Bulgaria: IMF gives cautious praise

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The government besieged, protesters and police packing the streets, an ongoing air of uncertainty over the country’s future – name the country. Not Turkey, or Egypt, but Bulgaria. But while demonstrators rage against the newly-appointed prime minister, the Balkan country has received a remarkably upbeat report from the International Monetary Fund, which praised the country’s economic stability and policies.

At the end of a regular staff visit on July 3, Michele Shannon, IMF Mission Chief for Bulgaria issued a statement that may give a fledgling, fragile and beleaguered government some succour.

“Despite the unsettled political situation, hard-earned macroeconomic and financial stability—which has helped to insulate Bulgaria from the severest effects of the global crisis—has been maintained,” Shannon said. “Domestic uncertainty and global market turbulence in recent weeks have not had a significant market impact on Bulgaria, with bond yields and credit-default swap spreads remaining in line with other strong performers in eastern Europe.”

While noting Bulgaria’s low growth, the Fund had praise for the government of Plamen Oresharski, backed by a coalition between socialists and a party linked to the Turkish minority and occasionally supported by ultra-nationalists.

Shannon welcomed the administration’s commitment to fiscal consolidation, addressing structural rigidities, and deploying social transfers more efficiently to target the poorest.

Bulgaria’s previous government, itself ousted after street protests in February, had generally maintained tight fiscal policy. The country already has a relatively enviable fiscal position – the IMF estimates that public debt was just 18.5 per cent of GDP at end-2012, while the 2013 draft budget aims for a deficit of 1.3 per cent of GDP.

As well as its praise – which included a nod to financial sector stability that some critics would question – the IMF, as expected, urged further improvements in the business climate, more efficient public spending, and moves to tackle stubbornly high unemployment.

“I share the IMF’s positive view on changes to government policy,” said Tsvetoslav Tsachev, Head of Research at Elana Trading in Sofia. “In addition to continuation of budget policy, the government is aiming at provide a moderate support for the growth through some Keynesian measures. The budget deficit target is achievable, although in my opinion risks are elevated compared to several months ago. The IMF’s recommendations not to compensate the revenue shortfalls with budget expenditures are warning to the policy makers. The overall frame of the economic policy of the new government is well appreciated by the IMF, although its implementation is yet to be seen. But the plans are reasonable and should they seem the only possible in the current situation.”

However, this upbeat assessment may not mollify the protestors currently besieging parliament in protest at the Oresharski government’s alleged links to organised crime, and more specifically, its remarkably maladroit appointment of highly-controversial media magnate Delyan Peevski as head of the state security agency. Peevski swiftly stepped down after his appointment, but remains an MP in the ruling coalition. The protestors – who have also blocked Oresharski’s car from leaving his residence – have vowed not to let up until the government resigns.

“The last thing our country needs at the moment is a government whose first step is to put controversial people in the national security service to fight corruption in the EU member state most criticised for corruption,” says Nikolay Staykov, a former editor of Bulgaria’s main financial newspaper, who is active in the protests.

For the time being, the markets, like the IMF, appear to be on the government’s side, with Bulgaria relatively unaffected by the recent emerging market sell-off by investors. But with the government’s parliamentary position precarious, and Bulgarians restive after years of economic stagnation and a perception of widespread corruption, this may not be the case indefinitely.

“The protests don’t have any impact on the economy other than the worsening perception of business and foreign investors in the possibility for Bulgaria to have a pro-growth and pro-stability economic policy,” said Tsachev.

Related reading:
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Bulgaria’s new government has a plan – but will it restart the economy?
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