Bulgaria Must Build Fiscal Buffers Against Shocks, Businesses Should Increase AI Adoption, IMF Managing Director Georgieva Says

Bulgaria should seek ways to reduce its budget deficit of 5% of GDP, as one-off fiscal measures do not provide a systemic solution, International Monetary Fund (IMF) Managing Director Kristalina Georgieva said in an interview with BTA at the conclusion of the IMF and World Bank Annual Meetings in Bangkok. In a world facing increasingly frequent external shocks, countries need to build buffers, while revenue policies should be aligned with the structural needs of their budgets, she noted.
The Annual Meetings in Bangkok took place against the backdrop of the IMF’s assessment that the global economy remains resilient, although accumulating risks are limiting its capacity to absorb further shocks.
Asked about one-off fiscal measures, including the proposed excessive profits tax, Georgieva noted that such measures can help but do not constitute a systemic solution. According to her, building fiscal buffers requires revenue policies that generate sufficient resources to meet the budget’s long-term needs. She also called for a more cautious fiscal policy amid inflation, as higher government spending generates additional demand and puts upward pressure on prices.
Georgieva pointed out that inflation is being driven not only by high energy prices, which are likely to remain elevated for some time, but also by rising defence spending, ongoing trade tensions and stronger demand associated with artificial intelligence. She described inflation as a tax on low-income earners and noted that monetary policy needs to be more restrictive. She also said she expects the European Central Bank to introduce further interest rate hikes.
In its October forecast, the IMF lowered its projection for Bulgaria’s economic growth in 2026 to 2.6%, down from 2.8% in its April forecast. For 2027, the Fund raised its growth forecast from 2.5% to 2.7%.
Georgieva also commented on the consequences of the changing security environment. According to her, the period following the end of the Cold War, when countries benefited from low defence spending, has come to an end. Russia’s invasion of Ukraine and developments in the Middle East demonstrate that the world has become more insecure and that countries must adapt to the new circumstances.
Georgieva noted that it would be more effective for Europe to increase defence spending collectively rather than for each country to act independently. The IMF recommends a larger European budget that would allow countries to jointly finance their shared priorities. According to her, these are long-term trends to which Europe must adapt.
The IMF Managing Director also discussed Bulgaria’s role in the development of artificial intelligence. She described the country’s well-developed information technology sector as a strong foundation but noted that Bulgaria would not become a producer of the most advanced artificial intelligence models. The country can participate in supply chains, but the most important priority is to use the technology to increase labour productivity.
According to Georgieva, Bulgaria needs to improve workforce skills and its education system, while expanding the use of artificial intelligence in small businesses and government institutions. She noted that Bulgaria and Europe lag behind the United States in labour productivity and that broader adoption of new technologies is essential to improving competitiveness.
Here follows the full text of the interview:
Q: Ms Georgieva, you recently warned that external shocks and the fragmentation of the global economy could keep energy and commodity prices elevated for some time. In light of these forecasts, what buffers should Bulgaria include in its 2027 budget to ensure that the economy remains resilient and that citizens’ real purchasing power is protected against renewed price pressures? In this context, how does the IMF view one-off fiscal measures, such as an excessive profits tax?
A: It is clear to everyone around the world that inflation is higher and is expected to remain elevated. This is not only because of high energy prices, which are likely to stay high for some time, but also because many countries are increasing their defence spending, trade tensions have not subsided, and artificial intelligence is generating greater demand. All of this is driving prices up. Bulgaria is no exception. What does this require?First, it requires a more restrictive monetary policy. We cannot allow inflation to continue rising. Inflation is a tax on low-income people, who feel its effects most acutely.
In Bulgaria’s case, we should expect that the European Central Bank may raise interest rates a little further in response to inflation in order to combat it.
At the same time, fiscal policy must be very cautious because when it is more generous in an inflationary environment, it creates additional demand and pushes prices higher. In Bulgaria’s case, as we know, the deficit stands at 5%. We need to find ways to bring it down.
One-off measures help, but they are not a systemic solution. If we want to build buffers in a world of more frequent external shocks, this means that revenue policy must be aligned with the structural needs of the budget.
During these meetings, we discussed the need to build buffers. We now know that shocks occur frequently, and without such buffers, the consequences are more painful for both the economy and the people. We also discussed the need for this to be done everywhere, not just in Bulgaria.
We need to rethink income policy and understand what we should do with taxation in the age of artificial intelligence. Whom do we tax, how do we tax them, and how much do we tax them? This is an issue that also needs to be considered in Bulgaria.
Q: What kind of tax policy do we need in a world of more frequent shocks? What kind of tax policy do we need in a world where technology is rapidly changing the relationship between capital and labour? In my view, this will be an extremely important issue for the sustainability of public finances in the coming years.
In recent weeks, there have been attacks on vessels located within our country’s exclusive economic zone. From your perspective, how will these developments affect economic growth in Bulgaria and the region?
A: What we know is that in a world of growing tensions, related not only to geopolitics but also to technology, it is important to think about security in ways we did not have to before.
Following the end of the Cold War, we enjoyed three decades of a peace dividend stemming from low defence spending. That period is over.
When Russia invaded Ukraine, it became clear that countries could no longer continue shaping their policies on the assumption that the world would remain peaceful. Events in the Middle East have once again confirmed that we live in a more complex world. It is multipolar, with many centres of influence, but it is also more insecure.
Unfortunately, this means that more resources must be allocated to defence. For Europe, the best approach is to do this together. At the IMF, we recommend a larger European budget so that countries can work together on issues of common concern rather than each country spending independently, which is less efficient.
Countries must work together. Let us see how the discussions on the EU budget conclude. For now, however, it seems that Europe has not yet fully recognised that these are long-term trends requiring it to adapt to the new world.
Q: Where do you think Bulgaria stands on the global artificial intelligence map?
A: Bulgaria has a very well-developed information technology sector. Let us remember that when we emerged from the planned economy, Bulgarians already had a notable presence among both hackers and IT specialists. This has since evolved into a dynamic information technology sector in our country.
This puts us in a good position, but we should not deceive ourselves. We will not be producers of the most advanced artificial intelligence models, but we can be part of the supply chain precisely because we have this information technology sector in the country. The most important thing, however, is not to produce or supply artificial intelligence, but to use it.
Bulgaria still has work to do when it comes to the adoption of artificial intelligence. We need to assess where we are well positioned and where improvements are needed.
We have good digital infrastructure. In this respect, Bulgaria is well positioned. People have access to the internet, but we are not sufficiently prepared when it comes to developing people’s skills and transforming the education system.
This is a different world, and we need to change very quickly to adapt to it. We also have more work to do in helping small businesses use artificial intelligence as a means of increasing labour productivity.
Bulgaria and Europe lag behind the United States in labour productivity.
Over the past decades, Europe’s income level has fallen to 70% of that in the United States. If we fail to expand the use of artificial intelligence so that it benefits every business and every government institution and increases labour productivity, we will not be able to make progress or remain competitive, either as the European Union or as Bulgaria.
As I said earlier, we have a good foundation. We need to consider how to use it to transform the country’s entire economy.

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