The effects of domestic political uncertainty on reform momentum and investment, as well as lingering uncertainty in the outlook for key euro area trading partners, remain key risks to Bulgaria's economic outlook, the International Monetary Fund (IMF) said on Friday.
"Recent developments in Ukraine and Russia are projected to have modest growth effects through trade and investment channels, while dependence on Russian gas imports represents a potential risk," the fund said in a press release upon the completion of a staff visit to Bulgaria.
"The timing of implementation of the South Stream gas pipeline project remains uncertain, and potential economic and employment effects are excluded from current projections," it added.
According to the fund, low public sector debt and limited exposure to capital markets have continued to insulate Bulgaria from international market volatility.
IMF continues to project a modest pick-up in Bulgaria's economic growth in 2014 from a subdued rate last year, driven by firming domestic demand and higher absorption of European Union (EU) funds.
Unemployment in Bulgaria is projected to remain high while consumer prices have been declining but in the second part of the year they are expected to increase slightly as imported deflation wanes and growth rises.
According to IMF, accelerated growth, job creation, and income convergence with EU partners will require more rapid progress in addressing critical institutional and broader structural rigidities.
"Key in this regard are efforts to strengthen human capital, address infrastructure gaps, increase the ease of doing business, and reduce corruption and cronyism, including through independent regulation and audit, as well as measures to reinforce the rule of law," it noted.