The newly elected government takesoffice at a time of stark economic challenges. The outfallof the global economic crisis threatens to undo many of theachievements of the recent past, derail convergence with theEuropean Union (EU), and heighten social vulnerability. Theelection of a strong government offers a timely opportunityto restore and broaden the economic reform agenda which hadbeen initiated before EU accession and but lost somemomentum since 2007. Decisive action could shorten thelength and reduce the depth of the crisis by restoringmarket confidence and improving economic prospects.Restoring the health of the economy and returning to theconvergence path requires concerted policy actions to unwindeconomic imbalances and advance much needed structuralreforms. The two-way policy response would aim to: 1) bringabout fiscal consolidation and restructure public finances,strengthen financial stability, and mitigate the socialimpact of the crisis in the short-run; 2) and step upstructural reform to address deep seated economic problemswhich both magnify the impact of the international crisisand hamper longer-term convergence prospects in themedium-run. The World Bank stands ready to support thestructural transformation of Bulgaria. The Government isstrongly committed to maintaining the currency board withthe euro adoption as an exit strategy. Yet, a continuedworsening in private and public sector balance sheets couldtrigger a loss of confidence in the currency board. Asinternational investors take a closer look at thevulnerabilities of emerging economies, there is a largepremium on strong domestic policies. While financial marketsmay have under-priced the risks relative to the fundamentalsin Bulgaria and other countries in the region prior to thecrisis, this under-pricing has now disappeared. The pendulumis now likely to swing into the opposite direction.
PDF
download
878987797
028-85220240
