September 8, 2000
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The Executive Board of the International Monetary Fund (IMF) today completed the fourth review under the Extended Fund Facility1 arrangement for Bulgaria. The completion of the review enables the release of SDR 52.3 million (about US$68 million) from the IMF, bringing total disbursements under the program to SDR 470.7 million (about US$610 million).
The three-year Extended Arrangement was approved in September 1998 for a total amount equivalent or SDR 627.62 million (about US$814 million).
After the Executive Board discussion on Bulgaria, Stanley Fischer, First Deputy Managing Director and Acting Chairman, made the following statement:
“The Bulgarian authorities have continued to follow prudent fiscal and incomes policies and to advance the process of structural reform. These policies, underpinned by the currency board arrangement, are supporting an ongoing recovery from the adverse shocks of recent years. Short-term prospects are favorable. In 2000–01, GDP growth is expected to reach the highest rates in a decade. To sustain both rapid growth and the transition to a full market economy, the authorities need to continue with their strong policy efforts on a wide front.
“Fiscal policy should remain prudent. An overall fiscal deficit no higher than 1½ percent of GDP is appropriate in 2000 and 2001. A strong revenue performance this year will allow some additional spending consistent with an unchanged deficit target. Care will be needed regarding the allocation of this expenditure so as to have the most favorable impact in promoting growth and employment and reducing the costs of adjustment without leading to a permanent increase in expenditure commitments. The authorities’ plan to take advantage of the favorable fiscal position by cutting tax rates significantly next year is welcome. In this context, Directors considered that further cuts in the high social contribution rates should be considered. Restraint on expenditure will continue to be necessary. To ensure fiscal sustainability in the medium term, efforts should continue to develop a multi-year fiscal framework, create a unified revenue agency, reform pensions and health care, and establish a fully functioning treasury.
“Prudent fiscal policy needs to be accompanied by measures to preserve competitiveness and by vigorous structural reform. Regarding competitiveness, continued wage moderation, especially in state enterprises, and measures to improve labor market flexibility are of great importance, particularly, in view of the high level of unemployment. Key priorities regarding other structural reforms include continued restructuring of the energy sector, completing the remaining privatization projects in a transparent manner, and further improving governance and the business climate,” Fischer said.
1 The EFF is an IMF financing facility that supports medium-term programs that seek to overcome balance of payments difficulties stemming from macroeconomic imbalances and structural problems. The repayment terms are 10 years with a 4 ½-year grace period, and the interest rate, adjusted weekly, is currently about 5.5 percent.
