Банкеръ Weekly

Briefs

CHALLENGES TO BULGARIA

Piritta Sorsa, IMF Resident Representative in Bulgaria First of all I'll say a few words about the general macroeconomic situation, such as the International Monetary Fund (IMF) sees it. According to us, the economic growth will reach 5% this year, and may even exceed 5.5 per cent. It will be based on the increase of credits in the bank system and higher foreign direct investments as compared to 2002. We expect the budget deficit to double and inflation to remain low - at about 3.5-4 per cent. The current account deficit according to out forecasts will be about 5% of the gross domestic product (GDP). The budget deficit will be 0.7% of the GDP in 2003, and should be reduced to zero in the following years. The unemployement rate will remain high at 16-17 per cent, but a downward trend can be already seen. These macroeconomic indicators can be achieved if we assume that the macroeconomic stability continues. And it will be based on the policy, pursued so far. Moreover, we expect acceleration of structural reforms. The currency board and structural reforms will remain the main anchors of macroeconomic stability.From the point of view of Bulgaria's accession to the EU, the country will face several challenges. One of them is the increase of incomes and a much higher rate of investments and the higher quality of capital investments. Bulgaria should gradually meet Maastricht's criteria and also reach the EU standards regarding infrastructure and other spheres. If we judge from macroeconomic point of view, the fiscal policy is the main supporting policy of the currency board. The challenges originate from the Government's desire to cut off taxes and at the same time increase the social expenses and the costs, connecetd with Bulgaria's prepartion for EU membership. However, the collectibility of taxes shoudl be improved first of all. Here, in this sphere we are worried concerning the formation of the taxation basis. Many things could be imporved also in the management of expenses connecetd with structural reforms. Good maangement of funds from the EU is also a challenge, connected the implementation of investment projects they are earmarked for. Bulgaria's accession to the EU raises in front of institutions many problems connected with the preparations for membership in the EU. For example, the budget deficit should be measured on a calculated basis and not on the basis of cash (as it is now). From a macroeconomic point of view it is important to imporve the functioning of the financial sector as well. Bulgaria has achieved a considerable successand we hope that the increase of credits will continue. Notwithstanding the high speed of the increase of loans in 2002, their ratio to the GDP is still 18 per cent, while in tha Baltic countries this ratio is currently 26 per cent. And the financial sector's activity contributes much to the economic development. The structural reforme will be the greatest challenge to Bulgaria in the coming years. The productivity of labour in industry and the achievement of targets in fiscal policy depends on its success. Our recommendations in that sphere concern the legislative framework and the reform in the judiciary system, the way for granting licences and permissions, as well as the improvement of bankruptcy procedures. Our worries are that in that sphere the efforts are directed to the general conditions and are not at the micro level.Other necessary reforms include the restructuring of railways, the reduction of subsidies to them and increasing their efficiency. The reform in the energy sector is especially important. The branch should be market-orientated and the budget - relieved of the necessary to subsidize it. Reforms in healthcare, education, and telecommunciations, in the channeling of privatisation and the restructuring of enterprises, are also importatnt for the economic growth and the budget. These are the major problems we see in Bulgaria. Everything is directed to speeding up growth and the successful preparations for joining the EU.

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