Encouraged by macroeconomic developments in the country, the International Monetary Fund (IMF) stated that Bulgaria’s economy is expected to expand by 3.3% this year.

In a statement released on Thursday 10th November after the completion of the Article IV consultation with Bulgaria, the IMF was optimistic about the future potential of the European frontier market due to the economy being “resilient to multiple shocks” and also projects a medium term growth rate of 2.5%.

Bulgaria’s projected growth rate ranks well when compared to other countries in Central, Eastern and Southeastern Europe, where Montenegro (5.1%) and Romania (5%) have the strongest predicted growth rates, while Belarus (-3%) and Russia (-0.8%) have the weakest (source).

The IMF has also been impressed by the consolidation of Bulgaria’s fiscal spending, with the cash fiscal deficit “projected to decline to around 0.7% of GDP – or lower – in 2016”. Other important macroeconomic indicators also look positive. For example, the unemployment rate is projected to fall to 8.2% (from 9.2% in 2015) and deflation is expected to become inflation by 2017.

However, the IMF did identify numerous challenges that the country faces. These include:

• Gaps in banking supervision and resolution, as well as large and small banks failing stress tests.
• Poor performance of state-owned enterprises, with many found to be inhibiting growth and productivity.
• Pension funds, especially when facing a gradually aging and declining population.
• Concerns of corruption in Bulgaria, which could potentially have a negative effect on the business environment in the country.

Solutions have been proposed to help Bulgaria get through some of these problems. These included (but are not limited to): improving labour market conditions, reducing red tape, dealing with corruption and improving the competitiveness and governance of some of the most unproductive state-owned enterprises.

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