Mapping Bulgaria's Future : Inclusive Growth and Productive Jobs

The newly elected government takes
office at a time of stark economic challenges. The outfall
of the global economic crisis threatens to undo many of the
achievements of the recent past, derail convergence with the
European Union (EU), and heighten social vulnerability. The
election of a strong government offers a timely opportunity
to restore and broaden the economic reform agenda which had
been initiated before EU accession and but lost some
momentum since 2007. Decisive action could shorten the
length and reduce the depth of the crisis by restoring
market confidence and improving economic prospects.
Restoring the health of the economy and returning to the
convergence path requires concerted policy actions to unwind
economic imbalances and advance much needed structural
reforms. The two-way policy response would aim to: 1) bring
about fiscal consolidation and restructure public finances,
strengthen financial stability, and mitigate the social
impact of the crisis in the short-run; 2) and step up
structural reform to address deep seated economic problems
which both magnify the impact of the international crisis
and hamper longer-term convergence prospects in the
medium-run. The World Bank stands ready to support the
structural transformation of Bulgaria. The Government is
strongly committed to maintaining the currency board with
the euro adoption as an exit strategy. Yet, a continued
worsening in private and public sector balance sheets could
trigger a loss of confidence in the currency board. As
international investors take a closer look at the
vulnerabilities of emerging economies, there is a large
premium on strong domestic policies. While financial markets
may have under-priced the risks relative to the fundamentals
in Bulgaria and other countries in the region prior to the
crisis, this under-pricing has now disappeared. The pendulum
is now likely to swing into the opposite direction.