© 2021 International Monetary Fund IMF Country Report No. 21/27 BULGARIA 2020 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR BULGARIA Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2021 Article IV consultation with Bulgaria, the following documents have been released and are included in this package: • A Press Release summarizing the views of the Executive Board as expressed during its January 27, 2021 consideration of the staff report that concluded the Article IV consultation with Bulgaria. • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on January 27, 2021 following discussions that ended on November 10, 2020, with the officials of Bulgaria on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on December 17, 2020. • An Informational Annex prepared by the IMF staff. • A Statement by the Executive Director for Bulgaria. The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents. Copies of this report are available to the public from International Monetary Fund • Publication Services PO Box 92780 • Washington, D.C. 20090 Telephone: (202) 623-7430 • Fax: (202) 623-7201 E-mail: publications@imf.org Web: http://www.imf.org Price: $18.00 per printed copy International Monetary Fund Washington, D.C. February 2021 PR21/28 IMF Executive Board Concludes 2020 Article IV Consultation with Bulgaria FOR IMMEDIATE RELEASE Washington, DC – January 29, 2021: The Executive Board of the International Monetary Fund (IMF) concluded 2020 Article IV consultation1 with Bulgaria on January 27, 2021. The COVID-19 pandemic has put a break on Bulgaria’s robust economic performance. Following 3.7 percent growth in 2019, real GDP is estimated to have contracted by 4.6 percent in 2020 as a result of the lockdown at the outset of the crisis and a second wave of infections together with the reintroduction of new restrictive measures. These led to a collapse of demand, notwithstanding fiscal and other support for households and firms. The unemployment rate has risen but recently stabilized, helped by policy support. The fiscal deficit is projected to have widened to more than 3 percent of GDP in 2020, up from 1 percent of GDP in 2019, on account of the fiscal support package and the economic contraction. The current account surplus narrowed to 1.1 percent of GDP in the first three quarters of 2020, with a marked contraction in the net services surplus more than offsetting the improvement in the trade balance. Credit growth has slowed and the decline in the nonperforming loans ratio in recent years has paused on the backdrop of economic contraction. Banks remain generally well-capitalized and liquid. A partial recovery is forecast for 2021, led by private consumption and helped by an accommodative fiscal stance. Strong growth momentum and a gradual decline in the current account surplus are projected for the next couple of years as consumption and private investment continue to recover. The uncertainty around the course of the pandemic remains large but risks to the near-term outlook are broadly balanced. During these challenging times, Bulgaria successfully joined the European Exchange Rate Mechanism (ERM II) and the banking union in July 2020, bolstering market confidence and taking another step toward adopting the euro. The ERM II membership and the Next Generation EU funds will facilitate further reforms and help address Bulgaria’s structural challenges. While absolute poverty has declined dramatically, income inequality has risen during the most recent decade. Promoting stronger and more and inclusive income growth will require improving the functioning of the labor market, education, and governance. 1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. After the visit, the staff prepares a report, which forms the basis for discussion by the Executive Board. The 2020 Article IV mission to Bulgaria has been a virtual visit. Executive Board Assessment2 The Bulgarian economy has been severely affected by the pandemic, but is expected to recover gradually from the sharp contraction. Noting that the outlook is subject to unusually high uncertainties, Directors emphasized that policies should remain flexible and evolve with changing circumstances. They highlighted the importance of structural reforms over the medium term to promote strong, inclusive growth and income convergence