IMF: Bulgaria should build buffers against external risks

Thanks to Bulgaria’s prudent policy, the country’s economic recovery is in progress, but a policy of rebuilding buffers to address external risks should be considered. This was the recent recommendation of the International Monetary Fund (IMF), published on the financial institution’s website at the end of last week. Once again, IMF’s experts recommended far-reaching reforms, especially in healthcare, the public administration and the pension system. According to the fund, stepped-up structural reforms hold the key to improved economic growth prospects. It also stressed that wage growth should be better aligned with productivity developments. The other measures needed for achieving higher economic growth are: reduction of administrative barriers, improvement of the absorption of EU funds and strengthening the legal system. Let us remind our readers that similar recommendations were voiced by the European Commission (EC) when assessing the Convergence Programme of Bulgaria for the 2011-2014 period and the National Reform Programme for 2011-2015. According to Brussels, Bulgaria must strengthen fiscal management, develop and introduce mandatory fiscal rules and an explicit medium-term budgetary framework.

According to IMF’s forecasts, Bulgaria’s exports will recover to levels above those prior to the crisis. This will give additional economic impetus and real GDP growth will reach 3% in 2011.

Economic recovery will also boost domestic demand and the average annual inflation is expected to be 4.25%. As unemployment gradually declines, consumption will also gain momentum, allowing real GDP to recover its pre-crisis levels in 2012. Growth will accelerate to 3.5% next year and to 4% in 2013. This is almost double the speed at which all Europe will be developing. IMF expects growth in Europe to stand at 1.8% in 2011 and at 2.1% in 2012. However, the expectations of the financial institution are lower than the Government’s projections for some 3.6% growth. In Q1 2011 alone, the National Statistical Institute (NSI) reported a 3.4% growth of the domestic economy, compared to the same period of last year.

IMF’s directors welcomed the Government’s deficit target. The gap in public finances is to be reduced from 3.2% of GDP in 2010 to below 3% in 2011. A 2.5% of GDP ceiling has been set for the budget deficit. IMF’s experts, however, noted that improving tax collection and resisting the temptation of pre-election spending are the main prerequisites for achieving the budget deficit target. The Government confirmed to IMF's experts its readiness to take additional measures if necessary.

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