, debt securities, equity and trade credits. The sum of liabilities    in the table only reflects the total for the liabilities considered.Source: Eurostat. 
 
   
 
 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

Bulgaria’s  banking  sector  is  well  integrated  into 
the  euro  area’s  financial  sector,  in  particular 
through  a  high  level  of  foreign  ownership  in  the 
banking  system.  The  ratio  of  foreign-owned 
institutions  to  total  bank  assets  was  73%  in 
2023,  down 
in  2019.  Bank 
concentration  (as  measured  by  the  market  share 
of  the  five  largest  credit  institutions  in  total 
assets)  has  increased  significantly  since  2019 
and  reached  almost  77%  in  2023.  This  is 
the  euro  area 
27 percentage  points  above 
average in 2023.  

from  78% 

2.7.  SUSTAINABILITY OF CONVERGENCE 

This  concluding  section  draws  together  elements  that  are  key  for  gauging  the  sustainability  of 
Bulgaria’s convergence  with  the euro area. The analysis reviews  sustainability from a  number of 
angles. 

First, the sustainability dimension is inherent in the individual convergence criteria themselves. This 
holds  most  explicitly  for  the  price  stability  criterion,  which  includes  the  requirement  of  a 
’sustainable  price  performance’.  In  principle,  the  fiscal  criterion  (EDP)  also  involves  a  forward-
looking aspect, providing a view on the durability of the correction of fiscal imbalances. While the 
exchange and interest rate criteria are, by construction, backward-looking, they aim to capture an 
economy’s  ability  to  operate  durably  under  conditions  of  macroeconomic  stability,  indicating 
whether the conditions for sustainable convergence following euro adoption are in place.  

Second, the assessment of additional factors (balance of payments, product and financial market 
integration) required by the Treaty broadens the view on sustainability of convergence and allows 
for  a  more  complete  picture,  complementing  the  quantitative  criteria.  In  particular,  a  sound 
external  competitiveness  position,  effectively  functioning  markets  for  goods  and  services  and  a 
robust  financial  system  are  key  to  ensuring  that  the  convergence  process  remains  smooth  and 
sustainable.  

Third,  the  convergence  assessment  should  be  informed  by  the  results  and  findings  of  enhanced 
policy  co-ordination  and surveillance  procedures  (MIP,  fiscal  governance), taking  into  account  the 
comprehensive reform of the EU’s economic governance rules in 2024. The aim is not to add to the 
existing requirements for euro adoption, but to make full use of the comprehensive economic and 
financial analysis undertaken under the European Semester. While some elements drawn from the 
European  Semester  (e.g.  related  to  AMR  scoreboard  indicators)  are  included  in  the  relevant 
chapters on convergence above, this section uses this framework more  systematically to provide 
an integrated view of the sustainability dimension. 

Any assessment of the sustainability of convergence has limits and must be based on a judgement 
of  the  likely  future  development  of  the  economy.  In  particular,  as  experience  has  shown,  the 
sustainability  and  robustness  of  the  convergence  process  after  euro  adoption  is  to  a  significant 
extent  endogenous,  i.e.  it  depends  on  a  Member  State’s  domestic  policy  measures  after  it  has 
joined the euro area. Therefore, while the assessment of sustainability is an essential element in 
determining a Member State’s readiness to adopt the euro based on initial conditions and existing 
policy frameworks, the outcome of such an assessment should be seen as a snapshot at a specific 
point  in  time.  The  long-term  sustainability  of  the  convergence  process  will  also  depend  on  the 
adoption of appropriate policies over time. In this respect, the ongoing surveillance carried out in 
the  context  of  the  European  Semester  will  play  a  major  part  in  ensuring  that  such  policies  are 
implemented by the Member State after euro adoption. 

38 

020406080100BG, 2019BG, 2023EA, 2019EA, 2023Concentration in the banking sector (CR5 ratio)Share of foreign institutions as % of total assetsGraph 2.11:Bulgaria -Foreign ownership and concentration                     in the banking sector(in percent, weighted averages)Source: ECB, Structural financial indicators. 
  
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

The  analysis  below  looks  at  sustainability  from  four  different  perspectives:  price  stability;  fiscal 
performance  and  governance;  structural  resilience  and  growth  sustainability;  and  financial 
resilience. 

Price stability 

The synchronisation of Bulgaria’s business cycle with that of the euro area (see next sub-section) 
tends  to  keep  Bulgaria’s  headline  and  core  inflation  at  levels  similar  to  those  of  the  euro  area. 
Bulgaria’s inflation developments were particularly closely aligned with those of the euro area over 
the  decade  preceding  the  energy  price  shock  of  2022.  On  average,  between  2011  and  2021, 
Bulgaria’s headline inflation rate averaged 1.1%, which was below the euro area average of 1.3%. 
Core inflation during this period, at 0.4%, was considerably below the euro area average at 1.1%.  

By contrast, between 2022 and 2024, inflation in Bulgaria was significantly higher than in the euro 
area, with an average annual rate of 8.1% compared to 5.4% in the euro area. The de-coupling of 
inflation  in  Bulgaria  and  the  euro  area  during  these  years  was  mainly  due  to  Bulgaria’s  greater 
exposure  to  the  food  and  energy  price  shocks.  The  price  hikes  in  imported  energy  and  other 
materials in 2022 led to a surge in production costs, thereby also contributing to higher prices for 
domestically produced goods and services. The cost-push factor was more pronounced than in the 
euro area because the  Bulgarian economy is around three times  more energy intensive than the 
euro area and its cyclical position was stronger. As food accounts for a significantly higher share of 
household consumption in Bulgaria, the food price shock had a disproportionately stronger impact 
on  headline  inflation.  Subsequently,  the  unwinding  of  the  shocks  led  to  a  stronger  disinflation 
process in Bulgaria compared with the euro area. Headline and core inflation in Bulgaria both fell in 
2024  by  around  6  percentage  points  compared  with  a  drop  of  3  and  2.2  percentage  points 
respectively in the euro area.  

The pick-up in inflation in Bulgaria in 2025 is of a temporary nature and mainly reflects increases 
in January 2025 in a mix of taxes and administered prices, partially offset by the lowered hospital 
fees in April. This effect is set to lead to higher inflation throughout 2025. As the temporary effect 
of  higher  taxes  and  administered  prices  fades  away,  annual  inflation  is  forecast  to  fall  steadily 
throughout  2026,  leading  to  a  decreasing  inflation  gap  compared  to  the  euro  area  (see  Section 
2.2.3.).  Additional  evidence  on  the  temporary  and  not  broad-based  nature  of  the  increase  in 
inflation  in  2025  is  provided  by  the  median  HICP  inflation  rate  (23),  which  has  remained  below 
2.5%  since  the  beginning  of  the  year,  as  well  as  by  price  expectations  in  the  Commission’s 
consumer and business surveys, which remain below their long-term averages (24).  

Notwithstanding  their  recent  deceleration,  nominal  unit  labour costs (ULC)  in  Bulgaria  have  risen 
strongly historically, with an annual average growth of 6.3% since 2011. This trend increase in ULC 
occurred in both the tradeable and non-tradeable sectors of the economy, with a relatively limited 
difference between manufacturing and the rest of the economy. Nevertheless, the increase in ULC 
has not been associated with a loss in Bulgaria’s export market share, which increased by around 
10% between 2011 and 2013 and has remained broadly steady since then  (25). This preservation 
of  Bulgaria’s  export  market  share  was  supported  by  a  mix  of  margin  compression,  i.e.  reduced 
profits  per unit  of  exports, non-labour cost  compression,  and improved  non-cost  competitiveness 
through  a  gradual  shift  towards  higher value-added  and  tech-intensive  products  (26).  The  growth 
profile of wages and  ULC will need to be carefully monitored in the coming years in view of the 
important  implications  for  price  stability,  the  economy’s  adjustment  capacity  and  external 

(23)  Median  inflation  is  the  month-on-month  inflation  rate  of  the  component  whose  expenditure  weight  is  in  the  50th 
percentile  of  price  changes.  By  omitting  outliers  (small  and  large  price  changes),  median  inflation  provides  an 
alternative  measure  of  underlying  inflation.  The  value  above  refers  to  the  unweighted  measure  of  median 
inflation. 

(24)  European Commission, Business and consumer survey results for April 2025, Statistical Annex.   
(25)  Market performance of exports, Annual macro-economic database (AMECO) of the European Commission's Directorate 

General for Economic and Financial Affairs. 

(26)  Evidence  supporting  this  conclusion  is  also  provided  in  Ivanov  Evgeni  and  Ivanova  Neli  (2021),  ‘Determinants  of 
Bulgarian  Exports:  the  Role  of  Price  and  Non-Price  Competitiveness’,  Bulgarian  National  Bank,  Discussion  Paper 
DP/118/2021.  

39 

 
Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

competitiveness.  In  this  context,  it  will  be  important  to  focus  structural  policies  and  reforms  on 
productivity  growth, 
including  technological  upgrades  to  continue  sustainable  economic 
convergence without lasting price pressures. 

Bulgaria’s successful integration into the euro area will require the continued careful monitoring of 
inflation pressures, with longer-term inflation prospects contingent on wages growing in line with 
productivity.  In  this  respect,  continued  high  growth  in  public  sector  wages  constitutes  a  risk  for 
higher aggregate  wages in  Bulgaria. These factors  could  weigh on the adjustment potential, cost 
competitiveness and inflation prospects of the economy.  

Structural resilience and growth sustainability 

When assessing Bulgaria’s capacity to function smoothly in the euro area, an important dimension 
is  its  current  degree  of  cyclical  synchronisation  with  the  euro  area  and  risks  that  that  this 
synchronisation  may  weaken  in  the  future.  Such  a  risk  will  depend  on  Bulgaria’s  macroeconomic 
vulnerabilities and exposure to economic shocks as well as its capacity to adjust to such shocks.  

Bulgaria’s  economic  cycle  has  been  closely  synchronised  with  that  of  the  euro  area  for the  past 
two decades, both in terms of the real GDP growth rate and the output gap and it is forecast to 
continue  doing  so  in  2025  and  2026.  This  cyclical  synchronisation  is higher than  for  most  other 
non-euro area Member States. To a large extent, it is explained by Bulgaria’s highly open economy, 
its strong integration in the EU single market, and the pegging of the lev to the euro since 1999 in 
the context of the currency board framework. In turn, the latter has been backed by prudent fiscal 
policy and low government debt. Bulgaria’s trade grew strongly from the early 2000s up to its EU 
accession and then throughout its EU membership. More than half of exports and imports of goods 
and services are with the EU, with Germany, Romania, Italy and Greece being the most important 
markets. Türkiye is also an important trading partner.  

As  to  vulnerabilities  and  exposure  to  shocks,  Section  2.6.  stressed  that  the  Macroeconomic 
Imbalance  Procedure  did  not  identify  major  imbalances  in  Bulgaria  in  2025.  In  particular,  the 
country’s external  position appears  solid. The external balance (the  combined  current  and capital 
account)  has  been  positive  most  of  the  time  since  2011  and  the  net  international  investment 
position (NIIP) improved substantially from –97% of GDP in 2009 to around -4% of GDP in 2024. 
Moreover, Bulgaria’s NIIP excluding non-defaultable instruments, such as foreign direct investment 
and equity shares, has been positive over recent years and reached 46% of GDP in 2024. Bulgaria 
also  enjoys  relatively  high  export  diversification,  which  reduces  its  exposure  to  sectoral  trade 
shocks.  Measures  of  export  diversification  such  as  the  Herfindahl-Hirschman  Index  put  Bulgaria 
among the EU Member States with a high export diversification  (27). Nevertheless, two sources of 
external  vulnerability  should  be  mentioned.  The  first  is  cost  competitiveness,  which  was  already 
mentioned  in  the  subsection  on  inflation.  The  second  relates  to  the  country’s  high  exposure  to 
energy and food prices. As witnessed in recent years, shocks to global energy and food prices have 
a stronger pass-through into domestic inflation than the euro area average. The decarbonisation of 
energy  production  in  Bulgaria,  including  through  higher  investment  in  renewables,  would 
strengthen the competitiveness of the Bulgarian economy and reduce its exposure to energy price 
shocks. 

The  2025  MIP  also  identifies  two  sources  of  domestic  vulnerability:  strong  growth  in  credit  to 
households and signs of overvaluation in house prices.  Although the household debt-to-GDP ratio 
remains low, at 26% in 2024, credit flows remain high - in 2024, they were equivalent to 21% of 
the debt stock in 2023 - and has stood above the MIP threshold of 14% since 2021. According to 
the 2025 Alert Mechanism Report, house prices are estimated to be slightly overvalued by around 
10-15%, with continued strong growth in 2023 and 2024.  

(27)  Herfindahl-Hirschman  Market  Concentration  Index  a  measure  of  the  dispersion  of  trade  value  across  an  exporter’s 
partners.  It  ranges  from  0  for  perfect  diversification  and  1  for  perfect  concentration  (i.e.  lower  values  indicate  that 
exports are more diversified). 

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Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

Several  features  of  the  Bulgarian  economy  support  its  capacity  to  adjust  to  shocks,  including  its 
labour  market  and  low  public  debt.  Bulgaria’s  adjustment  capacity  was  amply  tested  during  the 
pandemic and energy crises, when the economy faced extraordinary headwinds. The contraction in 
economic activity in 2020 was lower than in the euro area and the recovery in output in 2021 and 
2022 was stronger.  

Bulgaria’s  labour  market  is  relatively  flexible  and  efficient  and  this  flexibility  should  facilitate 
adjustment to changes in economic conditions. Despite unprecedented shocks, the unemployment 
rate has declined by more than 1 percentage point since the COVID-19 crisis and now stands more 
than 2 percentage points below the euro area. However, the Bulgarian labour market also suffers 
from  some  weaknesses  in  terms  of  skills  shortages  (see  Section  2.6.2.)  and  structurally  fast 
growth in wages (see subsection on inflation above). The former requires structural challenges in 
the education system to be addressed and increases in adult training. Another positive feature of 
Bulgaria’s adjustment capacity relates to the level of its public debt. In 2024, the country’s public 
debt amounted to 24% of GDP, the second lowest ratio in the EU. In the medium term, such a low 
level of government debt should provide the fiscal space that is needed in a monetary union in the 
event of adverse shocks. In the shorter term, however, Bulgaria’s fiscal space is constrained by a 
deficit, which remains close to the 3% limit.  

Bulgaria’s  adjustment  capacity  remains  hindered  by  a  non-supportive  business  environment. 
Various  reports  and  indicators  by  international  institutions,  such  as  the  World  Bank’s  Worldwide 
Governance Indicators, IMD’s World Competitiveness Report and OECD’s Product Market Regulation 
(PMR)  indicators  (28),  point  to  an  unfavourable  business  environment,  and  low  government  and 
business  efficiency.  Businesses  in  the  country  report  that  the  most  significant  hindrances  to  a 
better  business  environment  are  corruption,  frequent  changes  in  regulations,  bureaucracy,  and 
biased public procurement (29). Businesses have also consistently complained about the quality of 
regulatory work (30) and the failure to ensure a level playing field  (31). Regulatory barriers remain 
higher in Bulgaria than in comparable countries for lawyers, notaries, architects and civil engineers. 
Improving the business environment would both enhance productivity and improve the capacity of 
firms to respond to shocks.  

In recent years, Bulgaria has implemented several reforms that should support its resilience and 
adjustment capacity. There is, however, substantial scope for further progress in this area. In July 
2019, the  country  committed  to  implementing  policy  measures  prior to  joining  the  ERM  II  in  the 
following six policy areas: banking supervision; the macroprudential framework; the supervision of 
the non-banking financial sector; the anti-money laundering framework; the insolvency framework; 
and  the  governance  of  state-owned  enterprises  (SOEs).  In  June  2020,  the  Bulgarian  authorities 
notified  the  ERM  II  parties  of  the  fulfilment  of  these  commitments,  which  the  ECB  and  the 
Commission  assessed  as  effectively  implemented.  At  the  time  of  its  ERM  II  entry  in  July  2020, 
Bulgaria  committed  to  implementing  further  policy  measures  in  the  following  four  areas:  i)  the 
non-banking financial sector; (ii) insolvency framework; (iii) the anti-money laundering framework; 
and iv) the governance of SOEs.  

Measures  implemented  in  the  non-banking  financial  sector  aim  to  improve  supervisory  practices 
and  the  governance  and  functioning  of  the  insurance  sector.  Insolvency  framework  measures 
included:  an  overhaul  of  the  legislative  framework;  training  programmes  for  insolvency 
practitioners;  development  of  manuals,  guidelines  and  specialised  electronic  tools;  and  improved 
data collection and publicity. Regarding anti-money laundering, Bulgaria committed to enhance the 
capacity  of  supervisors  and  adopt  a  risk-based  approach  to  detecting  and  countering  such 
activities. On SOEs, the authorities committed among other elements to improve their governance 

(28)  See: https://www.worldbank.org/en/publication/worldwide-governance-indicators; International Institute for Management 
Development/World  Competitiveness  Centre,  World  Competitiveness  Booklet  2024;  and  OECD’s  Product  Market 
Regulation  (PMR)  indicators,  Key  takeaways  from  the  2023-2024  update  of  the  OECD  Product  Market  Regulation 
indicators, ECO/CPE (2024)99.   

(29)  Bulgarian Industrial Association – 2024 through the eyes of the business. 
(30)  EIB Investment Survey 2022 – European Union overview.  
(31)  European Commission, 2023 and 2024 editions of the Rule of Law Report, Country Chapter on Bulgaria. 

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Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

by  ensuring  competitive  procedures  for  board  appointments  and  regular  financial  performance 
reporting.   

Bulgaria’s  recovery  and  resilience  plan  includes  an  ambitious  set  of  structural  reforms  and 
investments  but  has  faced  delays.  Bulgaria  made  some  progress  with  implementing  reforms  to 
strengthen the rule of law and improve the overall business environment. It has yet to implement 
major reforms to and investments in the decarbonisation of the energy sector, as well as further 
business  environment  reforms,  notably  on  anti-corruption.  In  April  2025,  Bulgaria  submitted  a 
comprehensive revision of its RRP, including a REPowerEU chapter, with a view to bringing the plan 
back  on  track  and  achieving  its  ambitious  objectives.  Accelerating  the  implementation  of  the 
planned  investments  and  reforms  would  strengthen  the  resilience  of  the  economy  and  ensure 
Bulgaria benefits fully from its funding allocation under the recovery and resilience facility. 

Financial resilience 

Bulgaria’s  financial  sector  has  shown  stability  and  resilience,  particularly  since  the  2009 
international financial crisis and during the COVID-19 pandemic and in the aftermath of Russia’s 
invasion  of  Ukraine.  The  banking  sector  is  by  far  the  largest  financial  subsector  in  Bulgaria, 
although it is still small relative to the size of its economy when compared to the EU and euro area 
Member States on average.  

The accession of Bulgaria to the Banking Union in 2020 led to the direct supervision by the ECB of 
5 commercial banks registered in Bulgaria, which hold approximately three quarters of all assets in 
the banking sector.  

The  banking  sector  is  well-capitalised  and  profitable.  Bulgaria’s  banking  sector  capital  adequacy 
and liquidity ratios have remained at consistently high levels. The tier-1 capital ratio is estimated 
at  22.0%  as  of  December  2024,  compared  with  an  EU  average  of  around  17.5%.  Bulgaria’s 
banking sector liquidity coverage ratio, at around 240% at end-December 2024 (32), was also well 
above  the  EU  ratio  of  around  165%  (33)  and  around  two-and-a-half  times  higher  than  the 
regulatory minimum required level of 100%.  

The banking sector records healthy profits. The sector is expected to have achieved record profits 
in 2024, driven by strong net interest income. The Bulgarian National Bank estimates a return on 
equity (ROE) at the end of December 2024 of around 16.0%. This compares with a return of 10.5% 
in  2024  for  EU  banks  (34).  The  Bulgarian  banking  sector has experienced  rapid  growth  in  lending 
over  the  past  several  years,  with  a  focus  on  mortgage  lending.  Low  interest  rates,  abundant 
liquidity  in  the  banking  system,  rapid  income  growth  and  positive  consumer  sentiment  together 
have contributed to the dynamic credit activity. In September 2024, the total amount of loans for 
households  grew  by  21.3%  year  on  year,  while  loans  to  non-financial  corporations  (NFCs) 
increased  by  9.1%.  The  prolonged  period  of  strong  lending  activity  leads  to  a  possible 
accumulation  of  credit  risks  in  the  banking  system’s  balance  sheet,  which  in  the  medium  term 
could  put  some  downward  pressure  on  the  high  levels  of  profits  by  Bulgarian  banks.  However, 
while the ratio of non-performing loans (NPLs) remains relatively high, the rapid increase in loan 
volumes has not translated into growing NPLs. The share of non-performing exposures continue to 
decline to historically low levels in all major segments of the banks’ loan portfolio, mostly due to 
write-offs  and  sales  of  NPLs.  A  roadmap  on  the  insolvency  framework  reform  was  adopted  in 
2019 as part of the ERM II prior-commitments to prepare Bulgaria for successful participation in 
ERM II. The ERM II post-entry commitment on insolvency sought to implement the roadmap. To this 
end,  the  changes  to  the  Bulgarian  Commercial  Act  in  2023  and  secondary  legislation  aim  to 
address  long-standing  shortcomings  in  Bulgaria’s  insolvency  and  restructuring  regime.  The 
legislative amendments and measures to implement these are also part of the Bulgarian RRP. In 

(32)  Banks in Bulgaria October–December 2024, Bulgarian National Bank  (see: 

https://www.bnb.bg/bnbweb/groups/public/documents/bnb_publication/pub_b_in_b_2024_12_en.pdf). 

(33)  Liquidity  coverage  ratio,  EU  countries  participating  in  the  Single  Supervisory  Mechanism.  ECB  Data  Portal  (see: 

https://data.ecb.europa.eu/data/datasets/SUP/SUP.Q.B01.W0._Z.I3017._T.SII._Z._Z._Z.PCT.C).  

(34)  European Bank Authority, Risk Dashboard Q4 2024. 

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Convergence Report 2025 on Bulgaria - Technical annex 
Chapter 2 - Bulgaria 

recent  years,  the  Bulgarian  National  Bank  has  repeatedly  increased  the  countercyclical  capital 
buffer rate applicable to domestic credit risk exposures to further strengthen the resilience of the 
banking  system  and  prevent  an  excessive  build-up  of  risks.  The  Bulgarian  National  Bank  also 
introduced borrower-based measures targeted at low-income higher-risk borrowers as of October 
2024.  

Bulgaria’s capital market is underdeveloped and does not adequately support financing needs for 
both the government and corporates. Recent initiatives could help increase capital market growth 
by  increasing  financial  literacy  and  engaging  market  participants.  In  April  2023,  the  Bulgarian 
Ministry of Finance published a report, which included 60 recommended actions, with the objective 
of  increasing  the  availability  of  investable  assets  and  the  level  of  trust  in  the  Bulgarian  capital 
market and ultimately making the use of the capital markets cheaper and more efficient within a 
time horizon of 5 years (35). Over the past few years Bulgaria has been a net lender to the rest of 
the world, partially due to limited domestic investment opportunities, depicted by still underutilised 
and  relatively  inefficient  domestic  capital  markets.  Local  private-equity  (PE)  and  venture-capital 
(VC) markets remain too small to meet the financing needs of innovative firms. In addition, VCs in 
Bulgaria  focus  more  on  early-stage  businesses,  which  is  positive  for  innovation  but  may  pose 
challenges when scaling start-ups, supressing growth prospects. 

The  supervisory  framework  for  Bulgaria’s  non-banking  financial  sector  has  been  significantly 
strengthened both in preparation for the country’s Exchange Rate Mechanism II entry in 2020 and 
since  then,  in  addressing  post-ERM  II  policy  commitments.  The  insurance  market,  though  highly 
concentrated, remains significantly smaller than the EU average, with notable distinctions between 
its  life  and  general  insurance  segments.  The  low  insurance  penetration  and  steady  economic 
growth  present  promising  opportunities for  insurers to  grow  and both  life  and non-life  insurance 
are projected to expand rapidly in the years to come.  

Conclusion 

The  broad-based  analysis  of  underlying  factors  relevant  for  the  sustainability  of  Bulgaria’s 
convergence suggests that sufficiently robust conditions are in place for the country to be able to 
maintain  a  sustainable  convergence  path  in  the  medium  term,  thus  supporting  a  positive 
assessment.  However,  significant  challenges  remain,  and  policy  discipline  will  need  to  be 
maintained in a determined  manner to fully exploit the benefits of participation in the euro area 
and minimise risks to the convergence path going forward.  

(35)  Bourse  Consult  (2023),  ‘Bulgaria:  Diagnostic  of the  State of  the  Capital  Market’, Gap  Analysis and  Recommendations 
(https://reform-support.ec.europa.eu/publications-0/bulgaria-diagnostic-state-development-

Reports,  August  2022 
bulgarian-capital-market-gap-analysis-and-recommendations_en). 

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