Press Release: IMF Executive Board Completes Fourth Review Under Stand-By Arrangement for Bulgaria
IMF News, March 16, 2007
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- Published: March 16, 2007
Review completion and waivers
- The Executive Board completed the fourth and final review of Bulgaria's economic performance under the Stand-By Arrangement for Bulgaria for the period from August 6, 2004 to March 31, 2007.
- The authorities continue to treat the arrangement as precautionary.
- The Board approved waivers for non-observance of:
- the October 1, 2006 structural performance criterion on the acceptance of new company registrations by the new business register; and
- the October 31, 2006 structural performance criterion on the selection of winning bids for the western and eastern plants of Ruse district heating company.
- The Stand-By Arrangement was approved on August 6, 2004 for an amount equivalent to SDR 100 million (about US$148.4 million). (See Press Release No. 04/175.)
Macroeconomic assessment and vulnerabilities
- Findings:
- Bulgaria is experiencing solid real per capita income growth, falling unemployment, and broadly moderate inflation.
- Mounting underlying vulnerabilities exist, in particular a high current account deficit and external debt.
- Policy implication:
- Prudent fiscal and financial policies and continued structural reform are necessary to maintain competitiveness and guard against risks.
Fiscal stance and public spending
- Findings:
- The authorities have maintained a firm fiscal stance that supports the currency board arrangement.
- There was a record budget surplus in 2006, attributed to strong spending restraint and dedicated revenue collection efforts.
- Projections and guidance:
- With the current account deficit projected to remain broadly unchanged, prudence should guide economic policies going forward.
- Despite a planned sizeable increase in real public spending in 2007 in the context of buoyant private demand, the authorities remain firmly committed to tightening the fiscal stance should external risks warrant.
Financial sector soundness
- Findings:
- Maintaining the soundness of the financial sector has been a key preoccupation of supervisory authorities.
- Recommendations:
- Continued prudential vigilance and close cooperation with foreign bank supervisory agencies are needed to ensure a strong financial sector resistant to adverse shocks.
Structural reform challenges and priorities
- Observations:
- Furthering structural reform has been challenging, with delays in the implementation of some measures.
- The government's commitment to continued structural reform should become evident with the start-up of operations of the electronic business registry.
- Priority reform areas:
- Improve the business climate.
- Further rationalize the education and health care sectors.
- Lower disincentives to the demand for, and supply of, labor.
European Union integration and euro adoption aspirations
- Guidance:
- Succeeding in the European Union will require strong policies.
- Given Bulgaria's aspirations for euro adoption and the country's commitment to the currency board arrangement, a high premium must be placed on sustained fiscal prudence, vigilant financial sector oversight, and sustained structural reform.
Press Release No. 07/54 — March 16, 2007 — International Monetary Fund