site.btaIMF 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. 

[more to follow]

[full transcript of the interview will be published on Monday]