site.btaMedia Review: February 19

PARIS MEETING ON UKRAINE

On Wednesday morning it transpired that Bulgarian Prime Minister Rozen Zhelyazkov will take part in the second Paris meeting on Ukraine via video conference. The news reports and commentaries included in the media review predate that announcement.

France plans to host a second meeting focused on Ukraine and the discussion of European security. This time, European countries that were not present at the previous meeting, as well as Canada, a NATO ally, have been invited. The meeting, scheduled for Wednesday, was announced by French officials. Invited countries include Norway, Canada, the three Baltic states—Lithuania, Latvia, and Estonia—Czechia, Greece, Finland, Romania, Sweden, and Belgium. Bulgaria, along with Slovakia and Hungary, has once again been left off.

Meanwhile, President Macron reassured that France is not planning to send French troops to a combat zone, according to AFP. He, however, clarified that while France does not plan to send troops to combat zones, there may be a possibility of deploying experts or even military personnel for a limited period outside any conflict zone. This would be done to reassure Ukraine and show solidarity, particularly after decisions regarding security guarantees for Kyiv within the framework of a potential peace agreement with Moscow.

He also mentioned his readiness to engage in talks with his Russian counterpart "at the appropriate moment in the upcoming negotiations cycle." Additionally, he referred to the potential for a UN-mandated peacekeeping operation along Ukraine's frontline as part of the negotiations.

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Bulgaria's hesitancy to take a strong stance on European security matters has been highlighted as a reason for its absence in key discussions, said in a televised interview former defence minister Todor Tagarev, commenting on the recent diplomatic developments for ending the war in Ukraine.

According to him, it is necessary to convene the Consultative Council on National Security to discuss the matter, as Europe needs to emancipate itself from the US in terms of its own defence.

"Europe is integrated in many areas, but it has never had a common defence policy until now," Tagarev said. He emphasized that Bulgaria has a good defence industry, being among the top three producers of ammunition and small weapon systems in Europe. However, the former minister noted that while Bulgaria’s army, calculated per capita, is not one of the smallest in Europe, the country needs to better integrate into European processes for collective defence and security.

According to Tagarev, Ukraine lacks the resources to fully liberate its territories and has shown indications that it might be willing to accept temporary borders without officially recognizing them, provided it receives security guarantees.

POLITICAL LEADERS REJECT IDEA ABOUT SENDING TROOPS TO UKRAINE

Even before the matter was raised in Parliament, political parties and President Radev firmly rejected the idea of sending Bulgarian troops to the war zones in Ukraine. While peace between Russia and Ukraine has not yet been achieved, the fear of potential military involvement in the conflict briefly emerged in Bulgaria, only to be quickly dispelled. This fear has been present since the beginning of the war, fuelled from time to time by various politicians in Bulgaria, despite the fact that the deployment of NATO forces has never been officially discussed among partners.

However, ahead of the anticipated negotiations between Moscow and Washington, it was revealed that the US has sent six key questions to EU member states on Saturday. In the document, European governments were asked what they could contribute to security guarantees for Ukraine. This was seen as a positive signal, suggesting that the US is interested in understanding what the Europeans need from Washington to contribute to peace negotiations. However, it appears that the US is seeking concrete answers, which the EU still does not have at this point.

Ukrainian President Volodymyr Zelensky initially called for the West to deploy 200,000 peacekeepers on Ukrainian territory. However, he later reduced the number by half. According to The Washington Post, the EU may send between 25,000 and 30,000 peacekeepers. Additionally, the EU is preparing a massive aid package for Ukraine worth EUR 700 billion.

WHAT'S IN THE 2025 DRAFT BUDGET

Late on Tuesday evening, the Finance Ministry published the draft state budget for 2025 and the medium-term budget forecast through 2028. Finance Minister Temenuzhka Petkova is travelling to Brussels on Wednesday to present Bulgaria's progress regarding preparations for adopting the euro to the Eurogroup. 

The draft budget foresees a wage increase in the public administration of up to 5%, instead of the initially planned 10%. Salaries in the army, Ministry of Interior, and of teachers will see higher increases. Additionally, the draft includes an increase in the pension insurance contribution by 1% starting in 2027. Another similar increase is planned for 2028, but without the defence sector. For this year and the following year, the contribution rate will remain unchanged.

A record-high increase in revenues in preserved in the budget, reaching BGN 90.2 billion, or 41.9% of the country's GDP. By comparison, preliminary estimates suggest that the 2024 fiscal year will end with revenues of BGN 71.9 billion. Planned expenditures stand at 96.7 billion BGN, or 44.9% of GDP. The budget balance shows a deficit of 6.4 billion BGN, or exactly 3% of GDP. This is also one of the criteria for Bulgaria to apply for membership in the Eurozone. Revenues, aid, and donations under the national budget for the period 2025-2028 are projected to vary from 38.1% to 38.8% of GDP.

Expenditures, transfers, and the contribution to the EU budget in the national budget for the medium-term period will vary from 40.5% to 41.0% of GDP. 

In 2025, toll fees are expected to increase, leading to a revenue boost of BGN 198.9 million, bringing the annual revenue to BGN 711.5 million.  The annual vignette for passenger cars will also increase to 97 BGN.

The macroeconomic forecast envisages economic growth of 2.8% in 2025 and 3% in 2026. The expected annual inflation rate for next year is 2.6%.

Part of the measures aimed at increasing revenues are related to scrapping the reduced VAT rate for restaurants and hotels, as well as the zero VAT rate for bread. Additionally, the possibility of not receiving receipts at gas stations will be limited.

The removal of the reduced 9% VAT rate for tourism services and sports facilities, restaurant and catering services, is expected to generate BGN 371.5 million in additional revenues for 2025. The scrapping of the zero VAT rate for the supply of bread and flour is anticipated bring in an extra BGN 93.4 million.

A crackdown on the shadow economy in the fuel sector, through limiting the use of unreceived receipts at gas stations for issuing invoices that fraudulently claim VAT deductions, is expected to generate an additional BGN 200 million in revenues for 2025.

The Finance Ministry of Finance is expected to submit the draft budget by the end of next week. On February 24, it will become clear whether Bulgaria meets the price stability criterion, as Eurostat will publish the January data. 

The government has repeatedly stated that Bulgaria will request the preparation of a convergence report to assess whether the country meets all the criteria for Eurozone membership when the data shows that compliance with requirements. Among these are a budget deficit of up to 3% of GDP and an average annual inflation rate that does not exceed the inflation rate of the three EU member states with the best performance by more than 1.5 percentage points.

Speaking on the morning programme of bTV, former finance minister Assen Vassilev said that Continue the Change - Democratic Bulgaria will not support the proposed budget, saying that that it is based on incorrect calculations and is "downright outrageous".

Vassilev criticized the 3% deficit target in the budget, saying that it is achieved through an unrealistic 30% growth in VAT revenues. He argued that VAT revenues are more likely to increase by around 12% at most.

However, Vassilev highlighted more controversial aspects of the budget, including the freezing of all social payments for the upcoming years. He also noted that the Ministry of Interior's budget calculations were flawed, stating that the gross salary from the second quarter was used to determine wage increases instead of the net salary. This resulted in a 25% discrepancy, which, according to Vassilev, could have been used to increase pensions. "These few hundred million could have been better allocated to support pension increases," he added.

Vassilev also said that Brussels knows how to read numbers and will ask how VAT revenues will be increased. He emphasized that this budget could still be corrected, even during the second reading in parliament.

According to Vassilev, in order to make improvements, the budget’s expenditures would need to be reduced by BGN 1-2 billion, and the salary calculations for the Interior Ministry would need to be adjusted. He suggested that while it may not be a popular decision, it would be feasible for salary increases to take effect from April 1 instead of January 1, which would still make a difference.

Vassilev also criticized the excessive capital expenditures in the budget, referring to them as "just handing money to construction companies." He cited the example of the Ruse-Veliko Tarnovo highway, which is still in the planning stages, yet BGN 100 million has been allocated for it in the budget. "But this is too large an amount for just the design phase; it's unlikely that construction will even begin this year," he remarked. However, the design phase is only for one third of the highway, while one third of it has already been under construction since last year.

Vasil Velev: Pensions Have Outpaced the Economy's Capacity

Speaking on NOVA TV, Vasil Velev, Chairman of the Bulgarian Industrial Capital Association, said that no one has been disadvantaged by the new budget. Pensions have exceeded the economy's capacity. They are increasing more than inflation."

The government has proposed a 5% increase in pensions starting from July 1, foregoing the traditional Swiss rule. According to Velev, there could also be salary increases in the administration, but at the cost of job cuts.

Entrepreneur Tanya Skrinska added that the budget was designed to help Bulgaria join the Eurozone. "If every second pensioner is working, it means people simply don’t have enough money," she commented.

Regarding food prices, Velev noted that large foreign retail chains have already entered the market, and food distribution is concentrated mainly in four major players. He emphasized the need to assess whether there is real competition among them.

CABINET MAKES PUBLIC GOVERNANCE PROGRAMME

Massive investments in infrastructure, healthcare, and education, along with the rapid modernization of the armed forces with involvement of Bulgarian defence manufacturers—will be the key priorities for Rosen Zhelyazkov’s government, according to 24 Chasa.

The cabinet made public its governance programme on Tuesday evening, ahead of a governance council of GERB, There Is Such a People, the Bulgarian Socialist Party and DRF. The program spans nearly 100 pages, with ministers setting performance indicators for the tasks. It was drafted under the leadership of Deputy Prime Minister Tomislav Donchev. After receiving approval from the governance council, the program is set to be adopted at a government meeting.

The government of Rosen Zhelyazkov considers the consolidation of the budget its most urgent and critical task.

The priority of Bulgaria's entry into the Eurozone is outlined in the program with the wording "integration of Bulgaria into the European economic and financial system." This phrasing reflects the scepticism towards rapid Eurozone accession from coalition partners TISP and BSP.

Currently, the government and Finance Minister Temenuzhka Petkova plan to request an ad hoc assessment from the European Commission and the European Central Bank by the end of February to determine whether Bulgaria can adopt the euro from January 1, 2026. The government also plans to renegotiate the conditions of the National Recovery and Resilience Plan with the European Commission. So far, Bulgaria has absorbed only EUR 1.3 billion from the plan, and the country faces the risk of losing over BGN 2 billion BGN due to unfulfilled reforms.

In addition, the government will attempt to address some of these issues, although there is no consensus among coalition partners on matters like the fate of coal-fired power plants.
The program also specifies that financial stability and economic competitiveness are fundamental for the country’s long-term development. A sustainable financial environment is seen as a prerequisite for economic growth, while a competitive economy is key to maintaining macroeconomic stability.

Special attention will be given to the creation of industrial zones for innovative production, which aims to increase the added value of Bulgaria’s economy.

In the areas of justice and internal order, the ministers have emphasized the goal of removing Bulgaria from the "grey" list of countries involved in money laundering. At the end of October last year, Bulgaria was placed under enhanced monitoring due to insufficient capacity in combating money laundering and terrorist financing. The fight against corruption, organized crime, and cross-border criminal networks is also highlighted in the program.

Bulgaria will follow a strategy for the diversification of energy sources, the development of nuclear energy, and investment in green technologies with the goal of providing predictable and affordable prices for consumers. Energy efficiency will be increased, with a focus on reducing dependence on external suppliers.