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Business and Economics > Public Finance

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Cover Selected Issues Papers
The Bulgarian Pension System: Caught Between Adequacy and Sustainability: Bulgaria
Jean-Jacques Hallaert
During the COVID-19 pandemic, the Bulgarian authorities increased pensions substantially to support pensioners’ living standards and aggregate demand. These increases have become permanent and improved the adequacy of pensions. However, not matched by revenue measures, they have widened the deficit of the pension system. Reforms that increase the incentives to contribute to the pension system and thus revenue would improve the financial sustainability of the pension system and reduce fiscal risks.
Keywords:
Bulgaria; Pension; Pension Adequacy; Financial Sustainability; Fiscal Risk from Pensions; pension entitlement; pension level; entitlements in social insurance; IMF staff calculation; Pension spending; Pensions; Aging; Pension system sustainability; Tax allowances; Europe; Global
Cover Selected Issues Papers
Bulgaria: Fiscal Risks from State-Owned Enterprises
Anh D. M. Nguyen
State-owned enterprises’ (SOEs) economic and financial performance may have important fiscal implications. This study evaluates related fiscal risks in Bulgaria from both aggregate and firm-level perspectives. The low level of state-guaranteed debt of SOEs poses minimal fiscal risk. However, contingent liabilities could be a fiscal concern in the long term due to the low profitability of major SOEs and their inefficient resource allocation. Given their crucial role in the production network, their inefficiencies likely negatively impact the overall economy’s productivity and competitiveness. Additionally, liquidity and solvency risks are evident in several key SOEs. These findings underscore the need for monitoring and improving SOEs’ financial performance.
Keywords:
Bulgaria; State-Owned Enterprises; SOEs; Fiscal Risks; SOEs’ financial performance; solvency risk; risk threshold; return on assets; health check tool; loss-making SOEs; Public enterprises; Contingent liabilities; Energy sector; Solvency; Europe
Cover IMF Staff Country Reports
Bulgaria: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bulgaria
International Monetary Fund. European Dept.
The 2024 Article IV Consultation highlights that the Bulgarian economy has shown resilience through a succession of shocks and is achieving a soft landing. Growth slowed in 2023 to 1.8 percent driven by a decline in private investment due to uncertainty and by the unwinding of the inventory buildup of 2021–2022. Growth is expected to rebound this year thanks to the recovery in demand from key trading partners, which will spur exports and private investment, while public investment is to be supported by EU funds. Despite sustained wage and pension growth and inflationary pressures from an expansionary 2024 budget, inflation is projected to continue declining owing to the projected continued fall in global food and energy prices, but it has remained higher than in many European peers. Deep structural reforms are needed to foster higher and more inclusive growth. Addressing declining potential growth and slow income convergence requires containing the decline in the labor force, more investment, higher productivity, greater competitiveness, and further integration into global and regional value chains.
Keywords:
IMF's transparency policy; potential GDP; Policy discussion; EU grant; IMF's article; policy measure; Fiscal stance; Income; Pension spending; Wages; Global
Cover IMF Staff Country Reports
Bulgaria: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper focuses on the Bulgarian pension system. The paper provides an overview of the pension system and describes measures taken in the last decade to increase its financial sustainability. It highlights how the measures taken during and after the Coronavirus disease 2019 (COVID-19) pandemic structurally affect the financial sustainability of the pension system. The paper also shows that the recent measures compound the long-term pressure related to an aging population. It also details policies that could contain the projected increase in pension spending. During the COVID-19 pandemic, the Bulgarian authorities increased pensions substantially to support pensioners’ living standards and aggregate demand. These increases have become permanent and improved the adequacy of pensions. However, not matched by revenue measures, they have widened the deficit of the pension system. Reforms that increase the incentives to contribute to the pension system and thus revenue would improve the financial sustainability of the pension system and reduce fiscal risks.
Keywords:
GVC Integration; IMF staff calculation; return on assets; GVC participation; EU country; current ratio; Pension spending; Pensions; Aging; Exports; Public enterprises; Global; Europe
Cover IMF Working Papers
Inflation Dynamics in Bulgaria: The Role of Policies
Anh D. M. Nguyen
,
Hajime Takizawa
, and
Iglika Vassileva
This paper analyses inflation dynamics in Bulgaria using different complementary econometrics technics. We find that common factors play a large role in the EU’s inflation variation but impact individual countries differently due to country-specific factors. Greater weight of energy and food in Bulgaria’s CPI basket amplifies the impact of shocks on headline inflation. Furthermore, second-round effects in Bulgaria are likely pronounced, associated with a higher inflation persistence compared to the EU countries. Recent ECB monetary tightening has been insufficient for Bulgaria and its transmission is weak. Fiscal policy supported the recovery from the COVID crisis but added to inflation.
Keywords:
Inflation; Monetary policy; Fiscal policy; ECB interest rates; Phillips curve; Principal Component Analysis; VARl Sign restrictions.; inflation dynamics; HICP inflation; ECB Policy rate; inflation variation; inflation development; inflation in EU country; Energy prices; Inflation persistence; Food prices; Global
Cover IMF Staff Country Reports
Romania: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Romania
International Monetary Fund. European Dept.
After a solid recovery from the pandemic, Romania is now, like other EU countries, facing strong headwinds related to the war in Ukraine. Output reached pre-crisis levels in H1 2021 and growth in Q1 2022 was strong. But inflation has risen rapidly, and the external and fiscal positions are weak. The authorities are implementing a support package of energy price caps and subsidies for vulnerable groups.
Keywords:
inflation expectation; EU membership; inflation outlook; EU accession; EU funds; cap scheme; Inflation; Fiscal stance; Energy prices; Consumer price indexes; Europe; Global
Cover IMF Staff Country Reports
Bulgaria: 2022 Article IV Consultation - Press Release; and Staff Report for Bulgaria
International Monetary Fund. European Dept.
The economy showed resilience through the pandemic, but the war in Ukraine has clouded the outlook, heightened uncertainty, and increased downside risks. With policy support, growth rebounded in 2021 despite the lingering COVID-19 crisis and protracted political uncertainty that hampered investment. Inflation accelerated significantly, pushed by global factors and strong domestic consumption. GDP growth is projected to slow below 3 percent and average inflation to exceed 12 percent in 2022. In this context, policies must navigate difficult trade-offs as they need to support activity, meet needs from the war, and contain inflation, while raising living standards, reducing inequalities, and supporting the green transition.
Keywords:
excise rate cut; budget composition; CPI series; General government operation; potential GDP; pension calculation; Inflation; Income; Consumer price indexes; Imports; COVID-19; Global; Europe; Southern Europe; Eastern Europe
Cover IMF Working Papers
Strengthening Public Expenditure Efficiency: Investment and Social Spending in Bulgaria
Mr. Jean-Jacques Hallaert
and
Keyra Primus
The scope for increasing public spending to meet Bulgaria’s development needs is limited by low revenue. Increasing the efficiency of spending is, therefore, crucial. This paper discusses how this can be achieved in four areas (public investment, social protection, health, and education). The methodology is based on a triple benchmarking. First, the level of public expenditure in each category is compared to other European countries. Second, the impact of spending is assessed against other European countries. Third, the input mix is analyzed to understand what components are responsible for the level of spending and for the quality of outcomes. Based on these results, the paper provides policy options for expenditure reform.
Keywords:
Public Expenditure; Efficiency; Public Expenditure Reform; Public investment; Social Protection; Education; Health; Social Spending; Bulgaria; EU fund absorption; efficiency frontier; public expenditure efficiency; expenditure development; development needs; Public investment spending; Social protection spending; Global; Europe
Cover IMF Staff Country Reports
Bulgaria: 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bulgaria
International Monetary Fund. European Dept.
The economy contracted sharply amid two waves of COVID-19 infections, with the government providing sizable policy support. The outlook is very uncertain and the main challenge facing policymakers is to keep adjusting to changing circumstances. Over the medium term, structural reforms are needed that support inclusive income convergence toward advanced EU partners against demographic headwinds.
Keywords:
ISCR; CR; policy priority; authorities' policy response; Bulgarian authorities; ERM II membership; government's policy
Cover Departmental Papers
Infrastructure in Central, Eastern, and Southeastern Europe: Benchmarking, Macroeconomic Impact, and Policy Issues
Mr. Anil Ari
,
David Bartolini
,
Vizhdan Boranova
,
Gabriel Di Bella
,
Mr. Kamil Dybczak
,
Ms. Keiko Honjo
,
Raju Huidrom
,
Andreas Jobst
,
Nemanja Jovanovic
,
Ezgi O. Ozturk
,
Ms. Laura Papi
,
Mr. Sergio Sola
,
Michelle Stone
, and
Petia Topalova
CESEE countries lag in terms of infrastructure compared to the EU15, and deficient infrastructure is often cited as a constraint to growth and convergence. Investing in infrastructure is therefore an important long-standing policy issue for the region. In the context of the Covid-19 pandemic, infrastructure investment has also gained some ground as economies look to support activity in the recovery phase once the virus has been contained. Against this backdrop, this project seeks to benchmark infrastructure in CESEE, assess the macro impact of higher infrastructure investment, and discuss policies issues to maximize such impact. First, we benchmark infrastructure in the region versus the EU15, across various infrastructure sectors and using different methodologies. Second, deploying empirical estimates and model-based simulations, we analyze the macroeconomic impact of boosting infrastructure investment. Third, we present an in-depth analysis of policy issues: enhancing public investment management, managing fiscal risks, and mobilizing private sector participation.
Keywords:
DPPP; DP; infrastructure investment; IMF staff calculation; private sector; Cesee-EU economy; crowding in; CESEE country; CESEE-EU country; country authorities; public investment; Infrastructure; Public investment and public-private partnerships (PPP); Public investment spending; Private investment; Purchasing power parity; Global; Europe; investment boom; government investment plan