Is there a way forward for the new government?

Bulgaria has a regular government. Against the backdrop of the wave of comments and public noise of recent days, the formation of a governing majority opens the possibility of unclogging the work of parliament and implementing numerous policies that were hostage to the long-standing blockage. An interesting point in the new coalition is that the legislative and management program are not predetermined at the time of the government vote, but will be shaped in the next 30 days. This means that the terrain for ideas and the preparation of reform proposals is open.

At the end of October 2024, a few days after the parliamentary elections, IME presented its White Paper "Unlocking Growth: The Way Forward After the Elections". The publication provides a direction for development in terms of fiscal policy, demography and human capital, the rule of law, investment, competitiveness and economic growth. Building on the ideas and proposals in the White Paper, what direction can we give to the upcoming management and legislative program of the government?

The budget will be one of the first tasks of the new government. The new Minister of Finance must rewrite the framework of state finances for 2025 and move towards adopting the budget by the end of March at the latest. The big challenge here is to contain the growth of the expenditure side, including the excessive growth of personnel costs, and to bring the deficit within 3 percent of GDP without resorting to increasing taxes. The latter would mean a real withdrawal from the disposable income of Bulgarians and a cooling of the investment activity that has already been suppressed in recent years;

Bulgaria must prepare its medium-term fiscal and structural plan, which shapes the country's fiscal framework in the coming years and contains commitments for reforms and investments. The path to eliminating the deficit in public finances passes precisely through this plan. The goal in the medium term should be to return consolidated expenditures sustainably to levels of around 38% of GDP, which is a necessary prerequisite for a balanced budget and maintaining basic tax rates;

The adoption of the euro from 1 January 2026 is shaping up as a very realistic scenario. Current inflation data, as well as forecasts for 2025, show that Bulgaria will meet the price stability criterion in the first months of the year. This means requesting an extraordinary convergence report in the coming weeks and receiving the green light for the country to adopt the euro from the beginning of 2026 in the spring. This goal should also focus additional attention on the budget and fiscal sustainability;

Financial stability and the adoption of the euro can be put in brackets as basic macroeconomic anchors, but they do not in themselves guarantee prosperity and cannot be the ultimate goals of a government. Such a fundamental goal in the medium term could be, for example, achieving 75% of the EU average in terms of GDP per capita in purchasing power standards. Currently, Bulgaria is at 64% in terms of this indicator. Reaching the 75% mark means sustainable economic growth in the coming years and catching up with the group of new member states from the Central and Eastern European region, most of which are in the range of 75-90% of the EU average;

However, sustainable catching-up economic growth requires a series of measures to increase investment activity, including incentives for investments in fixed capital and a fast track for the preparation of industrial sites, maintaining high employment and a targeted policy towards inactive persons, as well as huge efforts in the field of education with a focus on the acquisition of knowledge and skills. All this supports the increase in productivity, which allows for a real increase in added value and disposable income. Without an increase in investment activity and targeted policies in support of human capital, the overtaking growth and catching up with the successful examples from the region will not happen;

Each of the areas mentioned so far has been examined in detail in the IME White Paper, both as a direction of action and as specific and achievable goals in the medium term. A large part of these policies does not encounter any insurmountable obstacle and can actually happen. Both the stimulation of investment activity and the possible measures towards the quality of school education or the activation of the labor market are widely expertly and technically aware and fully applicable within the framework of the new majority;

However, the major challenges remain not only in the desire of the new ministers to be reformers, which in modern times is simply equal to taking steps that have long been present in numerous technical reports, and in the deeper structural changes that already affect the real distribution of power and dependencies in the state. This includes, for example, the issue of financial decentralization and the municipalities' own resources, which have been on the agenda for decades and have been diligently avoided by every government. Without more own resources and, accordingly, policy instruments for local authorities, the regional map will remain highly unbalanced;

The biggest stumbling block, quite expectedly, is in the judiciary and regulators. All international studies show that Bulgaria has its competitive advantages, but loses to the successful examples of Europe precisely in terms of the rule of law and the work of institutions. If the new coalition adopts a model of "quiet, meek and calm" governance in the judiciary, all efforts on the above points will be severely limited and we will once again be at the bottom of Europe.

These are just a few markers for the possible way forward with a regular government. The full version with the fundamental goals for the country in the medium term and policies for their achievement can be seen in the IME White Paper "Unlocking Growth: The Way Forward After the Elections": https://ime.bg/analyses/byala-kniga-na-ipi-otklyuchvane-na-rastezha-pytyat-napred-sled-izborite/