Giving energy aid to all firms with no conditions is costly and short-sighted, and the economy is overheating, Lachezar Bogdanov, chief economist at the Institute for Market Economics (IME), said in an interview. He said two urgent steps are needed. The central bank should pay more attention to the huge rise in lending by commercial banks to households, and the government should cut the deficit and slow the growth in spending.
The 2027 budget is still being drafted. The IME presented its own alternative draft today.
Bogdanov called the opposition's call for 100% compensation to business for energy prices a mistake. If the money goes to everyone, with no check on whether a firm is hit or is losing its competitive edge, a huge sum could go into the economy with almost no effect.
When all firms got generous aid in 2022, the most went to the companies that gained the most from the crisis, the economist recalled. Money should go to reforms and to improving the system, so that energy is cheaper in years to come. Resources are limited, so the steps should be better targeted, he said.
Tension in the Persian Gulf directly affects world markets, but Bulgaria is in a better position because it has alternative supply routes, Bogdanov said. Supplies here are partly diversified, so gas is slightly cheaper than spot prices, meaning prices for immediate delivery, in much of the European market.
Gas prices are well below 2022 levels, and Europe and Bulgaria survived that year, the economist said. So he does not see a crisis that threatens survival itself, even though the country is hit.
The price of natural gas could partly upset the government's figures for the 2027 budget, Bogdanov said. Pressure on the budget is also rising because district heating companies need subsidies. Dearer fuel brings more VAT revenue in the short term, but he called that gain false, because it hides big risks for taxpayers.
The IME says the budget itself fuels inflation, and Bogdanov sees it as one of the sources. Fast growth in consumption, wages and lending, together with a high deficit, pours money into the economy. Bulgaria ranks first in Europe on three counts: growth in consumption, in wages and in lending. In one quarter this year, its deficit was the highest in Europe.
When output cannot rise at once, the market balances out through higher prices, Bogdanov said. This applies most to goods and services made in Bulgaria that imports cannot replace. The economist describes the situation as a mix of overconsumption and overheating.