Bulgaria

Bulgaria has undergone a significant transformation over the past three decades. It has moved from a highly centralized, planned economy to an open, market-based, and as of July 1, 2024, a high-income economy securely anchored in the European Union (EU). On January 1, 2026, the country adopted the euro, after successfully meeting all criteria for eurozone membership in early 2025, marking a significant milestone in its EU integration path.

Bulgaria’s EU accession in 2007 raised expectations that living standards would rapidly rise and match average EU levels in a relatively short time span. By 2025, convergence reached 68% of the average GDP per capita in the EU in purchasing power parity terms but the country remains one of the poorest EU member states. Robust growth has contributed to poverty reduction from 4.4% in 2023 to estimated 4% in 2025 and improved living standards Nonetheless, income inequality is the highest in the EU, intergenerational mobility is limited and regional disparities are substantial and continue to expand.

Bulgaria continues to face multiple development challenges. A key horizontal constraint to be addressed is strengthening institutions and improving governance. This would unlock productivity, investment and private sector job creation, while also resulting in improved public services. A rapid decline of the population—one of the fastest globally—also limits the country’s economic potential while exerting increasing pressure on public health and pension systems.

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Real GDP growth remained robust at 3.1% in 2025, proving the economy’s resilience to external uncertainty and domestic political instability. Despite weak export performance, domestic demand—particularly private consumption and investment—supported overall growth.

Despite strong domestic demand and credit growth, inflationary pressures remain contained. Annual inflation averaged 3.5% in 2025 against 2.6% in 2024. Fears of a significant acceleration of inflation upon eurozone accession have proven overstated.

The fiscal deficit met the government’s target of 3% of GDP in 2025, partially due to a late-December disbursement of the third EU tranche under the National Recovery and Resilience Plan of EUR 1.47 billion. While the massive increase in capital spending in 2025—including improved absorption of EU funds—has been welcomed, the 20% expansion of the public sector wage bill has increased the rigidity of an already inelastic fiscal position.

Economic growth is expected to slow to 2.6% in 2026 due to the direct and indirect effects of the Middle East conflict. As a net energy importer, Bulgaria is particularly vulnerable to the projected increase in oil and gas prices. Higher energy costs are expected to weaken domestic consumption, weigh on net exports and moderate economic activity.

Annual average inflation is projected to reach 5.0% in 2026, driven largely by the energy price oscillations. This would disproportionately affect poorer households, reducing real incomes and slowing poverty reduction.

Risks to the outlook are tilted to the downside. Persistent domestic political instability, weaker growth in the eurozone, or a protracted Middle East conflict could limit economic growth, underscoring the need to safeguard social spending. On the upside, eurozone accession could enhance investment, tourism and foreign trade, and support jobs and earnings.

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The World Bank Group has been a development partner to Bulgaria since 1990, supporting the country on its remarkable transformation over the past three and a half decades. Gradual convergence to average EU incomes has been underpinned by deep trade integration with European Union (EU) partners, and sizable inflows of foreign direct investment (FDI) and EU structural and cohesion funds.

Despite this progress, structural challenges continue to hamper future productivity and private sector growth. Moreover, institutional weaknesses and unfavorable demographics are already leaving a significant trace on the country’s human capital.

However, with ambitious structural reforms, focused on stronger productivity growth and firms moving up the value chain, the country could converge to average real income in the EU within the next 15 years, ensuring more and better jobs and improved standard of living for its population.

To assist Bulgaria to tackle these challenges, the World Bank has been focusing its support on increasing competitiveness and digital inclusion, supporting more resilient and inclusive service delivery, enhancing renewable energy generation and energy efficiency and addressing bottlenecks to private sector growth and productivity with an increased emphasis on private sector mobilization.

The International Finance Corporate (IFC), member of the World Bank Group, continues to play an important role in Bulgaria; promoting PPPs (Public Private Partnerships) and modern and upgraded critical infrastructure; accelerating the adoption of cleaner energy sources; strengthening the capital and liquidity of local banks focused on small- and medium-sized enterprise growth; increasing the capacity of Bulgarian venture capital and private equity ecosystem; and mobilizing greater amounts of private sector capital.

Attracting private investments and promoting the creation of new and better jobs remains a priority for the World Bank Group, saving and prioritizing the use of scarce public resources available in the country.

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On September 12, 2024, the World Bank Group’s Board of Executive Directors endorsed the new Country Partnership Framework (CPF) FY25-29 for Bulgaria, aimed at enhancing competitiveness and social inclusion while promoting a low-carbon and more sustainable economy. This CPF provides a roadmap for World Bank Group engagement for the current EU programming cycle through 2029. Engagements include:

• The International Bank for Reconstruction and Development (IBRD) has, during the last three decades, provided Bulgaria with $3.3 billion in financing spread across 45 operations. IBRD’s current portfolio consists of knowledge products, dominated by advisory services offering technical support to the authorities in diverse sectors, including, air quality improvement, energy, governance, forestry, education and skills, transport, and territorial development.

• The International Finance Corporation (IFC) has committed $3.4 billion (including $1.8 billion core mobilization) since FY1999 in Bulgaria. IFC has recently successfully closed several complex transactions focused on developing Bulgaria’s sustainable energy sector, enhancing energy security, boosting access to finance for women-led micro-, small-, and medium-sized enterprises (MSMEs), decarbonizing the hard-to-abate cement sector and upgrading advanced manufacturing capacity and boosting R&D for next-generation automotive technologies.

This CPF marks a renewed engagement with Bulgaria, with a sharpened focus on sustainable and digital development, while maintaining the emphasis of the previous CPF on improving institutions and investing in people for enhanced competitiveness, inclusion and job creation.

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