site.bta Bulgaria's Entry into Eurozone Later in 2025 Remains Realistic, Says International Monetary Fund

Bulgaria joining the eurozone later in 2025 remains a realistic goal, unless there is a sharp change in policies or a new external shock that hinders the process of reducing inflation, indicates a summary report by the International Monetary Fund (IMF), which conducted its mission in Bulgaria in March. The report of this mission was approved by by the IMF Executive Board.

The IMF welcomes the authorities' commitment to make efforts to join the eurozone in a timely manner.

The IMF adjusted the expected inflation in Bulgaria for the current year. In its April report on the outlook for the world economy, the IMF indicated that it expects inflation of about 3.4% in 2024. The summary report now says inflation is expected to be 3.2%, or 0.2 percentage points below the previous estimate.

The IMF Executive Board expressed satisfaction with the resilience of the Bulgarian economy to successive shocks over the past four years. Although the country's economic growth is expected to strengthen and deflation to continue, significant uncertainty and downside risks cloud the outlook.

The growth of the Bulgarian economy is expected to recover this year thanks to the recovery of demand from key trading partners, which will stimulate exports and private investment, while public investment will be supported by EU funds.

The IMF maintains unchanged its forecasts for the growth of Bulgaria's economy in the current and next year at the level of 2.7%  and 2.9%, respectively.

Despite sustained wage and pension growth and inflationary pressures from the expansionary 2024 budget, inflation is projected to continue to moderate due to the projected continued decline in global food and energy prices. However, it remains higher than in many European countries, according to the analysis by the Washington-based international financial institution.

Against this background, the executive board of the IMF stresses the importance of implementing reforms to stimulate the country's potential economic growth, improve income convergence (the steps towards bringing the salary in this country closer to that of other EU and eurozone countries) and increasing resilience.

In its report, the IMF also states that convergence towards middle income in the EU is lagging behind, investment is low, perceptions of corruption are high, inequality is high, poverty is widespread, the population is shrinking and the growth model still relies heavily on energy of fossil fuels.

Given the challenges ahead, the IMF says fiscal policy faces difficult trade-offs. In the short term, a neutral fiscal stance will strike the right balance between supporting continued disinflation and preserving the expected recovery in growth.

In the medium term, the IMF recommends maintaining a prudent fiscal policy given the uncertain environment, domestic pressures and fiscal risks. Noting the large investment and social spending needs, IMF experts are encouraging the authorities to implement a broad package of fiscal reforms.

This package should include measures to sustainably increase tax revenues and for a fairer tax system, increase the efficiency of spending by strengthening public finance and investment management, reduce informality, reform the pension system and improve the productivity of state-owned enterprises, to prevent the accumulation of contingent liabilities.

The IMF Executive Board also notes that the systemic risks facing the banking system remain moderate, but calls for vigilance. In view of the rapid growth of real estate lending, recent actions of the authorities to increase the countercyclical capital buffer are welcomed and strengthening of the macroprudential framework with measures affecting the creditworthiness of borrowers is recommended.