04.05.2010

The IMF Executive Board approved the 2010 Article IV Consultation Concluding Statement of the Staff Mission carried out in the period 18 February - 1 March under Article IV of the Articles of Agreement.

The Directors noted that despite existing risks the Bulgarian economy was expected to recover this year. The overall policy of the Bulgarian Government focused on maintaining stable macroeconomic environment has been appreciated. According to the Board the lower capital inflows would influence domestic demand which required corrective measures to be taken both by the public and private sectors. Attention was drawn to the need for accelerating structural reforms to raise the productivity of the economy.

The Executive Directors reconfirmed the important role of the Currency Board Arrangement (CBA) which was again considered as underpinning economic stability. Special attention was drawn to the need for active economic policy to prepare the country for its future membership in the euro area. The Board shared the opinion that maintaining stable fiscal policy and enhancing the reforms would not only strengthen the economy but would also demonstrate its adaptability despite the restrictions imposed by the CBA.

The Directors noted the challenges facing fiscal policy in 2010 which stemmed both from revenue underperformance and the higher expenditure due to previous obligations. The Government's plan to implement a package of measures to attain the fiscal policy objectives received the Board's support. The Board welcomed the willingness of the Government to implement even further measures in order to ensure the country's fiscal stability.

The Board of Directors expressed the opinion that fiscal policy should be focused on expenditure formation in the medium term rather than on the current financial result for the year. Such an approach would make public expenditure more predictable and would limit the need for big adjustments during a fiscal year.

With regard to the financial system the Directors noted that it remained stable due both to the high capital reserves (buffers) and to the consistent supervision policy. They drew attention to the increased non-standard credits and to the higher risks due to the possibility for a change in the behavior of parent banks. In this context the Board recommended supervisory vigilance particularly in respect of banking system liquidity and also closer cooperation with the supervisory authorities of the countries that have big shares in the Bulgarian banking system.