IMF: Bulgarian Economy Might be Affected by Global Credit Crunch

IMF: Bulgarian Economy Might be Affected by Global Credit Crunch

The IMF sounded its first warning that the Bulgarian economy may yet feel a pinch from the global credit crunch, Dnevnik reported.

Juan José Fernández-Ansola, the IMF senior resident representative in Bulgaria, said the global credit fears have so far had moderate effects on Bulgaria but the situation could take a turn for the worse over the next couple of months.

Fernández-Ansola said the global tightening of lending conditions could increase the cost of borrowing for Bulgarian banks and businesses, a trend that is already underway gathering momentum although slower than elsewhere.

The IMF official also pointed out another possible fallout. In his view, if EU growth declines sharply that would grind down demand for Bulgarian goods abroad thus souring the growth outlook for the economy. He said there is currently no indication that this is happening but that it is too early to assess the situation.

The IMF Thursday released its staff report on Bulgaria, saying that the private investment boom has provided surprisingly little boost to Bulgaria’s growth performance but the growth payoff may be underestimated or come with delay.

A stronger push on long-delayed structural reforms, particularly reforms raising public sector efficiency, is also needed, says the report. In this way, the economy will better absorb external shocks and sustain investor confidence and, as a result, productivity-driven growth.

The fund warns that investment in industrial manufacture is disappointingly small in light of the fact that Bulgaria's labor costs remain competitive. Exports remain focused on the low segment of products with small value added.

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