IMF Executive Board Concludes the 2019 Article IV Consultation with Bulgaria
IMF News, March 22, 2019
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- Published: March 22, 2019
Summary of economic performance and outlook
- Date: March 22, 2019.
- The Bulgarian economy "continues to grow strongly, supported by buoyant domestic demand."
- Growth exceeded 3 percent in 2018 and is projected to maintain its momentum in 2019.
- Capacity constraints are becoming more binding; inflationary pressure has eased after peaking in August last year, reflecting developments in commodity and tourism-related prices.
- The unemployment rate has reached a historical low and wages are rising rapidly amid increasing skill shortages.
- The current account surplus remained sizable in 2018 but is projected to decline.
- Risks are tilted to the downside, especially from weaker-than-expected growth of trading partners.
- The fiscal balance recorded a small surplus of 0.1 percent of GDP in 2018, exceeding the budgeted deficit of 1 percent of GDP, owing to strong revenue performance and capital underspending.
- Credit growth has picked up across the board.
- The banking sector is profitable and asset quality continues to improve; non-performing loans have fallen below 9 percent of total loans in 2018Q3.
- The central bank has made steady progress in strengthening banking sector supervision.
Executive Board assessment and policy recommendations
- Directors welcomed robust economic growth, historically low unemployment, and improved financial sector conditions.
- Downside risks have recently risen, emanating mostly from weakening trading‑partner growth and global trade.
- With sound macroeconomic policies in Bulgaria, Directors emphasized the need to implement broad‑based structural reforms to:
- boost potential growth,
- accelerate EU income convergence,
- address unfavorable demographic dynamics.
- Priorities highlighted by Directors:
- Improve the efficiency of public spending and the quality of public institutions.
- Strengthen the governance framework to bolster prospects.
- Continue to improve revenue and spending efficiency.
- Strengthen public investment management to improve investment efficiency and public institutions.
- Maintain reform momentum through effective implementation, including recent progress on judiciary reforms and the fight against corruption.
- Strengthen the anti‑money laundering (AML) framework and governance of state‑owned enterprises (SOEs).
- Improve education and healthcare and address labor market bottlenecks to enhance human capital and mitigate labor shortages and skill mismatches.
- Promote deeper collaboration between educational institutions and business to alleviate labor-market challenges.
- For the financial sector: ensure banks with high NPLs maintain sufficient capital buffers; continue strengthening financial supervision, including operationalizing the new governance framework, strengthening legislation for related‑party lending, and formalizing the supervisory review and evaluation process.
ERM II and banking union accession commitments
- Bulgaria and ERM II parties agreed that Bulgaria will join ERM II and the banking union simultaneously upon completing several commitments, including:
- strengthening financial sector supervision,
- improving SOE governance,
- strengthening the anti‑money laundering (AML) framework.
- Directors noted that preparations for ERM II and the banking union would help support reforms and enhance institutional quality.
Selected economic indicators, 2015–19 (highlights)
- Real GDP: 2015: 3.5; 2016: 3.9; 2017: 3.8; 2018: 3.2; 2019 Proj.: 3.3.
- Real domestic demand (selected years shown in source table): 2015: 1.7; 2016: 4.9; 2017: 6.3.
- Public consumption: 2015: 1.4; 2016: 2.2; 2017: 3.7; 2018: 4.2.
- Private consumption: 2015: 4.5; 2016: 7.0; 2017: 5.0.
- Gross capital formation (selected): 2015: 1.5; 2016: -4.3; 2017: 7.3; 2018: 5.7; 2019 Proj.: 5.2.
- Private investment (selected): 2015: -3.4; 2016: -1.5; 2017: 6.4; 2018: 2.4; 2019 Proj.: 4.0.
- Public investment (selected): 2015: 20.3; 2016: -18.6; 2017: -5.9; 2018: 13.5; 2019 Proj.: 10.1.
- Net exports (contribution to GDP growth) and stock building: Stock building 2/: 2015: -0.2; 2016: 0.5; 2017: 0.8; 2018: 0.2; 2019 Proj.: 0.0. Net exports 2/: 2015: 0.1; 2016: -1.1; 2017: -3.2; 2018: -1.8.
- Exports of goods and services 3/: 2015: 8.1; 2016: 5.8; 2017: 2.7.
- Imports of goods and services (selected): 2015: 5.4; 2016: 7.5; 2017: 5.3.
- Potential GDP: 3.0 (as shown in source table).
- Output gap (percent of potential GDP): 2015: -1.2; 2016: -0.4.
- Unemployment rate (percent of labor force): 2015: 9.2; 2016: 7.7; 2017: 6.2; 2018: 4.7.
- Price indicators:
- GDP deflator: 2015: 3.4; 2016: 3.1; 2017: 2.9.
- Consumer price index (HICP, average): 2015: -1.3; 2016: 1.2; 2017: 2.6.
- Consumer price index (HICP, end of period): 2015: -0.9; 2016: -0.5; 2017: 1.8; 2018: 2.3.
- Fiscal indicators (percent of GDP):
- General government net lending/borrowing (cash basis): 2015: -2.8; 2016: 1.6; 2017: -0.6.
- General government primary balance (selected): 2015: -2.0; 2016: -0.1.
- Structural overall balance (selected): 2015: -2.4; 2016: -0.7.
- Structural primary balance (selected): 2015: -1.6; 2016: 2.5; 2017: 0.7.
- General government gross debt: 2015: 25.6; 2016: 27.4; 2017: 23.3; 2018: 20.5; 2019 Proj.: 19.3.
- Monetary aggregates:
- Broad money: 2015: 8.8; 2016: 7.6; 2017: 8.0.
- Domestic private credit: 2015: 8.9; 2016: 7.1.
- Exchange rates regime:
- Leva per U.S. dollar (end of period): 2015: 1.9.
- External sector (percent of GDP):
- Current account balance: 2015: 6.5; 2016: 4.6.
- o/w: Merchandise trade balance (selected): 2015: -5.8; 2016: -4.1; 2017: -4.9.
- Note from source: "Exports suffered from maintenance work in the main refinery in 2018 and are expected to recover in 2019."
- Data as of February 28, 2019.
IMF Executive Board Concludes the 2019 Article IV Consultation with Bulgaria, March 22, 2019.
