Bulgaria’s Income Convergence with EU Partners to Remain Slow, IMF Says
Bulgaria’s economic growth is expected to moderate further this year and remain below levels needed to accelerate income convergence with EU partners, the International Monetary Fund (IMF) said on Wednesday.
The country has shown resilience to political and financial sector turbulence in the past year, with modest growth and a small reduction in unemployment being achieved notwithstanding strong deflationary pressures, the IMF said in a statement following completion of 2015 Article IV Consultation with Bulgaria.
While inflation is projected to turn positive later this year, risks to the outlook have increased from policy uncertainty and external developments, according to the statement. Therefore, the IMF said, Bulgaria needs to take decisive actions to address important gaps in financial sector oversight and the crisis-management framework in light of the failure of Corporate Commercial Bank (KTB). The IMF also said it encouraged prompt implementation of planned reforms to the resolution framework and early recapitalization of the deposit insurance fund.
The global lender welcomed the Bulgarian government’s plans to set the budget on a consolidation path following substantial fiscal slippage in 2014.
“Measures to improve the composition and quality of expenditure and mitigate contingent liabilities arising from state-owned enterprises remain key. At the same time, an aging population and emigration represent significant long-term public spending challenges,” the IMF said.
Emphasizing the importance of rebuilding fiscal buffers and restoring policy credibility, particularly under the currency board arrangement, the IMF agreed that the authorities should consider more ambitious medium-term consolidation.
The IMF also said it welcomed recent energy sector reforms as important first steps in addressing rising costs and inefficiencies in the sector. The Fund called for broader structural reforms to catalyze investment and productivity gains essential to unlocking Bulgaria’s economic potential, strengthening job creation, and accelerating income convergence.
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