Statement by the IMF Staff Representative on Bulgaria

Bulgaria's macroeconomic performance, in the face of the prolonged slowdown in the EU, has been impressive, but further efforts are required. The government's fiscal policy has underpinned recent economic success, and pressures to loosen such policies should be resisted. Fiscal reforms have progressed, but momentum needs to be maintained for some time to come. Robust growth can be sustained over the medium term only with a revitalization of structural reforms. The rapid growth in credit to the private sector is welcome, but presents challenges.

Abstract

Bulgaria's macroeconomic performance, in the face of the prolonged slowdown in the EU, has been impressive, but further efforts are required. The government's fiscal policy has underpinned recent economic success, and pressures to loosen such policies should be resisted. Fiscal reforms have progressed, but momentum needs to be maintained for some time to come. Robust growth can be sustained over the medium term only with a revitalization of structural reforms. The rapid growth in credit to the private sector is welcome, but presents challenges.

This statement provides information on developments 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 broadly favorable, despite a widening of the current account deficit in April.

  • Preliminary data indicate real GDP growth in the first quarter of 3.8 percent. Given private sector growth of nearly 7 percent—offset by a very tight fiscal stance—and a rise in industrial output by nearly 10 percent in April over the same period last year, staff continues to view the projected 2003 growth rate of 5 percent as achievable.

  • Registered unemployment continued to improve in May, with the unemployment rate declining by 0.6 percentage points over the previous month, to 14.3 percent.

  • Twelve-month growth in nominal credit to the private sector and broad money accelerated slightly in May to 49 percent and 15 percent, respectively.

  • Consumer prices fell by 0.6 percent in May with respect to April, somewhat less than expected, implying an acceleration in annual inflation to 1.7 percent.

  • Balance of payments data for April indicate a widening in the external current account deficit from 5.5 percent of GDP to about 6.3 percent on a 12-month basis, in part due to higher interest payments. Also, a strong rise in imports—in particular of raw materials and investment goods—was partly offset by continued robust export growth, implying a modest rise in the 12-month trade deficit, from 10.4 to 10.8 percent of GDP. However, the overall balance and level of reserves were significantly better than expected.

Program implementation remains very good. Staff has confirmed that end-June performance criteria on contracting and guaranteeing public sector debt have been observed, and preliminary data indicate that the floor on the balance of the Fiscal Reserve Account has been exceeded by a large margin. The general government generated a substantial surplus through May of more than 600 million leva (1.7 percent of annual GDP), compared with an allowable deficit under the program of 103 million leva. All end-June structural benchmarks have been observed, with the exception of that on the implementation of a single taxpayer identification number. This has been largely met in practice, although required legislation has not yet been passed.

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

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