SOFIA (Bulgaria), February 14 (SeeNews) - The International Monetary Fund (IMF) said on Friday that Bulgaria should implement more reforms on all structural fronts, including to improve governance and loosen labour shortages in order to achieve higher investment and productivity growth.
"With macroeconomic stability well established, Bulgaria’s economic policy challenge now is to reinvigorate inclusive growth and sustained income convergence. This calls for supporting growth-friendly reforms and investment in people," the global lender said in a statement following a visit by an IMF mission during February 4-14 for the 2020 Article IV consultation.
In order to reduce labour shortages, the IMF recommends strengthening active labour market policies (ALMPs). The country also needs to strengthen its education system to help build human capital and improve economic opportunities.
According to the IMF, Bulgaria's distance to the high incomes elsewhere in the EU remains a long one. Bulgaria’s income inequality is high and society and the economy are facing important demographic headwinds - that is why the country needs to achieve more inclusive growth and faster income convergence.
"Ongoing preparations for joining ERM II and the banking union have helped strengthen institutions and policy frameworks," the IMF noted on the positive side, adding that joining the European banking union would further strengthen Bulgaria's financial system resilience.
In October, Bulgaria's finance minister Vladislav Goranov said that the country will possibly conclude all processes needed for its accession to the Exchange Rate Mechanism II - the preparatory phase for euro adoption, and the EU's Banking Union by the end of April 2020.
Successful reforms could bring about appreciable efficiency gains and catalyze higher investment, the IMF said, adding that higher and more efficient investment is a necessity for sustaining faster growth and convergence.
The implementation of successful reforms will also help moderate Bulgaria’s current account surplus, which now appears high for an economy that should invest more for a faster income catch-up, according to the IMF.
Bulgaria's current account was in surplus of 5.9 billion euro ($6.6 billion) for the first 11 months of last year, compared to a surplus of 3.0 billion euro in the like period of 2018, the country's central bank said in January.
"There is scope for greater revenue mobilization to maintain a balanced budget over the medium term, which is an appropriate objective. That said, small deficits that serve to support growth-enhancing spending measures would also be appropriate, provided public debt remains around its present low level," the IMF said.
According to the IMF, it is advisable that Bulgaria works on improving public investment management, better plans for the absorption of future EU funds and achieves more effective revenue collection.
"We look forward to further progress in strengthening the judiciary and implementing the framework for state-owned enterprise (SOE) governance," the IMF also said.
"We encourage renewed efforts to reduce non-performing loans (NPLs), as the strong economy and financial sector conditions make the current juncture a propitious time to do so," the Fund concluded.
Bulgarian banks' gross NPL ratio increased to 7.4% at the end of September from 7.2% at the end of June, the country's central bank said last month. Gross NPLs amounted to 6.9 billion levs at the end of September and were 5.8% higher compared to the end of June.
($ = 0.921776 euro)