Thursday 27 May 2010

EMU convergence programme Bulgaria

On 26 April 2010 the Council examined the updated convergence programme of Bulgaria, which covers the period 2009 to 2012:

COUNCIL OPINION on the updated convergence programme of Bulgaria, 2009-2012; published OJEU 27.5.2010 C 137/12.

The Council opinion presents the background:

Before the onset of the global economic and financial downturn Bulgaria had witnessed strong real GDP growth underpinned by fast credit expansion and large foreign investment inflows. The robust economic activity, however, was accompanied by increasing macroeconomic imbalances such as the build-up of a very large external deficit and private debt as well as substantial inflationary pressures. The FDI-led investment boom and high wage increases, far exceeding productivity gains, aggravated these imbalances. As the global economic crisis unfolded, economic activity was hit hard, resulting in a contraction of real GDP by 5 % in 2009.

The main goal of the medium-term budgetary strategy is to maintain a balanced general government budget throughout the programme period.

The government gross debt ratio is well below the Treaty reference value throughout the programme period. It is estimated at close to 15 % of GDP in 2009, slightly up from the year before.

As an EU member only from 2007, Bulgaria is not yet a part of the eurozone. The country has a lot to do to catch up with the rest of the union, which requires continued reform efforts.

After a more detailed discussion and given the need for sustainable convergence, the Council reached the following fairly benign conclusions, inviting Bulgaria to:

(i) continue implementing strict fiscal policies and adopt further consolidation measures to achieve the programme target for 2010 with a view to sustaining the on-going adjustment in the external imbalances and safeguarding investor confidence in the economy; in particular, contain public sector wage growth in order to contribute to overall wage moderation and improve competitiveness;

(ii) strengthen the efficiency of public spending by vigorously implementing the planned structural reforms in the area of public administration, healthcare, education, and pensions in order to boost productivity and ensure sustainable convergence within the European Union.

Further reading

Since the date of the Council opinion on Bulgaria, the European Central Bank (ECB) and the European Commission have published their convergence reports, which contain more detail and allow for comparison with other euro area hopefuls.

The ECB Convergence Report 2010 was published 12 May 2010. The 359 page report is available on the ECB website in 21 languages.

The Commission’s Convergence Report 2010, published 12 May 2010 under the responsibility of the Directorate-General for Economic and Financial Affairs (226 pages).

Ralf Grahn

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