IMF forecasts economic growth, unemployment decline for Bulgaria

The Executive Board of the International Monetary Fund (IMF) has praised Bulgaria for its fiscal policy response and budget for this year. According to the IMF directors, the country's 2021 spending plans maintain support for the economy and strengthen social benefits (See here).

However, improvements need to be made in the design and scope of anti-crisis measures, while institutional capacity should be enhanced to more quickly absorb EU funding for the development of a greener and more digitalised economy. This was noted in an IMF statement published on the international organisation's website.

“The Bulgarian economy has been severely affected by the pandemic, but is expected to recover gradually from the sharp contraction,” IMF experts write. Their recommendation is that policies should remain flexible and evolve with changing circumstances. They also highlight the importance of structural reforms over the medium term to promote strong growth. This means that Bulgaria should also increase its fiscal support for citizens and businesses.

At the same time, IMF directors note that financial sector policies have helped banks to maintain strong balance sheets and to keep credit flowing. They believe those measures should stay in place, but stress the need to take steps aimed at resolving the problem with non-performing loans as the recovery takes hold. The IMF commended Bulgaria on its entry into the European Exchange Rate Mechanism II (ERM II) and the banking union. The IMF also recommends strengthening active labour market policies and the education system in order to raise human capital and growth. “Improving the social protection system and access to education would also help alleviate inequality and poverty,” the directors write. They also call for “continued efforts to strengthen governance, fight corruption, and improve the business climate more broadly”.   

The IMF forecasts that GDP will show contraction of 4.6% for 2020, but will grow 3.6% this year. The unemployment is forecasted to fall from 5.2% to 4.8% in 2021. Imports and exports are expected to grow by more than 9%, after a double-digit slump in 2020.