04.07.2013

"Despite the unsettled political situation, Bulgaria has maintained hard-earned macroeconomic and financial stability". This is what the IMF mission head Ms Michele Shannon said during the wrap-up meeting at the Ministry of Finance. She added that this "has helped to insulate Bulgaria from the severest effects of the global crisis". According to the Fund's experts, domestic uncertainty and global market turbulence in recent weeks have not had a significant market impact on Bulgaria, with bond yields and credit-default swap spreads remaining in line with other strong performers in Eastern Europe.

The Fund welcomes the new government's intention to maintain macroeconomic policy continuity, to increase protection for the most vulnerable in society, and to address key structural rigidities. The IMF experts also expect that the economic growth will improve only slightly in 2013 from a subdued rate in 2012, and unemployment remains unacceptably high. Any revenue shortfalls as a result of weaker-than-budgeted economic activity or delays in the reimbursement of EU funds should be accommodated and not offset by compressing expenditure below budgeted amounts. The Fund recommends continued improvements in the composition and efficiency of spending to strengthen the quality of public services and targeting of social services within constrained fiscal space.

The IMF experts also comment that the "plans to reduce administrative barriers to business; to increase efficiency in the energy sector and in core public services, including health services; and to increase confidence in the legal system and address corruption and cronyism are essential to support growth and employment. Likewise, plans to reduce structural unemployment, including by addressing skills mismatches and targeting programs for youth workers are key".

The Fund experts conclude that the financial system remains stable and well capitalized, with high liquidity resulting from constrained credit demand and continued deposit growth.