Bulgaria's economic output is projected to recover slowly as the domestic demand is seen to gradually pick up, while exports and FDI will benefit from the improvement in Europe, the IMF said in its staff report for the 2013 Article IV consultations published on Jan 30. The Fund projects that Bulgaria's economy will grow by 1.6% in 2014.
The fiscal policy is maintaining an appropriate balance as the government targets a budget deficit of 1.8% of GDP in 2014, which is consistent with the national rules and EU objectives and leaves the structural deficit almost unchanged, the IMF noted. Medium-term fiscal risks arise from the reversal of pension reform and from contingent liabilities related to some state-owned enterprises.
Most of the unemployment in Bulgaria is structural, given that the output gap is not large, according to the IMF. It is also characterised by significant age, gender, and regional disparities. Inflation is projected to be positive but subdued in the short term, quickening to 0.8% in 2014 from 0.4% in 2013. The current account is expected to have ended 2013 in surplus but to return to a modest deficit in the medium term, financed by FDI.
Bulgaria's financial system remains stable and liquid but its profitability has declined, the IMF underlined. Liquidity is plentiful as the deposit base has expanded, while the demand for credit has remained low. Bad loans have stabilised but are close to their peak.
The intensified political situation makes it more difficult to implement structural reforms needed to raise productivity and offset impact of emigration and aging. Only broader reforms will set the conditions for higher growth, lower unemployment, and reduced incentives for migration.
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