Bulgaria: Staff Report for the 2013 Article IV Consultation

Publication Date: January 30, 2014
Electronic Access: Free Full text (PDF file size is 1,723KB).
Use the free Adobe Acrobat Reader to view this PDF file

Summary: KEY ISSUES Context. Macroeconomic and financial stability has been maintained despite the difficult environment globally—especially in neighboring Greece—and recent domestic discord, but growth remains tepid and unemployment high. Ambitious (and politically challenging) reforms are needed to achieve Bulgaria’s objective of more rapid income convergence with Europe. Outlook and risks. Domestic demand is projected to recover gradually while exports and foreign direct investment are expected to benefit from recovery in Europe. The domestic social and political situation and continued uncertainty about the outlook for external partners present downside risks. Fiscal policy. The unchanged structural stance under the 2014 budget, which sets the deficit close to national fiscal limits, strikes an appropriate balance given low projected growth and a strong underlying fiscal position on the one hand and the importance of maintaining fiscal credibility (particularly in the context of the currency board) on the other. The budget is subject to implementation risk, especially as revenues may fall short of target. The intended increase in capital spending should be accompanied by appropriate project selection and monitoring procedures. Medium-term risks—in particular related to pensions and state-owned enterprises—will need to be addressed. Financial sector policies. The financial system remains well-capitalized and liquid, but profitability is low. Gradual reduction of nonperforming loans through asset disposal will be important to reduce asset price uncertainty and support future investment. Structural policies. Progress in addressing institutional and broader structural gaps (including those that contribute to corruption and cronyism) is needed to set the foundation for stronger growth and job creation. Previous IMF advice. Policy implementation has generally been consistent with IMF recommendations. Prudent fiscal and supervisory policies have been pursued, allowing macroeconomic and financial stability to be maintained. However, recent reforms to strengthen the sustainability of the pension system have been reversed, and the bold structural reforms needed to accelerate growth require new momentum.
Series: Country Report No. 14/23
Subject(s): Article IV consultation reports | Fiscal policy | Fiscal reforms | Financial sector | Bank supervision | Economic indicators | Debt sustainability analysis | Staff Reports | Press releases | Bulgaria

Publication Date: January 30, 2014
ISBN/ISSN: 9781484395363/1934-7685 Format: Paper
Stock No: 1BGREA2014001 Pages: 54
US$18.00 (Academic Rate:
US$18.00 )
Please address any questions about this title to publications@imf.org