Bulgarian Economy Overheating - World Bank

Booming domestic demand is leading to the overheating of the Bulgarian economy, but gross domestic product (GDP) growth is likely to remain close to last year's figure of 6,1%, the World Bank said on Thursday.

Economic growth in Bulgaria in the last three years declined slightly from 6,5% in 2004 to 6,2% in 2005 and 6,1% last year.

The country's strong fiscal position last year has helped ease inflationary pressures, however, the World Bank said in its regular economic report on ten eastern and central European newcomers to the EU. Bulgaria joined the bloc in January.

Bulgaria tightened its budget expenditures in 2006, but cannot afford the envisaged easing of its strict budgetary policies, the lender's experts went on to say.

Under pressure from trade unions, Bulgaria's Socialist-led cabinet repealed last month the cabinet ordinance that imposed harsh limits on wage hikes in loss-making state and municipal companies.

With a state payroll of 240,000 and an increasing number of them demanding pay rises of 30-50%, Bulgaria could end up paying BGN 570-950 M for wage hikes, eating up most of its envisaged budget surplus for the year.

Bulgaria can ill afford to spend all its "insurance" against growing external imbalances with a constantly expanding current account gap that reached 16% of GDP last year and "warrants monitoring to some degree."

The report's authors also noted that "reform momentum in the region has generally waned owing to post-accession reform fatigue, unstable political situations, and weak administrative capacity.

The ten countries should renew efforts to push complex public administration, legal, and labor market reforms to sustain real convergence with the rest of the bloc, the report concludes.

31 May 2007, Thursday
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