News Brief No. 02/70

News Brief: IMF Completes First Review of Bulgaria's Stand-By Credit and Approves US$35 Million Tranche

July 22, 2002

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Bulgaria's economic performance under the two-year stand-by credit. This will enable Bulgaria to draw SDR 26 million (about US$35 million) from the IMF immediately.

The stand-by credit for a total amount of SDR 240 million (about US$322 million) was approved on February 27, 2002 (see Press Release No. 02/12). So far, Bulgaria has drawn SDR 32 million (about US$43 million) from the IMF.

Following the Executive Board discussion, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:

"Building on the impressive progress made by Bulgaria since the establishment of the currency board arrangement in 1997, the authorities have continued to implement prudent fiscal and income policies under their economic program supported by the Stand-By Arrangement. They have also made further progress in key structural reform areas, including the adoption by parliament of the privatization law, the announcement of a schedule to raise household electricity prices toward cost recovery levels, and measures to make the education and health sectors more efficient. The authorities are also taking steps to further strengthen the already sound financial system. These policies have helped maintain macroeconomic stability and external competitiveness, and have allowed the continuation of robust growth in spite of unfavorable external developments in late 2001 and early 2002. However, in order to sustain high growth and reduce the high unemployment rate and poverty, the Bulgarian authorities need to complete the remaining crucial structural reforms, particularly those related to the energy sector, business environment, and public sector. Prospects for achieving strong growth and keeping the current account in control during the remainder of this year are broadly favorable, but subject to a sustained rebound in the European Union and the maintenance by Bulgaria of strict macroeconomic discipline.

"In the face of external uncertainties, the authorities' commitment to keeping a cautious and flexible fiscal policy is welcome. In this regard, the contingent fiscal measures that they have identified provide sufficient cushion against further deterioration in external conditions during the remainder of 2002. Over the medium term, fiscal policy will target a balanced budget, with a declining tax burden offset by cuts in subsidies and unproductive spending. The achievement of this objective will be greatly helped by the establishment of the Unified Revenue Agency and other efforts to strengthen tax administration and collection.

"Crucial reforms to enhance the competitiveness and medium-term growth prospects of the Bulgarian economy need to be implemented. Measures to improve corporate governance, enhance judicial procedures and foreclosure, and improve labor market flexibility are key to attracting more investment and reducing unemployment. In the same vein, the privatization of the remaining public companies and the strengthening of the financial sector should be pursued. The Fund commends the Bulgarian authorities for their efforts so far and encourages them to sustain the momentum of reforms," Mr. Sugisaki said.