The Executive Board of the International Monetary Fund (IMF) has concluded its official consultation with Bulgaria for 2025 and issued key recommendations for the country's fiscal policy. The international institution insists on a switch from a flat to a progressive tax and warns of risks in the housing market, the Fund announced.
"In the medium term, more revenue could be generated by increasing tax rates for both personal and corporate income and switching to progressive income taxation," the institution's official analysis states.
Strong economy, but with risks
According to IMF experts, the Bulgarian economy is demonstrating enviable growth, driven by domestic demand. Gross domestic product (GDP) grew by 3.4 percent in 2024, and the forecast for 2025 and 2026 remains optimistic with an expected growth of about 3 percent. Unemployment is at historically low levels, and household incomes are growing ahead of schedule.
Despite the good news, inflation remains high - about 3.5 percent for the next two years. The Fund warns that the economy is showing signs of "overheating", which requires tightening fiscal discipline.
The end of the flat tax?
IMF experts are categorical that the capacity of the current flat tax is exhausted and it cannot provide the necessary funds for quality public services. In addition to introducing progressive taxation, the institution, led by Kristalina Georgieva, also recommends removing the ceiling on social security income.
This measure is aimed at filling the deficit in the pension system, which continues to widen due to the aging of the population. The IMF notes as a positive step the increase in pension contributions by 2 percentage points set in the draft budget.
Warning for real estate
The report pays particular attention to the credit market. The rapid growth of mortgage lending creates the risk of a bubble in the housing market. The Fund recommends that the Bulgarian National Bank (BNB) monitor the situation "shortly" and actively use risk management tools.
"Macroprudential policy must remain flexible, because although the financial sector is stable, there are signs of increasing risks," experts warn.
Following the upcoming adoption of the euro, additional liquidity is expected to be released in banks, which could further boost lending and pressure on property prices. The introduction of the single European currency is positively assessed by the IMF as a factor that will reduce transaction costs and increase investor confidence.