Bulgaria must address inflation and trade gap -IMF

WASHINGTON, Dec 19 (Reuters) - Bulgaria must shrink its current account deficit and address rising price pressures, the International Monetary Fund said on Wednesday, as it projected robust economic growth for 2008.

The IMF also said Bulgaria's banking sector has been able to withstand "recent tremors in global credit markets" because it has been well supervised, but surges in bank credit and the predominance of foreign banks' subsidiaries puts the country at risk.

"Driven by massive capital inflows, particularly foreign direct investment inflows, the current account deficit could reach a record level of 20 percent of GDP in 2007," the fund's executive board said in its annual assessment of Bulgaria's economy.

It said Bulgaria has a strong set of policies to bring the deficit to "a more sustainable level over the medium term," but also said international investment in the country was set to drop while external debt is expected to grow.

The IMF said the country's economy probably would grow by 6 percent in 2008, but increasing wage pressures, high public spending and price shocks in food and energy have led to inflation of more than 10 percent.

The IMF urged Bulgaria to address fiscal pressures, after a year in which thousands of teachers, social workers, doctors, pensioners and miners demanded higher pay from the government.

"It will also be important to maintain wage discipline in the public sector by keeping wage increases in line with the productivity growth," the IMF said.

The fund, which no longer has a lending agreement with the European Union member, applauded the nation's aim for a budget surplus of 3 percent in 2008. (Reporting by Lisa Lambert; Editing by Jan Paschal)