The International Monetary Fund (IMF) said that it expects Bulgaria's gross domestic product (GDP) to decrease by more than 4% projected last month, amid an alarming resurgence in coronavirus infections.
"If the second wave in Bulgaria and Europe were to result in widespread lockdowns and stricter social distancing, Bulgaria should rapidly augment health spending and the support for individuals and firms, preferably using temporary and well-targeted measures," the IMF said in a staff concluding statement of the 2020 Article IV mission on Tuesday.
"When the pandemic abates and recovery takes hold, policy focus should shift progressively from preserving activities and jobs to facilitating strong, inclusive, and environmentally-friendly growth," the IMF added.
An IMF mission conducted remotely the 2020 Article IV consultations with Bulgarian authorities from October 26 to November 9, 2020.
Bulgaria has so far made use of its substantial fiscal space and cushioned the impact of the crisis through policies aimed at supporting the health system, individuals, and firms, while preserving financial sector stability, the Fund noted. However, the implementation of support policies can be improved through removing administrative bottlenecks and relaxing eligibility criteria that limit access by some firms or workers.
Despite the strong policy support, unemployment is also expected to rise, but not very sharply. The fiscal deficit is expected to be somewhat smaller than budgeted, partially due to robust revenue performance, while the current account balance is projected to remain in surplus.
Bulgaria's draft 2021 budget, envisaging a deficit equivalent to 3.9% of GDP, extends most anti-pandemic measures and introduces new fiscal initiatives that will support activity. However, once recovery is entrenched, the fiscal framework needs to be steered closer to the medium-term objective, preferably through measures to further strengthen revenue mobilization, the IMF said.
The country is also advised to implement policies that meet structural challenges that pre-date the pandemic. Income inequality and poverty should be addressed through strengthening active labor market policies and access to quality education, the IMF noted.
The judiciary and the fight against corruption should continue to be strengthened, the Fund said. In addition, the transparency of emergency spending could be enhanced by undertaking and publishing an ex-post assessment of anti-crisis policies and their expenditure.