IMF Projected Bulgaria Economy Reach to 1.9 percent this year

The near-term economic outlook for Bulgaria has weakened. Bulgaria economy are now projecting real GDP growth at 1.9 percent in 2011 and 1.3 percent in 2012, despite increased absorption of European Union (EU) funds that is helping cushion the external headwinds. “We project a small current account surplus for 2011, which will move to balance in 2012. Inflation is expected to fall below 3 percent in 2012,” a statement made by IMF staff Catriona Purfield on December 9.
However, risks are titled to the downside, especially if the global outlook deteriorates further. If euro area uncertainties are resolved, there is potential for growth to surprise on the upside given strong precautionary savings.
In spite of good policies, the recovery in Bulgaria has been hurt by the economic slowdown and ongoing uncertainty in Europe. The way forward is to maintain prudent fiscal policies, enhance fiscal buffers to help weather any deterioration in conditions, and accelerate structural reforms to lay the foundations for stronger and more sustainable recovery in growth, job creation and incomes, statement added.
Fiscal policy remains on track to exit speedily the EU’s Excessive Deficit Procedure. In 2011, the budget is likely to meet the 2.5 percent of GDP fiscal deficit target, reflecting tight control over expenditures as well as some gains from improved revenue collection. This and the low public debt burden have helped insulate Bulgaria from the escalating euro area turbulence.
The 2012 budget deficit target of 1.3 percent of GDP is very prudent. Ensuring that the fiscal reserve remains above its legislated floor during 2012 and securing the possibility for additional external market funding will help preserve confidence and enhance fiscal buffers to counter a sharper downturn. However, additional fiscal measures seem warranted, given our less optimistic growth forecasts. Early adoption of contingency measures that strive to protect capital expenditures and increased absorption of EU funds remain crucial to boost growth prospects. Concurrently advancing structural reforms that improve spending efficiency would secure additional sustainable savings. However, should growth slow by more than anticipated, allowing the deficit to widen within the ceiling established in the new Financial Stability Pact would help cushion the adjustment.
The gradual increase in the retirement age starting from January 2012 and the extended service requirements will help fund an increase in the minimum pension. In the medium-term, these reforms will yield substantial savings. Nonetheless, prompt introduction of administrative measures to counter social security evasion and abuse of disability benefits will bolster contribution collection, while protecting the truly needy.
The Bulgarian banking system is well-supervised and is well placed to weather the headwinds. At end-September, the reported system-wide capital adequacy ratio was 17.8 percent—or more than double the EU minimum requirement. When conditions normalize, banks will be prepared to step up lending given their ample liquidity cushions.”
In making conclusion of Bulgaria economy, a team from the International Monetary Fund (IMF) led by Catriona Purfield visited Sofia December 1–8, to hold discussions with the Bulgarian authorities about recent economic developments and government policies.

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