IMF 2017 ARTICLE IV CONSULTATION

On February 14, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Bulgaria.

The Bulgarian economy is performing well. Growth has been on an upward trend and is estimated to reach 3.8 percent in 2017 and 2018, driven by strong exports, easier financial conditions, and growing confidence. The current account remained in surplus in 2017, despite rapid wage growth. The economy shows signs of a closing output gap. Headline inflation turned positive in 2017 and inflationary pressure is rising. The unemployment rate has declined to 5.8 percent, the lowest level since the global financial crisis. Fiscal outcomes have been stronger than budgeted in recent years – a surplus of 0.8 percent of GDP is estimated for 2017 – reflecting mainly revenue overperformance and under-execution of capital spending.

The main challenge is to translate this recent recovery into sustained and inclusive growth and convergence with other EU countries. Bulgaria’s per capita income is only half of the EU average and income inequality is higher than EU average. Growth is projected to moderate to 2¾ percent over the medium, reflecting capacity constraints and unfavorable demographics.

Public debt is low, but contingent liabilities and long-term fiscal pressures from demographic challenges could pose fiscal risks over the long run. Advancing governance reform and improving efficiency of public institutions at all levels remain key to raise potential growth and contain fiscal risks. Reform priorities include improving public infrastructure, enhancing quality of and access to education and healthcare, addressing skill mismatches in the labor market, and strengthening management and oversight of state-owned enterprises. The banking system is resilient, but NPLs remain well above the EU average and two of the banks identified by the asset quality review and stress test still require larger capital buffers.

The full publication can be found HERE.