News Brief No. 01/28

News Brief: IMF Completes Bulgaria Review and Approves US$66 Million Credit Tranche

March 23, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Bulgaria's economic performance under the three-year Extended Arrangement, enabling Bulgaria to draw the equivalent of SDR 52.3 million (about US$66 million) from the IMF immediately.

This was the final review of Bulgaria's economic performance under the three-year Extended Arrangement, which was approved in September 1998 for SDR 627.62 million (about US$864 million)—(See Press Release No. 98/44). So far, Bulgaria has drawn the equivalent of SDR 523 million (US$664 million). The final disbursement of SDR 52.3 million is contingent on observance of performance criteria for end-March 2001.

Following the Executive Board discussion on Bulgaria, Stanley Fischer, First Deputy Managing Director and Acting Chairman, said:

"The Bulgarian authorities have continued to implement prudent fiscal and incomes policies during the final year of their three-year economic program. They have also made further progress in important structural areas, although the pace of reform has slowed in large-scale privatization and energy sector restructuring. Growth has been robust and inflation and the current account deficit have remained under control. Bulgaria's economic prospects for this year are favorable, with growth expected to remain strong. However, for Bulgaria to fully achieve its goal of creating a competitive market economy capable of self-sustaining rapid growth, the authorities need to maintain sound macroeconomic policies and pursue further structural reform.

"Fiscal policy needs to remain prudent, and will need to be adjusted if there is upward pressure on inflation and the current account deficit. Frontloading of expenditure in the pre-election period should be avoided, and any revenue overperformance saved to create room for further tax cuts in the 2002 budget. To ensure fiscal sustainability in the medium term, continued efforts are needed to strengthen the capacity to collect taxes and social contributions, create a fully-functioning treasury, and complete health care and pension reform.

"In the area of structural reform, a strict incomes policy for state enterprises and steps to improve labor market flexibility and the business environment will help enhance competitiveness and reduce unemployment. The financial sector needs to be strengthened through more vigorous implementation of prudential regulations and through steps to increase corporate governance and enforce creditor rights. Other priorities are to complete the privatization of state-owned enterprises in a transparent manner, to make the energy sector more competitive and efficient, and to liberalize trade further.

"Overall, while noting that many challenges remain to be addressed as Bulgaria continues its transition to a full market economy, Directors recognized that a great deal has already been achieved," Fischer said.