The European Commission has argued that Bulgaria must introduce a comprehensive package of measures aimed at combating structural unemployment.

The EC recommendation for Bulgaria is part of the findings of the in-depth reviews carried out into 13 Member States identified in the Alert Mechanism Report from November 2012 as showing signs of macroeconomic imbalances.

The reviews were published Wednesday by the EC.

Bulgaria is experiencing macroeconomic imbalances which deserve monitoring and policy action, according to the EC.

In particular, the impact of deleveraging in the corporate sector as well as the continuous adjustment of external positions, competitiveness and labour markets deserve continued attention.

More specifically, Bulgaria rapidly built up imbalances during the boom phase that coincided with its accession to the European Union.

In a context of catching up, high foreign capital inflows contributed to the overheating of the domestic economy and a booming housing sector.

With the onset of the crisis, Bulgaria embarked on a fast process of deleveraging and has taken measures to maintain financial stability.

While Bulgaria experienced a quick and important adjustment of its current account, moderate deficits are expected to resume as the economic recovery will lead to higher imports.

This will slow down adjustment in the net external indebtedness.

To sustain cost competitiveness and export growth, it will be important to ensure that unit labor cost are supported by productivity gains.

Non-financial corporate sector indebtedness, including an increase in late payments, suggest that deleveraging pressures are impeding more dynamic economic growth.

The low-skilled segment of the labor market seems to have been especially hard-hit by the crisis and warrants close attention.

Unemployment has increased sharply, and steps should be taken to prevent unemployment from becoming more structural in nature.

Skills mismatches can be seen in emerging labor shortages in some sectors, pointing to a need for a comprehensive package of active labor market, education and regional policies.

On the way forward, the challenges for Bulgaria include the need to increase the adjustment capacity of the labor market, to enable smooth corporate sector deleveraging and to avoid re-emergence of unsustainable imbalances.

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