News Brief No. 99/57

News Brief: IMF Completes Second Review under the Extended Arrangement and Approves US$72 Million Credit Tranche for Bulgaria

September 15, 1999

The International Monetary Fund (IMF) today completed its second review under the three-year Extended Arrangement for SDR 627.62 million (about US$860 million) for Bulgaria.

In commenting on the IMF Executive Board's discussion of the review, First Deputy Managing Director Stanley Fischer said: "The Executive Board of the IMF met today to assess Bulgaria's request for the completion of the second review and waiver of a performance criterion under the government's EFF-supported macroeconomic program. The request was approved, and as a result SDR 52.3 million (about US$72 million) became available to Bulgaria.

"Directors commended the authorities for their sound policies, which had allowed the country to face adverse external shocks with relatively limited economic disruption. They noted that Bulgaria had recently been affected by the global financial crisis, the conflict in Kosovo, and the strains of transition brought about by the exit of major inefficient enterprises from the state sector. While the combined effect of these shocks would slow economic growth, macroeconomic stability had been preserved, owing to a prudent fiscal policy and a vigorous incomes policy for state-owned enterprises. Moreover, the recent progress in structural reform should help lay the foundation for a pick-up in growth over the medium term. In this connection, Directors noted in particular the acceleration of privatization and the timely completion of the isolation program for state-owned commercial enterprises. They also expressed satisfaction that the authorities were taking strong measures to instill financial discipline in the state enterprise sector, including the utility monopolies, with a view to halting the accumulation of arrears which they noted had become a major problem in Bulgaria.

"Looking forward, Directors stressed that vigilance was needed to preserve the gains of macroeconomic stabilization in the context of unfavorable external conditions. They noted that the outlook for 1999 was less favorable than originally envisaged, with lower growth and a higher external current account deficit. Accordingly, they welcomed the authorities' commitment to tighten the fiscal stance and extend the wage bill freeze to the utility monopolies. They stressed the need to maintain fiscal discipline, and urged prudence with respect to the expenditure commitments in the upcoming budget, especially in light of the planned overhaul of the pension and health systems. Directors also welcomed the initiatives underway to improve the availability and transparency of economic information.

"Directors emphasized the importance of structural adjustment in achieving sustained growth in the medium term, and urged the authorities to keep up the momentum of reform. They called on the authorities to push for the completion of the privatization program and to introduce legislative changes to allow for effective bankruptcy and possible liquidation of unviable state-owned enterprises. The authorities were also urged to continue with the restructuring of the state monopolies in the energy sector, which was seen as a precondition for major progress in resolving the arrears problem," Fischer said.