Bulgaria’s Entry into Eurozone Later in 2025 Remains Realistic, Says International Monetary Fund
The International Monetary Fund (IMF) has recently shared insights into Bulgaria’s economic progress and its aim to join the eurozone by 2025. According to a summary report released after the IMF’s mission to Bulgaria in March, which has been ratified by the IMF Executive Board, the goal for Bulgaria to adopt the euro in the latter part of 2025 is still achievable. This outlook, however, hinges on the nation avoiding significant policy shifts or encountering new external shocks that could derail efforts to reduce inflation.
The IMF has acknowledged the Bulgarian authorities’ dedication to securing the country’s entry into the eurozone as planned. Notably, there has been a minor adjustment in the projected inflation rate for Bulgaria, with expectations now set slightly lower at 3.2% for 2024, down from the initial forecast of 3.4%. This adjustment reflects a positive direction towards managing inflation effectively.
Despite numerous challenges over the past four years, Bulgaria’s economy has shown resilience. Looking ahead, economic growth is anticipated to strengthen, driven by revived demand from major trading partners, boosting exports and private investment. Additionally, public investment is expected to benefit from European Union (EU) funds. The IMF projections for Bulgaria’s economic growth remain steady at 2.7% for the current year and 2.9% for the next.
Whilst inflation pressures persist, partly due to rising wages, pensions, and the expansionary 2024 budget, inflation rates are forecasted to keep moderating. This outlook is underpinned by the anticipated decrease in global food and energy prices. However, compared to other European nations, Bulgaria’s inflation rate remains on the higher side.
In light of these developments, the IMF underscores the critical need for reform to boost potential economic growth, enhance wage convergence within the EU and eurozone, and bolster economic resilience. The report highlights several areas of concern, including slow convergence towards middle-income status within the EU, low investment levels, widespread perceptions of corruption, significant inequality and poverty, demographic decline, and a heavy reliance on fossil fuels for energy.
The IMF indicates that Bulgaria faces challenging fiscal policy decisions, balancing the need to support disinflation and economic recovery in the short term with adopting a cautious fiscal stance in the medium term amid uncertain conditions and domestic and fiscal pressures. To address large investment and social spending requirements, the IMF advocates for a comprehensive package of fiscal reforms aimed at sustainably increasing tax revenues, creating a more equitable tax system, enhancing public finance and investment management, reducing informal economic activities, reforming the pension system, and improving the efficiency of state-owned enterprises.
Regarding the banking sector, the IMF considers systemic risks as moderate but advises continued vigilance. It commends recent efforts by the Bulgarian authorities to enhance the countercyclical capital buffer in response to the brisk growth in real estate lending and suggests further strengthening the macroprudential framework to better assess borrowers’ creditworthiness.
In summary, while Bulgaria’s aspirations to join the eurozone in 2025 are within reach, significant work remains. The focus on reform, managing inflation, and ensuring prudent fiscal policy are essential steps towards achieving this goal and ensuring long-term stability and growth.
