IMF Upbeat about Bulgaria due to Euro Area Recovery in H2

Bulgarian Finance Minister Simeon Djankov (left) is pictured here with IMF mission head Catriona Purfield at the conclusion of the IMF mission to Bulgaria in May last year. Photo by Finance Ministry

Bulgaria's growth continues to slow, mostly reflecting external headwinds, but there is room for optimism due to the expected euro area recovery in the second half of the year, IMF mission chief for Bulgaria has said.

"Real GDP growth is projected to reach 0.8% in 2012, which is lower than our previous forecast. Growth is expected to rise moderately to 1.5% in 2013, which shows we have taken into account the forecast for the euro area," IMF mission head Catriona Purfield said in an interview for Capital daily after the end of the mission visit to Sofia.

The projected growth also reflects the expected euro area growth recovering in the second half of the year, which will allow exports to regain their position as the major driving force behind Bulgaria's economy, she pointed out.

Mrs Purfield singled out stronger EU funds absorption by Bulgaria and prudent policy as the key incentives for attracting more foreign direct investments and boosting growth.

Asked about the consistent rise in deposits in Bulgarian banks, Mrs Purfield said people are uncertain about their future, mostly because of external headwinds, and are seeking to safeguard their savings.

"The banking system remains well capitalized, liquid, profitable, and well supervised, which is why I think that it is doing very well amid the ongoing crisis," she pointed out.

The IMF mission chief for Bulgaria stressed tapping international markets to secure funds to cover both future rollover needs and bolster the reserve would be a good option.

Mrs Purfield reiterated that at this juncture Bulgaria should increase the fiscal reserve, and to avoid steps that would reduce it.

"Strong fiscal buffers will ensure Bulgaria's resilience and safeguard this resilience going forward," she said.

An International Monetary Fund (IMF) mission visited Sofia during May 2–9, 2012, to discuss economic developments and government policies with the Bulgarian authorities.

While the IMF projected gross domestic product growth of 0.8% in 2012 and 1.5% in 2013, the European Commission revised sharply downwards its forecast for Bulgaria's economy, estimating it is to grow just 0.5% this year.

According to Brussels the European Union economy is in a "mild recession," with a recovery "forecast to set in slowly from the second half of the year on".

The European Union executive previously estimated that the economy of the Balkan country will grow 1.4% this year due to worsening growth prospects in key trading partners across Europe and stagnant domestic demand.

Last month Bulgarian analysts and institutions unanimously cut their growth forecast for 2012 to just below 1.5% instead of the previously forecast 2-3%, citing slumping exports and stagnant domestic demand.

The central bank BNB estimated Bulgaria's economic growth to slow-down to 0.7% in 2012, citing the sovereign-debt crisis in the euro area.

Bulgaria's economy expanded by 1.7% in 2011.

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