The International Monetary Fund forecast on Tuesday that Bulgaria's economic growth would slow down to 5.5 percent this year and 5.0 percent next year due to the global credit crunch, Reuters reported.

"It reflects slower growth in advanced economies. And from there it has knock-on effects mainly through the trade channels to Bulgaria," IMF mission chief to Bulgaria Albert Jaeger told a news conference at the end of a mission visit to Sofia.

Bulgaria's gross domestic product (GDP) rose 6.2 percent last year, despite a drought which slashed agricultural output.

Jaeger said the projected economic slowdown was moderate, but warned there was a risk the decline could be much sharper.

The Fund, which no longer has a lending agreement with the European Union newcomer, urged Sofia to target a budget surplus of 3.7 percent of GDP this year, the same as in 2007, to cushion external risks arising from its ballooning current account gap, The Guardian added.

The IMF forecast Bulgaria's external shortfall would widen to 22 percent of GDP this year from 21.5 percent in 2007.

Jaeger said that if the economic decline was bigger than expected, the Socialist-led government might be justified in running a smaller fiscal surplus to back the emerging economy.

The Socialist-led government targets a budget surplus of 3.0 percent of GDP this year.

The IMF said it expected inflation in the Balkan country to slow to 7.0 percent at the end of this year, from 12.5 percent in 2007, on the assumption that Bulgarian agriculture would recover from last year's drought so that there would not be renewed food price hikes.