Statement by the IMF Staff Representative on Bulgaria

This paper examines Bulgaria’s Second Review Under the Stand-By Arrangement (SBA) and a Request for Waiver of Applicability of Performance Criteria. Over the last six-month period, Bulgaria’s macroeconomic stability has strengthened further. However, political pressures have made it more challenging to maintain a prudent and flexible fiscal policy and have weakened the momentum of structural reforms. Bulgaria has had a commendable performance in 2002, and the IMF staff supports the authorities’ request to complete the second program review under the SBA.

Abstract

This paper examines Bulgaria’s Second Review Under the Stand-By Arrangement (SBA) and a Request for Waiver of Applicability of Performance Criteria. Over the last six-month period, Bulgaria’s macroeconomic stability has strengthened further. However, political pressures have made it more challenging to maintain a prudent and flexible fiscal policy and have weakened the momentum of structural reforms. Bulgaria has had a commendable performance in 2002, and the IMF staff supports the authorities’ request to complete the second program review under the SBA.

This statement provides information since the issuance of the staff report for the second review under the stand-by arrangement for Bulgaria. This information does not change the staff’s appraisal in that report.

  • Macroeconomic developments continue to be favorable. Industrial production rose by 11 percent year-on-year in November, supporting the view that real GDP growth for the year likely exceeded the 4 percent projected under the program. The unemployment rate continued to fall in December, reaching 16.3 percent or more than 2½ percentage points below the level at the start of 2002. Balance of payments data through October show a continued recovery in exports and an external current account deficit of 1.2 percent of estimated annual GDP, suggesting that the external current account deficit for the year as a whole remained within the projected 4.2 percent of GDP. Inflation in December picked up to 3.8 percent annually from 3.2 percent in November reflecting, in part, higher oil prices.

  • Indications are that all performance criteria for end-December were observed. Staff has confirmed that ceilings on contracting and guaranteeing public sector debt have been met; that the floor on the balance of the Fiscal Reserve Account has been exceeded by a comfortable margin; and the end-December performance ceilings on arrears to the state energy companies have been observed. Preliminary data indicate that the general government fiscal deficit for 2002 reached 0.7 percent of GDP, some 0.1 percentage points of GDP below the ceiling. However, the end-December indicative target on social insurance arrears collection was not observed.

  • There have been positive developments with regard to structural reform. First, three foreign banks have made indicative offers for the last major state-owned bank, DSK Bank, and the sale remains on track for completion in the first half of 2003. Second, the supreme court has ruled that the privatization of the state telecommunications company (BTC) can go forward as planned, and the sale is now expected to be completed in the first quarter of the year. Finally, the Ministry of Finance has launched a new website which includes monthly data on the consolidated general government budget implementation. This is a positive step toward enhancing fiscal transparency and is line with structural conditionality under the program.

  • The authorities have indicated their intention to publish the staff report without deletions.

Bulgaria: Second Review Under the Stand-By Arrangement and Request for Waiver of Applicability of Performance Criteria
Author: International Monetary Fund