{
  "title": "Public Information Notice: IMF Concludes Article IV Consultation with Bulgaria",
  "publication": "IMF News, April 19, 2000",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0032",
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  "summary": "Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies.",
  "publishDate": "2000-04-19",
  "sections": [
    {
      "heading": "Background and recent developments",
      "content": "- Currency board arrangement (CBA) introduced in mid-1997 has achieved macroeconomic stabilization and substantial structural reform progress.\n- Fiscal outcomes:\n  - 1998: general government registered a small surplus.\n  - 1999: general government deficit limited to 0.9 percent of GDP.\n- Inflation:\n  - CPI increased by only 1.8 percent (annual average) in 1999.\n  - Year-on-year inflation rate rose to 9.1 percent in February 2000 due to higher energy and food prices.\n  - Average 12-month inflation reported at 3.5 percent.\n- Privatization and structural change:\n  - Two thirds of state assets outside infrastructure privatized since CBA introduction.\n  - Restructuring of large state monopolies in utilities underway.\n  - Four (out of seven) state banks privatized, two more on the market.\n  - Share of administered items in the CPI sharply reduced; trade liberalized significantly; land restitution nearly completed.\n- Output and external sector:\n  - After rebound in second half of 1997, GDP growth reached 3.5 percent in 1998.\n  - A series of adverse shocks (slowdown in partner countries, weak export prices from global financial crises, Kosovo conflict in March-June 1999) caused exports to decline by one third between fall 1997 and spring 1999 and worsened the external current account deficit (from ½ percent of GDP in 1998 to over 7 percent of GDP in the first half of 1999).\n  - Recovery underway from second half of 1999; Q3 1999 GDP grew by 4.5 percent year on year.\n  - 1999 full-year GDP growth estimated at 2.5 percent.\n  - Current account deficit held to 5.4 percent of GDP in 1999.\n  - Authorities' targets for 2000: GDP growth of 4 percent and a current account deficit of no more than 4 percent of GDP; export growth expected to reach double digits."
    },
    {
      "heading": "Key challenges highlighted",
      "content": "- Labor market and social conditions:\n  - Unemployment: declined to 12 percent in 1998, rose substantially during 1999, reached 18 percent in February 2000.\n  - Poverty remains widespread, especially among pensioners and in less developed regions.\n- EU accession and structural reform agenda:\n  - Bulgaria's per capita income is the lowest among the 12 candidate countries; many years of very rapid growth required to catch up.\n  - Remaining reforms needed to develop a fully competitive market economy.\n  - State-owned sector needs higher financial discipline; liquidation and bankruptcy procedures still being established.\n  - Emerging private sector faces burdensome bureaucracy, weak governance, and a banking system hesitant to extend credit.\n  - Sovereign credit rating remains well below investment grade.\n  - Cumulative foreign direct investment at less than US$200 per capita."
    },
    {
      "heading": "Executive Board assessment — findings and policy recommendations",
      "content": "- Overall assessment:\n  - Directors commended authorities for sound policies that brought macroeconomic stability and helped weather severe shocks.\n  - Prudent fiscal and incomes policies and accelerated structural reforms helped curb the current account deficit, maintain competitiveness, and initiate a rebound in activity and exports.\n  - Immediate challenge: ensure recovery becomes self-sustaining and reduce unemployment and poverty.\n  - Long-term challenge: achieve rapid growth for EU accession and further develop a competitive market economy.\n- Fiscal policy:\n  - Directors endorsed broadly unchanged fiscal stance in 2000.\n  - 2000 budget allowed a general government deficit of up to 1.5 percent of GDP, including transitional costs of structural reform.\n  - Importance of tight expenditure discipline, including at the municipal level, to preserve margins.\n- Revenue administration and treasury:\n  - Welcome initial steps to create a unified revenue agency to collect taxes and social contributions; once fully operational it should markedly enhance revenue collection capacity and promote good governance.\n  - Urged authorities to ensure success of the unified revenue agency.\n  - Encouraged expeditious completion of the treasury project to strengthen budgetary control.\n- Social security and public finances:\n  - Pension and health reforms described as appropriately ambitious.\n  - Adequate provisions made in the 2000 budget to cover transitional costs, but authorities urged to adjust underlying parameters further as needed to preserve long-term viability of social security funds.\n- Labor market and wages:\n  - Stressed importance of wage moderation and flexible labor markets to maintain competitiveness and reduce unemployment.\n  - Real wage increases should be kept within productivity gains.\n  - Supported authorities' decision to continue wage bill freezes for the worst-performing state enterprises and state monopolies.\n  - Encouraged easing restrictions on employment and working hours in the context of an amended Labor Code.\n  - Urged consideration of lowering currently high social contribution rates in the medium term, contingent on improved compliance from the unified revenue agency.\n- Financial sector and credit:\n  - Welcomed progress in banking supervision; noted private sector bank credit remains low.\n  - Recommended improving financial intermediation by:\n    - Selling remaining state-owned banks to strategic investors.\n    - Establishing a fully operational central credit registry.\n    - Strengthening enforcement of contracts and legislation.\n  - Endorsed planned reduction in the minimum reserve requirement to help reduce interest rate spreads and maintain liquidity.\n- Structural reform priorities:\n  - Rapid progress in structural reform critical for medium-term growth.\n  - Urged vigorous implementation of initiatives across a wide front and sale of remaining large-scale commercial state enterprises during 2000 to strong strategic investors while ensuring competition.\n  - Supported the adoption of the new Energy Law, but stressed strict and timely implementation.\n  - Expressed concern about plan to freeze prices of electricity and district heating, noting possible reduction in energy reform momentum and extra budgetary pressures.\n  - Called for formulation and implementation of a plan for fundamental restructuring of district heating companies and the coal sector.\n  - Urged further efforts to strengthen public administration to improve public service delivery and implementation capacity.\n- Business climate and governance:\n  - Urged authorities to implement recommendations of a high-level working group to reduce administrative inefficiencies as a priority.\n  - Emphasized importance of enforcing existing laws and private contracts, streamlining bankruptcy and liquidation procedures, and implementing accounting standards stringently.\n- Transparency, technical assistance, and statistics:\n  - Commended authorities' efforts to enhance transparency, including publication of a Report on the Observance of Standards and Codes and implementation of its recommendations.\n  - Encouraged continued use of IMF technical assistance where the Fund has comparative advantage.\n  - Welcomed Bulgaria's interest in participating in the General Data Dissemination System."
    },
    {
      "heading": "Bulgaria: Selected Economic Indicators (as reported)",
      "content": "- Real economy (Percent change)\n  - Real GDP 2/: 1996 -10.9; 1997 -6.9; 1998 3.5; 1999 2.5; 2000 1/ 4.0\n  - CPI, 12-month: 1996 310.8; 1997 578.5; 1998 1.0; 1999 6.2; 2000 1/ ...\n  - Unemployment rate (percent): 1996 12.5; 1997 13.7; 1998 12.2; 1999 16.0; 2000 1/ ...\n- Public finance (In percent of GDP)\n  - General government balance: 1996 -12.7; 1997 -2.5; 1998 0.9; 1999 -0.9; 2000 1/ -1.4\n  - Public debt: 1996 105.8; 1997 110.4; 1998 80.2; 1999 87.7; 2000 1/ 79.4\n- Money and credit (Percent change, end of year)\n  - Real broad money: 1996 -45.4; 1997 -32.3; 1998 8.6; 1999 4.9; 2000 1/ 8.3\n  - Real credit to the non-government sector: 1996 -20.6; 1997 -56.0; 1998 5.3; 1999 3.4; 2000 1/ 11.3\n- Interest rates (annualized) (In percent)\n  - BNB basic rate (end-month average): 1996 435.0; 1997 7.0; 1998 5.2; 1999 4.6; 2000 1/ ...\n  - Time deposits (end-month average): 1996 213.8; 1997 3.0; 1998 3.3; 1999 3.2; 2000 1/ ...\n- Balance of payments (In millions of U.S. dollars)\n  - Gross official reserves: 1996 793; 1997 1.6 (in months of GNFS imports); 1998 2,468; 1999 3,056; 2000 1/ 6.1; 3,222; 6.0; 3,476\n  - Current account (percent of GDP): 1996 0.2; 1997 4.4; 1998 -0.5; 1999 -5.4; 2000 1/ -4.0\n  - Trade balance (percent of GDP): 1996 1.4; 1997 3.9; 1998 -3.1; 1999 -8.7; 2000 1/ -7.0\n- Exchange rates\n  - Exchange rate regime: Currency board since July 1, 1997 3/\n  - Present exchange rate (March 20, 2000): 2.0132 leva/U.S.$\n  - Nominal effective exchange rate (1995=100) 4/: 1996 56.9; 1997 5.6; 1998 5.4; 1999 5.8\n  - Real effective exchange rate (1995=100) 4/ 5/: 1996 86.0; 1997 105.0; 1998 122.7; 1999 122.1"
    },
    {
      "heading": "Notes and technical points from the PIN",
      "content": "- The 1999 GDP figure is an estimate.\n- 2000 figures are projections where indicated by 1/.\n- Currency board arrangement details:\n  - Fixed the exchange rate at 1,000 leva = 1 DM through end-1998 and 1,955.83 leva = 1 euro since January 1, 1999.\n  - On July 5, 1999, the lev was redenominated by removing three zeroes; as a result, one lev now equals one deutsche mark.\n- Nominal and real effective exchange rates use 1995=100; real effective exchange rate is CPI-based.\n\nPublic Information Notice: IMF Concludes Article IV Consultation with Bulgaria (April 19, 2000).\n\n---\n\n\n References\n\n- Bulgaria and the IMF\n- Public Information Notices\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0032"
    }
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    "Published: April 19, 2000",
    "Currency board arrangement (CBA) introduced in mid-1997 has achieved macroeconomic stabilization and substantial structural reform progress.",
    "Fiscal outcomes:",
    "Inflation:",
    "Privatization and structural change:",
    "Output and external sector:",
    "Labor market and social conditions:",
    "EU accession and structural reform agenda:",
    "Overall assessment:",
    "Fiscal policy:",
    "Revenue administration and treasury:",
    "Social security and public finances:",
    "Labor market and wages:",
    "Financial sector and credit:",
    "Structural reform priorities:",
    "Business climate and governance:",
    "Transparency, technical assistance, and statistics:",
    "Real economy (Percent change)",
    "Public finance (In percent of GDP)",
    "Money and credit (Percent change, end of year)",
    "Interest rates (annualized) (In percent)",
    "Balance of payments (In millions of U.S. dollars)",
    "Exchange rates",
    "The 1999 GDP figure is an estimate.",
    "2000 figures are projections where indicated by 1/.",
    "Currency board arrangement details:",
    "Nominal and real effective exchange rates use 1995=100; real effective exchange rate is CPI-based.",
    "[Bulgaria and the IMF](http://www.imf.org/external/country/BGR/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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