IMF adjusted its forecast and predicted shrinkage

The International Monetary Fund (IMF) reviewed and adjusted its forecast for growth of Bulgarian economy, as predicted contraction of 6.5 percent in 2009 compared with a previous forecast for a decline of 7%.

We welcome the new approach and commitment of the new government in fiscal policy, said the head of mission of IMF in our Bass Baker at the closing press conference on the occasion of his mission in the country. We are not negotiating for a loan to Bulgaria, he said in response to a journalist’s question.
The IMF team arrived in Bulgaria at the invitation of the new government and for 10 days together with the Bulgarian finance analyzes 2009 budget, and budget plans for next year.
Ten-day mission, the IMF concluded that „real GDP will fall by 6.5 percent this year and 2.5 percent in 2010. According to Baker the global economic crisis has halved the loan growth, as exports of Bulgaria has been affected by the recession in countries that are its trading partners. As a result, the economy is now recession, said Becker, cited by BGNES. The gross domestic product for the second quarter is 4.9 percent lower than a year ago. Inflation fell to 1.3% in August.
Over the past 7 months the fiscal policy of Bulgaria was not consistent with the new economic climate, income decreased by 10% in comparison with the previous year, while costs have increased by 24 percent, said the representative of the Fund. As a result, the fiscal reserve of 6.3% last year has turned into a deficit of 0.6 percent of GDP. Without adequate measures regarding the fiscal deficit for 2009 it can be increased by more than 3.5 percent by the end of the year, Becker added.
Continued good health of the financial system is vital for economic recovery. Published data indicate that the banking sector as a whole has remained profitable during the first half of 2009 despite the increase in the provision of non-payment loans. Recent stress tests of the Bulgarian National Bank suggest that the currently strong capital buffers of banks would be protecting the system against the deterioration of asset quality, said Baker, cited by Focus.
The new government has decided to implement stringent fiscal measures to achieve balanced budgets in 2009 and 2010, said the mission statement. Balancing the budget will be challenging, but it will depend largely on the discipline over spending. This is certainly not impossible but it will be difficult, said Baker.
He welcomed the structural changes in the Customs and Revenue Agency, but said that the budget outlay has to shrink further.
We welcome the measures to connect the control systems of the National Revenue Agency and the Customs Agency, and other measures have increased the minimum reserve in the pension system and increase the excise duties, „said Becker.
The plans for 2010 included reducing public sector spending, optimization of administration, pension increases depending on the growth, freezing wages, reducing the state subsidy to public investment on account of higher absorption of EU funds. These are short, but without radical reforms in various sectors term results can be expected, Bass said Becker, adding that thanks to the stable position of the BNB, it is able to prevent development of bad loans in the country.
According to official statistics, public sector wages for the second quarter increased by 17% compared to last year, while the private sector – by 14.3%.
Long-term structural changes are key to putting the economy on a steady growth in the future.
Achieve a balanced budget will be challenging, said in conclusion the representative of the IMF mission.

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Finance