- Weak domestic demand has kept output growth sluggish with real GDP likely to have expanded less than 1% from a year before during January-June, about the same as in 2012. Only a modest acceleration looks likely later this year and next.
- A jump in exports has shifted the current account into a small surplus during January-May. This leaves the full-year current account on track to register a 1.2% of GDP surplus. Capital follows have remained stable, keeping foreign exchange reserves at a comfortable six month’s import cover.
- Until the end of May, the general government has remained in surplus, with revenues rising somewhat faster than GDP. However, the policy stance has changed markedly inconclusive elections in May, which produced a weak center-left coalition government that has largely lost legitimacy amid sustained popular protests.
- The cash deficit appears to have increased by more than 1% of annual GDP during June-July. The government has requested a budget revision that would raise the deficit target from 1.3% to 2% of GDP and add 1.4% of GDP to government debt. A cut in electricity prices and other populist actions are likely to add to the government’s contingent liabilities, too.
- While the immediate fallout of these measures is likely to be minimal given the strong external and fiscal positions, the medium-term outlook would worsen.
- With no early solution to the political stalemate in sight, risk perceptions would deteriorate over time. While there are no risks to the current board arrangement at present, risk premia and the government’s borrowing costs look set to increase.
July 25, 2013
Political uncertainty has increased after inconclusive elections in May. To boost its legitimacy, largely eroded amid sustained popular protests, the new government has embarked on strongly populist policies. While financial risks should remain contained for now thanks to the strong external and fiscal positions, risks would grow over time with no solution to the political stalemate in sight.Read More
January 29, 2013
Bulgaria has weathered the Euro Area sovereign debt crisis well, with external imbalances reducing markedly and the fiscal deficit narrowing on the back of prudent policies. Even so, the unemployment rate has doubled since 2008, driven in part by weak output growth as well as structural rigidities. Bolder structural reforms are needed to boost output growth and employment.Read More
March 27, 2012
Prudent fiscal management, low government debt and a sizable current account surplus leave Bulgaria well placed to contend with the effects of renewed recession in the Euro Area. Structural reforms have lagged and need to be advanced much more forcefully to ensure stronger output growth and faster convergence with the rest of the EU.Read More
October 13, 2011
Prudent fiscal policy and a sharp improvement in the current account balance have helped reduce financial risks despite an uncertain global outlook. To solidify fiscal consolidation and boost growth, the authorities need now to advance long-delayed reforms of healthcare, pensions and labor markets.Read More
July 09, 2010
Market confidence has been dented by the large upward revision of last year's fiscal deficit and this year's target, leaving the deficit near 4 percent of GDP. The government will need to act decisively to reestablish a credible commitment to fiscal prudence by pushing ahead long-delayed pension and healthcare reforms.Read More
April 02, 2010
Given higher profitability and stronger growth prospects in the host countries, Greek banks look highly unlikely to cut exposures to their affiliates in Bulgaria or Romania. Moreover, central banks in the host countries have ample resources to provide support to the affected banks in the unlikely event this becomes necessary.Read More
March 16, 2010
Output growth should resume this year thanks to firming foreign demand and restocking. Recovery will be constrained, however, by fiscal tightening and sluggish bank lending. Fiscal prudence, along with a marked drop in inflation and a sharply smaller current account deficit, make ERM2 entry likely later this year.Read More