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IMF Advises Bulgaria to Keep Eye on Banking System Liquidity

Date: 03.05.2010

The Board of Directors of the International Monetary Fund has approved the annual monitoring report for Bulgaria. The report was drafted by an expert commission that visited Bulgaria in February 18-March 1, 2010.

The IMF Executive Directors have pointed out that even though the Bulgarian economy is expected to recover in 2010, the country continues to face risks, announced Bulgaria’s Finance Ministry.

According to the IMF Board, the Bulgarian financial system remains stable which is due to both the substantial capital reserves, and the consistent supervisory policy.

Yet, the Executive Directors have emphasized the growth of non-standard credits in the country, and increased risks stemming from the possibility of parent banks to reconsider their current behavior.

As a result, the IMF recommends that Bulgaria should be alert with respect to financial supervision, especially as far as the liquidity of its banking system is concerned. According to the IMF Board, this supervision should be exerted in closer cooperation with the supervisory bodies of the countries whose banks have substantial share in the Bulgarian banking system.

The overall policies of the Bulgarian government directed at maintaining macroeconomic stability have been evaluated positively by the Executive Directors of the Fund.

Yet, they have remarked that the reduced inflow of capital to Bulgaria will have a negative effect on consumer demand, which necessitates measures on part of both the state and the private sector such as acceleration of the structural reforms in order to increase the productivity of the Bulgarian economy.

The IMF Board has confirmed the crucial role of the currency peg for Bulgaria’s economic stability as well as the need for active economic policies in order to prepare the country for its future accession to the Eurozone.

In this respect, the Fund believes that the deepening of reforms is the way to demonstrate the flexibility and adaptability of the Bulgarian economy despite the limitations obeyed as part of the currency peg.

The IMF Directors outlined the challenges before Bulgaria’s fiscal policy in 2010, which have to do with the reduction of revenues, and the higher state expenditures caused by older debts.

They have supported the plan of the Bulgarian government to apply a package of anti-crisis measures in order to solidify the country’s financial stability.

According to the IMF Board, Bulgaria has to focus on projecting state revenues in the medium run rather than on current financial results in every single year since the former approach would make public spending more predictable and will reduce the need to rectify the state budget within the fiscal year.

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