The International Monetary Fund (IMF) urged Bulgaria to pursue “bold structural reforms […] to lift growth, create jobs, and enhance productivity” in its annual review of the country’s economy.
The review, known in IMF parlance as an “Article IV consultation”, praised Bulgaria for maintaining macroeconomic and financial stability despite external and internal challenges, but also stated the need for “accelerated and decisive efforts to address structural impediments to higher growth, job creation, and a faster pace of income convergence with the European Union.”
Issued in the wake of the recent IMF mission visit to Bulgaria, the report re-affirmed the Fund’s economic growth projection of 0.5 per cent for 2013 and its 1.6 per cent growth forecast for 2014.
In terms of other macroeconomic indicators, the current account surplus in 2013 is expected to return to a modest deficit in 2014, which would be financed by foreign direct investment, inflation is projected to remain low and unemployment is expected to decline only slightly and remain high in 2014.
“Convergence to EU income levels over the coming decades will require accelerated growth. Bulgaria ranks favorably versus comparators on macro-policy outcomes but less so on other dimensions critical to the well functioning of the economy. Bulgaria is comparable to good performers in central Europe and the Baltics on fiscal and country risk, and the income tax system is also seen as favorable in competitiveness rankings,” the IMF said.
“However, Bulgaria ranks much lower on measures such as enforcing contracts, resolving insolvencies, and some areas of red tape. More generally, the judicial system is viewed as problematic, and corruption and cronyism as widespread. These shortcomings will need to be addressed for Bulgaria to unlock its growth potential.”
On Bulgaria’s public finances, the IMF said that “the structural fiscal stance under the 2014 budget, which sets the deficit close to national limits under the fiscal rule, strikes an appropriate balance.”
However, the Fund also “underscored the importance of maintaining credibility in the context of the currency board by observing national and EU deficit rules” and said that “fiscal buffers should be rebuilt over time by targeting a balanced structural budget.”
“Directors noted that the financial system is stable, well capitalized, and liquid, but that profitability is low. They encouraged further steps to reduce nonperforming loans through asset disposal in order to reduce asset price uncertainty in the market and support future investment,” the IMF said.
(IMF headquarters building at 1900 Pennsylvania Avenue in Washington, DC. Photo: AgnosticPreachersKid/Wikimedia Commons)