IMF sees Bulgarian economy to grow by about 4% in medium term.

By bne IntelliNews May 27, 2011
The IMF expects real GDP growth to converge to an average of 4% over the medium term and to be broader-based than before the crisis but warns that absent reforms, structural bottlenecks and population aging may constrain growth potential in the long run, according to the Article IV concluding statement published on the website of the organisation. We remind that IMF has forecast real GDP growth to speed to 3% this year on exports expansion while consumption is to remain weak, suppressed by rising inflation, precautionary savings and heightened regional uncertainty. As a result, imports will remain subdued and the CA gap will move closer to balance. Headline inflation will reach 4.5% this year on rising food and fuel prices and will then moderate to 3% next year. The IMF does not expect quick unemployment reduction in view of the moderate recovery and the growth rebalancing towards the tradable sector. The risks are mainly on the downside: further rising oil prices, deceleration of EU growth rates, tensions in the financial and sovereign debt markets of the euro area periphery. However, growth could be higher if exports outrun expectations; confidence improves to push up consumption and in case of better EU funds utilisation. The IMF underlines that the policy challenge is to bolster longer-term growth prospects while keeping the resilience to address potential shocks. It recommends addressing the weakness in contract enforcement, governance, and judicial shortcomings to reduce the cost of business and enhance countrys attractiveness. The proposed financial stability pact is to send a strong signal of prudent fiscal policies but a rule that links fiscal policy to a prudent estimate of potential growth, incorporates mechanisms to correct deviations, and create savings in upswings should be included in the organic budget law. The IMF expects Bulgaria to exit the excessive budget deficit procedure and says that additional funds (if any) from better revenues compliance should be saved. It recommends the fiscal financing strategy to rely on privatization and increased debt issuance to safeguard the fiscal reserve, which will make the economy more resilient to new shocks and enhance confidence if rebuilt. The main challenge before the financial sector is to maintain resilience. The IMF expects the non-performing loans to peak in H2 this year but warns that more protracted economic recovery may delay it. Credit growth may speed in case of debt resolution framework improvement.

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