Bulgaria Economy Forecast to Slip into Depression

Supporters of Bulgarian Trade Unions shout slogans during a protest rally in Sofia 7 Oct over plans to increase the years of service required for retirement. Photo by EPA/BGNES

The Bulgarian economy is bound to fall off an economic cliff and into a depression, which will last for several years, according to a leading Bulgarian financier and banking expert.

Speaking in an interview for Klassa daily Emil Harsev said he is not as optimistic as Finance Minister Simeon Djankov, who claims this scenario can be avoided by implementing flexible and fast economic incentives.

"The state provides no economic incentives such as maintaining the favorable tax system, cutting the red tape and reducing the administrative burden on the business," Harsev said.

Bulgaria, the European Union's poorest country, faced its first recession in 12 years after a three-year lending boom stalled and foreign investments dried up.

The recovery of the Bulgarian economy, which operates in a currency board regime, is lagging behind that of other Eastern European countries. The government has pledged to stick to a tight fiscal policy and keep the deficit below 3 % by the end of this year.

The cabinet adopted earlier this year a package of austerity measures, freezing public pays and pensions in a bid to reduce the bloating deficit.

It revised up to 1% its economic growth forecast for this year, pinning its hopes on a boost in exports.

At the beginning of October the International Monetary Fund wrapped up its two-week review and projected Bulgaria's economy to grow from 0% to 0.4% in 2010 and 2% in 2011.

It said this year's inflation will be moderate, while the current account deficit is expected to fall below 3% of gross domestic product.

The European Commission said last month that Bulgaria's economy is likely to start to recover towards the end of 2010 under the impact of the international cycle.

Analysts from local think-tanks have warned that Bulgaria's economy is likely to continue to contract in the second half of this year and may fail to return to growth earlier than next year.

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