Банкеръ Weekly



Over the past two weeks, we have reviewed progress and prospects under the government's economic program. The IMF supports this program with a three-year credit of SDR 627.62 million (US$830 million) under the extended arrangement approved in September 1998. So far, ten tranches of SDR 52.3 million (US$70 million) each have been released. During our visit, we reached agreement on policies that we believe will ensure the successful completion of the program.
Bulgaria has come a long way in three years. Real GDP has increased by 11 percent since 1997, despite severe shocks, including the Kosovo crisis. Inflation has been brought under control from near-hyperinflationary levels. External debt has declined markedly. One half of enterprise sector assets and four fifths of bank assets have been privatized. This remarkable progress owes much to a sound policy framework centered on a currency board arrangement.
In 2000, Bulgaria's economic performance and policies were generally strong. Led by exports, GDP growth reached 5 percent, the highest rate since the 1980s. Despite a sharp rise in energy imports, the current account deficit was kept at the previous year's level, and was comfortably covered by foreign direct investment. These favorable outcomes reflected fiscal prudence (a general government deficit of 1 percent of GDP) and wage discipline in state enterprises. The authorities also generally maintained the momentum of reform in 2000. On the negative side, inflation picked up to 11.4 percent in 2000 (albeit mainly owing to temporary shocks), unemployment remained high, and reform slowed in some sectors. While Bulgaria's largest bank was privatized successfully, the sales of the telecommunications and tobacco companies were suspended, and important amendments to the Energy Law (to make the energy sector competitive and efficient and to restructure the ailing district heating companies) were not adopted.
The prospects for Bulgaria's economy in 2001 are promising. With strong momentum from last year, the government's GDP growth target of 5 percent is well within reach. The continued recovery in activity should help unemployment to decline further. As international oil prices are projected to be lower, inflation and the current account deficit should decline markedly.
To ensure that the favorable projections materialize, strong policy efforts must continue, both before and after the mid-year parliamentary elections. In this regard, we are reassured by the authorities' policy intentions. The 2001 budget approved by parliament is prudent, maintaining a neutral fiscal stance while promoting growth and job creation through substantial reductions in tax and social contribution rates. To ensure the reduction in inflation and to promote competitiveness, this budget needs to be implemented conservatively, without frontloading spending to the pre-election period. Also, unwarranted wage increases in the state enterprise sector must be avoided. The momentum of structural reform should not be lost. The key priorities include completing privatization in a transparent manner and without undue delays, making the energy sector efficient and competitive, improving the business climate, and liberalizing trade further.
We expect the IMF's Executive Board to decide on the next tranche of Bulgaria's EFF credit in March 2001. In view of the strong track record of the Bulgarian authorities and the sound policies planned for the period ahead, we are confident that this decision will be a favorable one.

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