site.btaPublic Sector Personnel Costs Hit All-Time High, Says Institute for Market Economics

Personnel costs covered by Bulgaria's state budget will reach BGN 22.8 billion in 2025. This compares to BGN 7.1 billion ten years ago, which means a 3.2-fold increase. Over half of the increase has come in the last three years. There is a structural dimension to the change as well. Earlier, personnel costs in the state budget were usually in the order of 7% to 8% of GDP. In the 2025 budget scheme, they are set at 10.6% of GDP, which is an all-time high, says Petar Ganev, senior research fellow at the Institute for Market Economics (IME), in an analysis published on the IME website on September 19.

Ganev attributes the disproportionate growth of personnel costs this year mainly to parliamentary decisions in 2024 establishing automatic mechanisms for determining the size of salaries in a number of sectors, above all the "power" agencies. These mechanisms threaten to blow up the expenditure side of the state budget for 2025, he argues. Salary increases of 40% to 50% are already a reality in some spheres, as evidenced by budget implementation data.

Reports by government departments and agencies for the first two quarters of 2025 show that in some sectors, salaries increased by 30% to 40% in the first half of the year, the analysis goes. In the system of the Ministry of Interior, personnel costs in the first six months of 2025 amounted to BGN 1.9 billion, going up by more than 40% compared with the first half of 2024. In the Defence Ministry system, personnel costs reached BGN 1.2 billion in the first six months of this year, rising by 35% from the same period last year. These two departments alone spent BGN 3.1 billion on personnel in the first half of 2025.

Similar developments have unfolded in other "power" agencies as well, the analysis says. Personnel costs in the State Agency for Technical Operations grew by 41%, in the State Agency for National Security by 38%, and in the National Service for Protection by 36%. The Ministry of Justice has also reported high levels of salary increase.

In other departments, the picture is different. Sectors where there are no such automatic salary increase mechanisms – that is, sectors which do not enjoy special (and puzzlingly generous) treatment by the National Assembly – are coping with far lower salary increases. In important departments such as the ministries of finance, health, and social policy, personnel costs have increased by between 5% and 10%, which is a normal level, given the economic reality (including inflation), and is commensurate, for example, with the rise in pensions (8.6%).

Departmental reports for the first half of 2025 show that the overambitious policy of boosting incomes in selected sectors puts a heavy burden on the state budget as it causes additional expenses roughly equivalent to 2 percentage points of GDP compared with the all-time high. At the same time, this public-sector policy gives extra upward pressure on inflation and on labour costs in the private sector (for example, through the minimum wage mechanism), the author says.

Budget consolidation in 2026 is a must, and it requires revoking all automatic rules and restraining the growth of personnel costs, the author insists. If the authorities miss the moment, financial corrections in 2027-2028 will be inevitable and much more painful. This is largely confirmed by the conclusions of a recent International Monetary Fund mission to Bulgaria and by all independent experts and bodies (such as the Fiscal Council) whose work pertains to budgetary stability, Petar Ganev concludes.

IME intern Radostin Dyankov contributed to this analysis.