The decision to take on more government debt shows a lack of resolve to implement reforms
The government has already submitted the 2026 draft budget to the National Assembly. Questions have been raised about whether the draft is ambitious enough in terms of cutting budget expenditures, how raising the maximum social security income threshold will affect businesses, whether it is appropriate to compensate civil servants for having to pay their own social security contributions, and what the main obstacles to business development in Bulgaria are, we turned to Ivan Mihaylov, CEO of the American Chamber of Commerce in Bulgaria.
Mr. Mihaylov, the draft regular budget for this year is now ready. Do you think it is ambitious enough in terms of cutting spending, increasing revenue, and reducing the deficit?
Representatives of employer organizations and bilateral chambers here in Bulgaria believe we understand the difficulty of the situation the government faces regarding a number of strategic issues. This is also the case with the 2026 Budget – or at least the portion of it covering the remainder of the calendar year. At the same time, they must also prepare the 2027 Budget. Our analysis shows that what they presented last week, unfortunately, does not meet the expectations of either citizens or the business community.
The projected expenditures across a number of budget lines – and especially for capital expenditures and government operations – exceed by a wide margin what is reasonable to anticipate. The proposed 2026 Budget reflects an unhealthy continuation of the previous two budgets, which siphoned off added value from some of Bulgaria’s industries. Moreover, the approved decision to take on additional government debt demonstrates a lack of resolve to implement reforms, such as downsizing the government bureaucracy and cutting unnecessary expenditures, a review of all infrastructure projects that lack both economic and practical rationale, and an effort to halt expenditures that “flow” without the necessary oversight by the political force that won an absolute majority.
Although it is easy to offer an opinion from the sidelines, perhaps the discussion on public spending would have been easier if both budgets – the remaining one for 2026 and the upcoming one for 2027 – had been presented to the public. And not just that, but they should have highlighted the trajectory of reforms, effective governance, strategic development by sector, as well as the state’s diminishing role as an owner and its growing role as a good regulator and strategist with a long-term vision.
The maximum taxable income is set to rise to 2,300 euros as of August 1, and for now, the plan is for this level to remain in place for 2027 as well. Does this change strike a good balance between the capabilities of businesses and the desire to increase budget revenues?
The American Chamber of Commerce, along with other business voices, has been advocating since the introduction of the Global Corporate Tax against raising the maximum social security income threshold, as well as other social security contributions. We understand that the social security and health insurance systems are struggling; we see that there is a demographic crisis and an aging population. But how can we encourage workers to stay in Bulgaria, to have families with more than one child in this postmodern world, and not even to consider economic migration when the terms of their compensation change? What’s more, the burden on businesses may already be causing decision-makers on their boards outside Bulgaria to stop viewing our otherwise beautiful country as a good place to do business. These are the questions every leader should keep in mind when proposing measures to tax the income of the working population. Yes, social justice is needed, but so is an honest approach – one that a long-term administration can establish as part of its guiding principles. As well as a reform agenda coordinated with the business community. Because Bulgaria must not fall behind 21st-century trends; rather, it can and must be among the leading countries in a number of sectors.
Business representatives have called for government employees to pay their own social security contributions. The draft budget provides for this to happen, but with compensation in the form of a pay raise. Is this the right reform?
The need for civil servants to pay their own social security contributions is part of the sensible solutions proposed by the business community for at least 20 years. Yes, this is the right reform, as is the one that follows it – ensuring that no civil servant has two or more contracts – an employment contract and a civil service contract – for similar work. Moreover, perhaps we need a different approach to civil servants – and I don’t want to generalize here, but we still have a long way to go toward more extensive digitization of processes in the public administration, transparency in decision-making, and efficiency.
Do you see any positive reforms in the budget that will help improve the business environment?
Along with the introduction of the 2026 Budget, the government has launched a campaign to reduce or eliminate regulations and procedures, which would reduce the administrative burden and unnecessary bureaucracy. This, combined with the digitization of processes, may lead to the expected simplifications and an improved image of the administration. We expect a more intensive and consistent dialogue between the executive branch and the business community, with the participation of bilateral chambers in these forums. Joining the eurozone is an indisputable success for Bulgaria, and accession to the OECD should not be viewed as merely a “badge of honor,” but rather as achieving the required level of good governance, as defined by their standards.
An increase in vignette prices and toll fees is planned. How will this affect businesses in the country?
Like any increase in customs duties, excise taxes, direct and indirect taxes, the rise in toll fees will be passed down the consumption chain to business customers, which will reduce citizens’ purchasing power. And for them, the effect of this increase may lead to even greater expectations for better roads, fully completed highways, new connectivity, and more transparent public procurement processes for their implementation.
The government has declared that it will not raise taxes. Is that enough to encourage investment in Bulgaria?
When we discussed the maximum taxable income and toll fees, as well as the current tax increases, all these pressing “extractions of value” from domestic producers as well as from consumers are part of the overall picture that every investor – current and future – considers, and they are part of the decision-making process.
The draft budget is based on a forecast of slower economic growth this year. Is the conflict in the Middle East the main reason for the economic slowdown, or are there other factors as well?
Indeed, we are living and working in unpredictable times. No one expected that Russia would invade Ukraine in 2022, nor that the U.S. and Israel would take decisive action against Iran’s nuclear program. No one expected that we would also face a political crisis lasting over six years, nor that we would suddenly find ourselves in a situation of an absolute parliamentary majority. That is why we fully understand the planning of the macro-framework for every state budget. But attributing the structural defects and strategic problems of the Bulgarian economy – such as unreformed sectors like education, healthcare, the labor market, energy, and others – to external factors is not substantive. It may sound simplistic, but what would happen if we suddenly decided to reform and improve these sectors? What would happen if we stopped squandering public resources – such as water – when forests aren’t being set on fire intentionally, or granting unprofitable concessions, or tolerating polluting industries that harm people? And what would happen if the state protected established and transparent investors, as well as promoted preventive healthcare among its citizens, thereby freeing up funds for other treatments? What would happen if Bulgaria began to explore and utilize its natural resources – metallic minerals, rare earth elements, geothermal energy, natural gas, and even oil, along with wind and solar energy – in an economically viable and strategically profitable manner? What would happen if the war in Ukraine ended, a just and lasting peace were achieved, and it then turned out that both of the until recently warring parties – the aggressor and the victim – needed economic recovery to varying degrees? These are rhetorical and important questions that directly concern Bulgaria and the reality here.
Among the first laws passed by the new parliament were amendments to the Competition Protection Act and the Consumer Protection Act. Will these lead to lower prices at major retail chains, or will they have the opposite effect?
We are fully aware that inflation rates cause political and social tensions, and that expectations have been raised that these issues will be addressed for the benefit of Bulgarian citizens. During the intense disagreements within the business community over the rapidly proposed and passed amendments to the Competition Protection Act and the Consumer Protection Act, our organization expressed its position. We did not agree that the entire focus of the legislative and executive branches’ efforts should be concentrated solely on one of the key segments of the extremely long and complex chain through which food reaches Bulgarian citizens’ tables from the farm. Although some of the provisions were amended during the second reading in the National Assembly’s Ad Hoc Committee on Budget and Finance, the legislature decided to have the Competition Protection Act introduce a series of measures that violate the rules of free competition and the market economy, and even infringe upon rights. Among these are: an unacceptable infringement on the right to defense and due process; and the introduction of interference in trade policy and pricing through the imposition of “temporary measures.” What other options would a business like this have, given that its arguments have not been taken into account? Its only recourse – to continue operating in Bulgaria – is to seek redress in a court in Sofia, Luxembourg, or Brussels. If this were merely an administrative burden, like many others, companies would adapt by allocating additional resources – time, personnel, budget, and technology – which are unplanned expenses in the middle of the year. Some of these measures reverse the legal paradigm – the principle of “innocent until proven guilty” becomes invalid, and companies in this sector must prove to institutions and the public that they are in compliance, because they are suspected of violations without any evidence. Which, in turn, is yet another paradox – companies in the modern retail sector not only account for less than 50% of the total volume of the “Food Trade” sector, but have also been operating entirely above board for years, meeting numerous legal requirements and even applying even higher standards regarding food, people, and corporate responsibility.
The changes that have already been voted on call for the creation of a Central Registry for the traceability of wholesale supplies. Will this have any positive effect on the market, or will it simply increase bureaucracy for businesses?
The introduction of a new Central Registry for supply chain traceability is yet another extremely heavy administrative burden that creates the risk of increased costs for business operators, without any guarantees to protect trade secrets from competitors. New definitions of unfair commercial practices have been introduced in the Competition Protection Act, while the Consumer Protection Act addresses the prohibition on price increases without an objective economic justification – for which there is neither a methodology, nor a formula, nor consensus on how it will be determined. And although no law defines the term “speculation,” this phenomenon is beginning to emerge. Furthermore, pricing is one of the core elements of any company’s business model. This central registry would cause harm to everyone in the supply chain and overturn fundamental economic concepts such as “supply and demand” .
What are the main obstacles to business development in Bulgaria?
Although we’ve grown tired of the word “strategy,” I would replace it with the phrase “direction of development” for Bulgaria. What kind of country do we want to have in five or fifty years? Perhaps what’s missing is a vision that conveys a sense of stability and predictability – which are necessary for both individual citizens and every business.
Saturday is July 4, U.S. Independence Day. What is the main difference between doing business in the U.S. and in Bulgaria?
That’s a difficult question, because just as the U.S. has federal laws, it also has individual state laws – each with its own specificities. Still, in the 250 years since its founding, the U.S. has established itself as the benchmark for free enterprise, democracy, innovation, and optimism. Perhaps this is where the differences with Bulgaria lie. We have been a democracy for less than 40 years; our market economy is even younger (since privatization in Bulgaria did not begin until after 1999); there is innovation here, but it is not yet a driving force in the economy – and unfortunately; Bulgarian optimism and belief in one’s own abilities are qualities that, if we fail to acquire them in school, are supported by non-governmental organizations, individual entrepreneurs, and other rare exceptions who want to see Bulgaria succeed, develop, and become even freer.