The Executive Board of the International Monetary Fund (IMF) today approved a two-year stand-by credit for SDR 240 million (about US$299 million) in support of Bulgaria’s comprehensive economic program. The decision will enable Bulgaria to draw SDR 32 million (about US$40 million) from the IMF immediately.
This arrangement will succeed a three-year, SDR 627.6 million (about US$781 million) credit under the Extended Fund Facility (see Press Release 98/44), which expired in September 2001.
Following the Executive Board discussion, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:
“The Fund supports the Bulgarian authorities’ economic program centered on the currency board arrangement, prudent and flexible fiscal policy, a strict incomes policy, and privatization and other structural reforms. This program offers good prospects for rapid sustained growth, sound external balances, and lower unemployment and poverty.
“Prospects for 2002 are generally favorable, with output growth expected to reach 4 percent. The external current account deficit is projected to remain at around 6 percent of GDP, mostly financed by foreign direct investment. Nevertheless, it should be monitored closely, in light of the uncertainty surrounding the recovery in Western Europe. Inflation increased in January owing to administrative price hikes and other one-time effects, but should remain subdued in the remainder of the year. The banking sector is well supervised, highly capitalized, profitable, and resilient to foreign exchange and interest rate risks.
“The fiscal deficit target of below 1 percent of GDP in 2002 is appropriate, and the authorities’ intent to reduce the fiscal deficit further over the medium term is welcome. To this end, expenditure pressures should be curbed through a continuation of fiscal and structural reforms, and revenue collection should be enhanced by improvements in tax and customs administration. These measures would create room to strengthen further the social safety net, and gradually lower direct tax rates.
“The incomes policy should be implemented strictly, and labor market flexibility should be improved to maintain competitiveness and enhance growth. In addition, the last two large public banks should be sold to well-qualified strategic investors, structural impediments to private sector credit growth eliminated, and the privatization of non-infrastructure enterprises finalized. Other priorities are to continue with the reforms in health care and education, restructure the transportation and energy sectors with a view to improving efficiency and reducing risks to the budget, liberalize trade further, and develop a public debt management strategy aimed at lowering the debt-to-GDP ratio and reducing portfolio and roll-over risk,” Mr. Sugisaki said.
A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.