site.btaUPDATED IMF Managing Director Georgieva Says Bulgaria Has Real Chances of Joining Euro Area

The possibility of Bulgaria joining the euro area is real and feasible, International Monetary Fund (IMF) Managing Director Kristalina Georgieva said in an interview with BTA during this year's meetings of the Fund and the World Bank in Washington. "We saw that what was holding Bulgaria back was inflation. Now inflation is going down, the latest results are encouraging," she added.

Georgieva said that when it comes to the other indicators the country has to meet to adopt the euro, the country is doing excellent – it has low external debt and low budget deficit, she pointed out.

The specific date for Bulgaria's entry into the euro area, however, "depends on the currency union itself, how they see this deadline".

According to the IMF Managing Director, Bulgaria has kept the good tradition of having a sound fiscal policy. "However, the need for investment is great. The question facing the country is whether the time has come to review tax policy".

Bulgaria has a 10% tax, which is good for business and investment, but the country also has an inequality problem that puts it among the last in Europe in this respect. This problem requires more attention to tax policy, Georgieva recommended.

Fiscally, the country is doing well, she clarified, but stressed the need for fiscal resources, because "we have an even bigger demographic problem than in other countries and it requires resources. Fewer working people support more pensioners."

"We have a problem with investing in infrastructure, the kind of infrastructure that Bulgarian citizens dream of having, but do not have yet, and we need for investment in human capital. Bulgaria's results in terms of quality of education could be better", the IMF managing director further explained.

Asked whether there was a risk of a further slowdown in the Bulgarian economy compared to the IMF's latest forecasts published earlier in the week, she said she saw no arguments for such a development.

"There are no reasons why Bulgaria's economy should slow down further, but so far I do not see a reliable enough signal that what has been hindering the country a lot recently will be overcome, namely the delayed absorption of EU funds", Georgieva further pointed out and added that this is why "it is important for Bulgaria to have a stable government".

According to her, in Europe and in Bulgaria in particular "we do not have labour productivity growth that would lead to a bigger sign for economic growth.”

The Bulgarian economy is performing relatively well, given that growth in Europe is slowing down overall. “If we look at the economies around the world - in the US it is growing, in Asia it is generally performing well, and Europe in this context is disappointing and not doing so well,” Georgieva underlined.

In its latest review of global economy, the IMF lowered its estimates for an increase in the eurozone's gross domestic product, setting growth at 0.8% in 2024 and 1.2% next year.

The IMF Managing Director stressed that out of the review's contents, the important part for Bulgaria are the trends in Europe. "If we see progress in terms of Europe's competitiveness, the single market working more for European citizens, a capital markets union, a banking union and much more investment in innovation so that Europe can have that growth momentum that us reported here in the US, that will of course have a positive result for our country as well," Georgieva noted.

"If Europe is better, Bulgaria will be better too", she said.

The IMF Managing Director also touched upon the structural problems in the country: an ageing and declining population, as well as the route to solving the infrastructure problems, which is unclear. 

Bulgaria should have a strategy to solve these structural problems that are holding back the growth of the economy, she underlined.

Commenting on the 80th anniversary of the IMF, Georgieva recalled that the Fund has changed over the years in terms of its functions.

"In the beginning it was based on the gold standard - a system that is now completely different. The fund has also changed in terms of what its priorities are. But one thing hasn't changed - that the IMF is the institution that protects macroeconomic and financial stability and supports growth and jobs in its member countries," the Managing Director said, continuing, "Over the last five years, we have seen that the world is much more often affected by unexpected large-scale shocks. We experienced a pandemic and, when Russia attacked Ukraine, a price shock. The lesson we take away from recent years is that it is very important to have an institution with exactly this mandate - macroeconomic and financial stability - in a world that is experiencing more shocks."
But what the IMF is best known for, in the words of its head, is that when countries have financial difficulties, balance of payments difficulties, they turn to it. 

"In the last five years since I've been here, we've provided almost USD 400 billion in loans to 97 countries and injected an additional USD 650 billion in special drawing rights," she said. "That's USD 1 trillion to bring stability to the global economy," added Georgieva.

"Our most important goal in the coming years is to help our member countries with structural reforms that benefit growth. The world faces a very difficult problem: low growth and high debt. This problem can only be solved through higher productivity and growth," said the IMF Managing Director. 

"What we have achieved in the last 18 months in fighting inflation is very impressive. The world has managed to bring inflation down without going into recession. When you look at past inflationary periods, bringing inflation down always comes at the cost of a crisis. This time we avoided it through sound monetary policy and independent central banks," Kristalina Georgieva argued.

"Our attention must now turn to action on the fiscal "front". This high debt requires a much more serious fiscal policy," she noted.

Following is the full text of the interview:

The International Monetary Fund celebrates its 80th anniversary. Over the years, the Fund has adapted to many changes. How has the IMF managed to respond to the new challenges the world is facing?

It is true that in its 80-year history, the IMF has changed in terms of who its members are. At its formation there were 44 countries, while during these meetings here we became 191 countries. The Fund has changed in terms of its functions. In the beginning, it was based on the gold standard, a system that is now very different. The Fund has also changed in terms of priorities. But one thing has not changed - that the IMF is the institution that protects macroeconomic and financial stability and supports growth and employment in its member countries. 

Over the last five years, we have seen that the world is much more often affected by unexpected major shocks. We experienced a pandemic and, when Russia attacked Ukraine, a price shock. The lesson that we take from recent years is that it is very important to have an institution with exactly this mandate - macroeconomic and financial stability - in a world that is experiencing more shocks.

The most important function, which benefits everyone, is that we monitor the economic situation of all countries, 'keeping our finger on the pulse' and aggregate this information so that our member countries can get a sense of where the world economy is going and what it means for them. This is the IMF's monitoring function - it is the most valuable part of our work for the world. 

We have a "storage" of experience that we collect from member countries and that we pass on. In this way we help our members to shorten the distance from identifying a problem to finding a solution. 

What the IMF is best known for is that when countries have financial difficulties, balance of payments difficulties, we are there. This function in a world with more shocks is understandably very important. 

In the last five years, since I have been here, we have provided almost USD 400 billion of loans to 97 countries and injected an additional USD 650 billion in special drawing rights.

That's USD 1 trillion to bring stability to the global economy

In its latest World Economic Outlook, the IMF has lowered its growth estimates for the Bulgarian economy for this year and next. Do you think there is a risk of a further slowing?

What we see in Europe in general, Bulgaria included, is that we do not have labour productivity growth that would lead to a bigger sign of economic growth. When we look at the situation in Bulgaria, we need to find a source of more dynamism that raises labour productivity and on that basis we can have higher growth.

I do not see any reasons why Bulgaria should face further delays, but I do not see yet a sufficiently reliable sign that what has been hampering the country a lot recently will be overcome, namely the delayed absorption of EU funds. 

That is why it is important for Bulgaria to have a stable government, for the country's strategy to be clear, so that we can use this very valuable resource for us, which is European funding. 

The Bulgarian economy is performing relatively well, given that Europe as a whole is slowing down. 

If we look at economic growth around the world, it is growing in the US, Asia as a whole is doing well, and in this context Europe is disappointing and not doing so well.

For Bulgaria there are two factors, one of which is what is happening in Europe. If we see progress in terms of Europe's competitiveness, the single market starting to work more for European citizens, a capital markets union, a banking union and much more investment in innovation, so that Europe can have the kind of growth momentum like the one here in the US, that will, of course, have a positive result for our country as well.

The second factor is that in Bulgaria, as we know, we have structural problems: an ageing and declining population, and an unclear path to solving the infrastructure problems.

These are the two stages for Europe to develop faster. If Europe is better, Bulgaria is better. And Bulgaria should have a strategy to solve these structural problems that are holding back economic growth.

Do you think that Bulgaria's stated goal of joining the eurozone is moving further away?

The possibility of Bulgaria joining the eurozone is real and, in my opinion, feasible. We have seen that what held Bulgaria back was inflation. Now inflation is going down. The latest results are encouraging. 

When Bulgaria will join the eurozone, of course, depends on the currency union itself, how they see this deadline. But the fact is that the goal of Bulgaria joining the eurozone is very real. 

In fact, the perspective for that looks a little better based on the latest inflation data. On all other indicators Bulgaria is an excellent performer - low foreign debt, low budget deficit, only inflation was slightly higher than necessary.

In view of the upcoming presentation of the state budget for the coming year, is fiscal consolidation necessary?

Bulgaria has maintained the good tradition of having a sound fiscal policy. But the need for investment is great. The question facing the country is whether the time has come to review tax policy. Bulgaria has a 10% tax, which is good for business and attracts investment, but the country also has an inequality problem that puts us among the last countries in Europe. More attention needs to be paid to tax policy in order to solve this problem.

Fiscally, the country is fine, but the need for fiscal resources, as elsewhere in the world, is great, because we have an even greater demographic problem than in other countries, and it requires resources. Fewer working people support more pensioners. 

We have a problem with investing in infrastructure, the kind that Bulgarian citizens dream of having but do not yet have, and we need investment in human capital. Bulgaria's results in terms of the quality of education could be better.

Your second term at the helm of the IMF officially started at the beginning of this month. What will be the main policies you and your team will focus on?

Our most important objective in the coming years is to help our member countries with structural reforms that are pro-growth. The world is facing a very difficult problem: low growth and high debt. This problem can only be solved through higher productivity and growth. 

When you have a debt problem, you cannot get out of it by accumulating more debt, but by increasing investment opportunities. So the issue of structural reforms conducive to growth will be a priority for our team. 

What we have achieved in the last 18 months in fighting inflation is very impressive. The world has managed to bring inflation down without going into recession. When you look at past inflationary periods, getting inflation down has always come at the cost of a crisis. This time we avoided it through sound monetary policy and independent central banks.

Now our attention should be focused on action on the fiscal 'front'. This high debt requires a much more serious fiscal policy.

The third thing is to be ready to provide financial support to countries that are hit by a shock, either for governance-related reasons or because of an external shock, such as the pandemic.

The IMF's role at the core of the global financial system is enormous. It has become even greater in the world in which we live. It is a very important task to help our member countries understand what the cost of geo-economic fragmentation is, whether it is worth it and how they can have a better chance of interacting. 

The world in recent years has been like a stormy sea, and the IMF is a ship that needs to be steady in it. I happen to be the captain of that ship at this very moment. Our financial power and competence to understand what is happening are more important than ever.

When the world is in greater trouble, there is more need than ever for stability, for an anchor. We are that anchor.