The European Commission said on April 10 that it found macroeconomic imbalances in Bulgaria, which, while not excessive, required addressing, in particular in the areas of fighting unemployment and reducing external and corporate indebtedness.
Bulgaria was one 13 EU member states identified last year as having macroeconomic imbalances, whose economies were subjected to in-depth reviews. These imbalances required close monitoring and “a decisive commitment to structural reform in order to ensure that they are unwound as smoothly as possible and that the conditions can be created for sustainable growth and job creation,” the Commission said in a statement.
The review of Bulgaria’s economy found that the effect of the global economic crisis was still being felt on Bulgaria’s labour market, with unemployment still rising. At the same time, in some areas job vacancies existed that could not be filled because of structural unemployment – namely, not enough people had the skills necessary to fill the positions.
Low-skilled and the young were affected especially hard by unemployment, while the number of long-term unemployed was also on the rise, the review said.
In terms of external indebtedness, despite improvement in recent years, the country’s external position remained highly negative, although the expectations of future economic growth and diminished current account deficits suggested “gradual improvement” of Bulgaria’s net investment position.
While the private sector was deleveraging, corporate debt remained very high and still a cause for concern, the report said.
The total debt of companies outside the financial sector has been reduced over 2010-2011, but remained very high as a share of GDP. “Continuously rising non-performing loans of corporates also testify to the on-going difficulties faced by the private sector,” according to the report.
In contrast, the financial sector has proved resilient to the economic downturn and the banking system was stable, albeit of the stagnant variety.
“High provisioning has, however, depressed banking-sector profitability and very low credit demand has left banks with excess liquidity on their balance sheets. Credit growth is unlikely to resume soon, given the still highly-leveraged private sector. Depressed domestic credit growth risks compromising near-term growth prospects,” the report said.
Based on the report, the European Commission said that it would put forth “encompassing policy recommendations” on May 29.
(European Commission headquarters, Berlaymont building. Photo: JLogan)