Statement by the IMF Staff Representative

This paper assesses Bulgaria’s 2002 Article IV Consultation, First Review Under the Stand-By Arrangement (SBA), and a Request for Waiver of Non-observance and Waiver of Applicability. The authorities’ structural reform program is ambitious, but implementation needs to be stepped up. In particular, although the energy sector reform program aims appropriately at privatization and increased competition, delays in restructuring district heating companies and increasing energy prices toward cost-recovery levels need to be overcome. The IMF staff supports the authorities’ request for completion of the first program review under the SBA.

Abstract

This paper assesses Bulgaria’s 2002 Article IV Consultation, First Review Under the Stand-By Arrangement (SBA), and a Request for Waiver of Non-observance and Waiver of Applicability. The authorities’ structural reform program is ambitious, but implementation needs to be stepped up. In particular, although the energy sector reform program aims appropriately at privatization and increased competition, delays in restructuring district heating companies and increasing energy prices toward cost-recovery levels need to be overcome. The IMF staff supports the authorities’ request for completion of the first program review under the SBA.

This statement provides information that has become available since the issuance of the staff report for the Article IV consultation and first review under the stand-by arrangement for Bulgaria (EBS/02/121). This information does not change the staff’s appraisal in that report.

  • June inflation data were favorable, with a fall in the 12-month inflation rate to 5.2 percent. While a further pick-up is expected with the announced increase in energy prices, end-year inflation is likely to remain within the revised target of 7¼ percent. The most recent indicators of economic activity present a mixed picture, with May industrial output showing a robust rise year-on-year, but industrial sales declining. As of July 12, foreign reserves of the central bank totaled US$4,043 million (4.9 months of prospective imports) compared with US$3,579 million at end-2001.

  • Indications are that all performance criteria for end-June were observed. Staff has confirmed that ceilings on contracting and guaranteeing public sector debt have been met. Preliminary data point to a general government fiscal surplus of about 300 million leva (0.9 percent of annual GDP) through end-June, meeting the performance criterion with a margin of some 200 million leva. Similarly, the floor on the fiscal reserve account appears to have been observed with a comfortable margin.

  • On the structural side, there have been several positive developments. A schedule of increases for household electricity prices—the prior action for this Board discussion—was announced in late June, with an average 20 percent increase effective on July 1. The end-June benchmark to make the energy pricing regime fully operational has been met as well. Negotiations for the sale of Biochim Bank (an end-September benchmark) have been completed with Bank Austria, and a contract is expected to be signed on July 26. Finally, legislation to create a unified revenue agency was submitted to parliament (end-June benchmark) albeit several weeks late.

  • However, several end-June benchmarks—which are subject to the second review under the program—have not been observed. First, the accreditation process for hospitals has not yet been completed, although ¾ of all hospitals have gone through the process, with the remainder expected by end-year. Second, a draft of the new Energy Act is still being prepared, and is now expected to be presented to the Council of Ministers only by end-September. Finally, the authorities have indicated to staff that they no longer intend to implement the planned reform of the MFN tariff schedule, as they have been advised by the European Union that no tariff changes should be envisaged prior to accession.

  • The authorities have indicated their intention to publish the staff report and selected issues papers without deletions.

Bulgaria: Staff Report for the 2002 Article IV Consultation and First Review Under the Stand-By Arrangement and Request for Waiver of Nonobservance and Waiver of Applicability
Author: International Monetary Fund