Thanks to a sustained financial discipline and a good policy that the Government has been implementing since the middle of last year, your country is entering a gradual recovery from the crisis," International Monetary Fund (IMF) Mission Leader for Bulgaria Catriona Purfield said at her meeting here on Monday with Bulgarian Prime Minister Boyko Borissov, quoted by the Government Information Service.

"Bulgaria maintains a good macroeconomic stability, and our findings are very positive," she added. According to Purfield, Bulgaria has a good reputation with the Fund and is successfully applying its policies. "The Cabinet's policy must remain stable and predictable, which will give foreign investors a clear positive sign," the Mission Leader went on to say.

"We are aspiring to observe stringent financial discipline, which is why the Government comes under heavy fire," Borissov said for his part. He thanked for the positive assessment and added that Bulgaria attaches importance to the objective analysis of the IMF mission.

IMF Resident Representative in Bulgaria and Romania Tonny Lybek and Bulgarian Deputy Prime Minister and Finance Minister Simeon Djankov also attended the meeting.

Bulgaria's real GDP growth is projected to range between 0 and 0.4 per cent in 2010, according to an IMF mission which visited Sofia from September 23 to October 4.

Mission Leader Catriona Purfield released a statement saying: "As the global economy exits its deepest post-war recession, Bulgaria is benefiting from stronger exports and the economy is poised to stage a gradual recovery. The current account deficit is expected to decline to just below 3 per cent of GDP and inflation will remain moderate."

The IMF also said that in 2011 real GDP growth is forecast to

rise to 2-2.5 per cent (year-on-year) as the recovery broadens to encompass domestic demand. "While this is projected to maintain the current account deficit to just above 3 per cent of GDP, it is more than covered by foreign direct investments.

Employment conditions may improve as growth increases."

"Bulgaria's prudent macroeconomic framework, anchored on the currency board, has been crucial in preserving stability through the global economic crisis. The substantial buffers accumulated in the fiscal and financial sectors during the boom provided important cushions through the downturn. As the economy recovers, attention now should turn to fiscal consolidation and

sustaining a strong banking system to realize the long-standing policy objective of ERM II membership and eventual euro adoption," the IMF mission said.

"Strong policies have kept the 2010 budget on track despite weak revenues. Several measures were taken to contain the cash deficit to 2.25 per cent of GDP by end-August, including steps to bolster tax administration, streamline public employment, postpone special pension increases, and strictly control spending. However, recouping the shortfall in tax collections seen through August by the year-end will be challenging and shortfalls may occur.

Safeguarding the 2010 deficit target will therefore require continued strict spending control with efforts focused on the curtailment of new obligations to avoid the risk of new arrears," the IMF mission said in its statement.

The mission found that "the 2011 budget rightly envisages the continued adjustment of spending to the lower revenues that prevail in the post-boom era". Despite the recovery, higher fuel excises and new tax compliance measures, 2011 tax revenues are budgeted to be some 4.5 percentage points of GDP, the IMF said.

The IMF mission noted a need for "bolder and more permanent expenditure reforms, including addressing the large deficit in the pension system". "Successive reductions in social security contribution rates and ad hoc pension increases have caused a deficit in the social security system that requires about 6 per cent of GDP in transfers from the central government.

The

proposed increase in the minimum service requirement is an important first step, but re-establishing balance in the pension system will require a comprehensive reform, including of funding and entitlements."

The IMF mission also said that "the medium-term fiscal program foresees an ambitious reduction in the deficit to comply with commitments under the European Commission's Excessive Deficit Procedure. Achieving the 2011 target and diversifying financing sources will help anchor expectations and rebuild the fiscal reserve."

Regarding the banking system, the IMF mission said that "Bulgarian banks have weathered the financial crisis well". "The reported system-wide capital adequacy ratio at end-June 2010 was 18 per cent, which is well above the regulatory minimum of 12 per cent," the statement said.

Source: BTA