The International Monetary Fund (IMF) cut its economic growth forecast for Bulgaria for 2008 and 2009 to 5.5 per cent and 4.75 per cent, respectively, IMF mission chief for Bulgaria Albert Jaeger said at a news conference on April 8.

Inflation, on the other hand, is expected to slow down to 7.25 per cent this year and five per cent in 2009. Jaeger dismissed the concerns that prices would continue on their upward trend, saying that high inflation last year was mainly caused by seasonal factors, such as drought and a hike in utility prices.

Jaeger and Juan Fernandez-Ansola, the IMF regional representative for Bulgaria and Romania, presented the findings of the IMF mission, which arrived in the country on April 3.

IMF experts met officials from the Finance Ministry, the Bulgarian National Bank, the Financial Supervision Commission and business people to screen views on the outlook for and the impact of the international financial market tensions on Bulgarian economy, as well as the policies necessary to react to changing realities, Jaeger said.

Bulgaria has been sending mixed signals over the past year, he said. While on the upside there were fast economic growth and all-time high capital inflows, on the downside were double-digit inflation and the high current account deficit.

The huge current account deficit shows that the private sector in Bulgaria is spending more than it earns, according to the IMF.

The impact of global financial turmoil on Bulgaria was restricted, Jaeger said, yet the IMF did not rule out a delayed knock-on effect that could come through two main channels: trade, which could cut down exports, and financial, which would mean a decline of capital inflows.

The IMF believes that the economy could evolve under the “soft-landing” and “sharp-slowdown” scenarios. Under the second scenario, Bulgaria's fiscal surplus could be cut on par with the decline in gross domestic product (GDP) growth.

As a consequence, Jaeger reiterated IMF's call on Bulgaria to keep the fiscal surplus high. The IMF expects the surplus to be at 2007 levels or at about three per cent of GDP. To keep fiscal surplus within those limits, the IMF warned the Bulgarian Government to draft public sector reforms – health care or pension – with their costs in mind.

In related news, IMF experts will visit Sofia on April 24, as part of a regional review.