IMF Calls for Better Banking Supervision in Bulgaria

IMF Calls for Better Banking Supervision in Bulgaria


The IMF called for better banking supervision in Bulgaria in the concluding statement of its mission to the country, which was released on Friday.

The IMF notes that the collapse of Corporate Commercial Bank (KTB) and the deterioration in the fiscal balance tested the country's macroeconomic and financial stability.

The statement highlights that despite the challenging environment a modest growth was achieved in 2014, which is expected to continue in the new year.

Unemployment remained high, but registered decline, while lower commodity prices and EU-wide inflation contributed to deflation.

Growth in 2015 is expected to be around 1.25 %, which will be supported by private consumption and continued EU absorption.

According to the forecasts, deflation is expected to decrease gradually and unemployment is to drop further in 2015.

The IMF states that risks to the outlook have increased both domestically and externally, pointing to high corporate debt, non-performing loans, developments in Greece and the crisis in Ukraine.

The statement praises the strong system liquidity demonstrated before the collapse of KTB and the liquidity measures introduced by the Bulgarian National Bank (BNB) and the government.

The measures calmed the depositors and prevented system-wide spillovers, while the injection of state resources into the deposit insurance fund allowed for the payment of insured deposits.

However the IMF calls for decisive actions to address the weaknesses exposed by the collapse of KTB.

These include reinforcing confidence in supervision, strengthening of system-wide accountability and the resolution framework, ensuring adequate financial safety net and assessment of banks.

As regards the fiscal deficit, which doubled to 3.7 % of GDP in 2014, the IMF identifies this year's target of 3 % as achievable, but meeting it will depend on expenditure restraint.

It calls for concrete plans to address the medium-term fiscal risks, such as design and sustainability of the pension system, improving the health system efficiency and monitoring of fiscal risks.