Bulgaria: Stable but Sluggish
By Andrew MacDowall
South-east Europe has its fair share of economic disaster zones, but Bulgaria, according to the IMF, is not one of them. However, stability alone is not enough for the EU's poorest member state.
The Fund's most recent staff visit to the country concluded with a statement saying that "strong buffers and steadfast policy implementation have allowed Bulgaria to maintain stability in a challenging environment".
While other countries in the region have to contend with a serious fiscal hangover from the boom years before 2008, Bulgaria's public debt is a measly 17.5 per cent of GDP, and the government moved fairly swiftly to curtail the deficit, bringing it down to 2.1 per cent last year. The IMF expects it to reach 1.25 per cent for 2012.
Meanwhile, the Bulgarian lev's peg to the euro has helped keep monetary stability.
But after a savage recession in 2009, when the economy contracted by 5.5 per cent, Bulgaria's economy has still not shown signs of vigorous life. The IMF expects meagre growth of 1 per cent this year and 1.5 per cent in 2013. As the Fund noted, unemployment is quite high, at between 10 and 12 per cent, depending on the source of the data.
The banking sectors faces serious challenges with a non-performing loan ratio is 19.6 per cent. For some time, Bulgaria has been hampered by its poor absorption of generous EU funds, though progress has been made. And as in most eastern European countries, "the economy is exposed to external risks from the on-going euro area crisis".
The IMF's prescription is predictable enough: continue on the current fiscal path, with some scope for infrastructure investment; and implement structural reforms, particularly those making it more attractive to hire the young and less skilled, who make up a sizeable proportion of the jobless.
But with a parliamentary election due next summer, and the ruling party under increasing pressure in the polls, the government may have little political wiggle room to push potentially unpopular reforms on which Bulgaria has been stalling for some time.
"What is worrying about the IMF's statement is that their recommendations were also made in the last visit [in July 2011]," says Svetla Kostadinova, executive director of the free-market Sofia think-tank Institute for Market Economics. "It focuses on labour markets, it focuses on social security reform, it focuses on the need for foreign investment. My assessment after seeing the draft 2013 budget is that we don't expect labour or social security legislation to change, despite what the IMF is saying. The government probably saw the statement and said 'OK, you said that before, and again we won't do anything'. They don't want to make reforms as reforms aren't easy."
For the time being, perhaps, Bulgarians can be thankful that their economy is stable, growing, and not in hock to circling debtors. But these benefits may not be immediately apparent to the jobless and those whose incomes remain at the bottom of the EU scale.
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