site.btaEuropean Commission Issues 2017 Alert Mechanism Report for Bulgaria

European Commission Issues 2017 Alert Mechanism Report for Bulgaria

Brussels, November 16 (BTA) - In March 2016, Bulgaria was experiencing excessive macroeconomic imbalances, due to remaining fragilities in the financial sector and high corporate indebtedness in a context of high unemployment. In the updated scoreboard, a number of indicators are beyond the indicative threshold, namely the net international investment position (NIIP), the nominal unit labour cost (ULC) growth and the unemployment rate, the European Commission said Wednesday in its 2017 Alert Mechanism Report.

The negative NIIP remains beyond the scoreboard threshold but has continued to improve against the background of a positive current account. The export market share increased over the last five years despite losses in 2015. ULC growth is steadily decelerating, even if the three-year average remains beyond the indicative threshold.

Private sector indebtedness remains of concern, in particular for non-financial corporates, with recent data indicating an orderly but slow deleveraging process.

Vulnerabilities are still present in the financial sector and fragilities remain in the insolvency framework. The level of non-performing loans has decreased but remains high. Asset quality review and stress tests in the banking sector have been completed and did not identify a significant need for additional capital across the sector. They will nevertheless require strict implementation of the follow-up action, including via the recommendations that the BNB has issued to individual banks.

Similar reviews in the insurance and pension fund sectors are ongoing. The unemployment rate is beyond the indicative threshold, albeit on a decreasing trend due to the recent strengthening of GDP growth, while the growth of long-term unemployment rate is no longer beyond its indicative threshold. Persistent structural issues on the labour market, such as low participation as well as skills and qualification mismatches remain a concern.

Overall, the economic reading highlights issues related to external and internal vulnerabilities, including in the financial sector. Therefore the Commission finds it useful, also taking into account the identification of an excessive imbalance in March, to examine further the persistence of macroeconomic risks and to monitor progress in the unwinding of excessive imbalances.