IMF Executive Board Concludes 2024 Article IV Consultation with Bulgaria

IMF News, June 13, 2024

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The Executive Board of the International Monetary Fund (IMF) concluded the 2024 Article IV consultation with Bulgaria on March 19, 2024.
The Executive Board of the IMF also is reported to have concluded the 2024 Article IV consultation with Bulgaria on June 3, 2024.
Press Release No. 24/215 records the Executive Board assessment and recommendations.

Growth in 2023 slowed to 1.8 percent, driven by a decline in private investment due to uncertainty and by the unwinding of the inventory buildup of 2021–22.
The Bulgarian economy is characterized as having shown resilience through a succession of shocks and is achieving a soft landing.
Growth is expected to rebound in 2024 thanks to:
- recovery in demand from key trading partners, which will spur exports and private investment; and
- public investment supported by EU funds.
Despite sustained wage and pension growth and inflationary pressures from an expansionary 2024 budget, inflation is projected to continue declining owing to the projected continued fall in global food and energy prices, although inflation has remained higher than in many European peers.

Directors commended Bulgaria’s resilience to successive shocks over the past four years.
Directors agreed that considerable uncertainty and downside risks cloud the outlook despite expected pickup in growth and continued disinflation.
Directors welcomed the authorities’ commitment to undertake efforts toward a timely euro area accession.
Directors underscored the importance of implementing reforms to:
- boost the country’s potential economic growth,
- improve income convergence, and
- enhance resilience.

Short term:
- Directors generally agreed that a neutral fiscal stance would strike the appropriate balance between supporting ongoing disinflation and preserving the expected rebound in growth.
Medium term:
- Directors recommended maintaining a prudent fiscal policy given the uncertain environment, domestic pressures, and fiscal risks.
Recommended components of a broad fiscal reform package:
- Measures to permanently increase tax revenue and make the tax system fairer.
- Enhance spending efficiency by strengthening public financial and investment management.
- Reduce informality.
- Reform the pension system.
- Improve the productivity of state-owned enterprises to prevent the buildup of contingent liabilities.
Directors emphasized the importance of appropriate sequencing and prioritization to ensure the success and viability of policy measures, noting that Fund advice can play a helpful role.

Directors noted that systemic risks faced by the banking system remain moderate but called for vigilance.
In view of the rapid rise in real estate lending:
- Directors commended the authorities’ recent action to increase the countercyclical capital buffer.
- Directors recommended reinforcing the macroprudential framework with borrower-based measures.