The World Bank has lowered its forecast for real GDP growth in Bulgaria in 2022 to 2.6 per cent, citing inflationary pressures, the war in Ukraine and supply chain disruptions.
The growth forecast in the World Bank’s spring 2022 update is 1.2 percentage points lower than the figure the Bank forecast in January.
The ongoing war in Ukraine had provoked a revision of growth forecasts globally, the World Bank said.
Its country report on Bulgaria said that risks remain tilted to the downside and further downward revisions are likely to follow in case of a prolonged military conflict, or new disruptive Covid-19 waves amid low vaccination rates.
“Moreover, the delay in the approval of the national Recovery and Resilience Plan and the operational programmes for EU funds (2021-2027) jeopardizes the government’s plan to increase substantially public investment in 2022, further undermining the growth prospects.”
The World Bank report was compiled before the European Commission’s announcement on April 7 that it had approved Bulgaria’s Recovery and Resilience Plan.
The World Bank said that over the medium run, growth is expected to be fuelled by EU-funded public investment and improved private investor sentiment on the near-term prospect of Bulgaria entering the euro zone.
The acceleration of domestic inflation since late 2021 is likely to remain in place at least in the first half of 2022, as energy and food price inflation is exacerbated by the ongoing war in Ukraine, the Bank said.
“This will result in a further erosion of purchasing power, a likely increase in poverty and a higher fiscal cost, if current measures in support of businesses and individuals are extended beyond Q1.”
The World Bank said that overall, the draft 2022 budget suggests that fiscal policy will depart from the conservative stance adhered to in the past two decades.
Bulgaria’s Parliament approved the second reading of the 2022 Budget on February 26.
The World Bank said that the fiscal deficit is likely to exceed the government’s plan for 4.1 per cent of GDP as the latter rests on a fairly optimistic official growth projection of 4.8 per cent.
A government-sponsored accommodation programme for displaced Ukrainian nationals will also weigh on the expenditure side, the World Bank said.
It said that in addition, a budget revision – that is likely to boost expenditure further – is already planned for the summer.
The Current Account balance is expected to return to positive territory, albeit remain below one per cent of GDP, in 2022-2024.
“On a positive note, the political crisis that dominated the national landscape since early 2021 has been overcome, after a four-party coalition took office after the November 14 2021 elections,” the World Bank said.
“There are high expectations from the new government to undertake structural reforms in a number of areas, including the judiciary and the control of corruption.”
The World Bank’s spring 2022 update slightly raised Bulgaria’s forecast growth for 2023, to 4.3 per cent, up by 0.7 percentage points compared with the January forecast.
(Photo: Clive Leviev-Sawyer)
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