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BUCHAREST, June 12 Domestic political
uncertainty and its effects on reforms and investment remain key
threats to a modest pick-up in Bulgaria's economic growth, the
International Monetary Fund said, highlighting the fallout from
the country's current crisis.
The Bulgarian government appears on the verge of collapse
after the ruling Socialist party's poor performance in the
European Parliament elections in May, and the country is
expected to hold an early election by the end of this year.
That could undermine a pick-up in growth being driven by
firming domestic demand and wider spending of funds provided by
the European Union, the IMF said in a statement. The Fund
expects the European Union's poorest member state to grow 1.6
percent this year, compared with 0.9 percent in 2013.
Bulgaria has been racked by political instability since
early 2013, making it harder to cope with deep-rooted problems
such as corruption, weak public services and a slow and
inefficient judicial system. The previous government also
collapsed in February last year after street protests.
"The effects of domestic political uncertainty on reform
momentum and investment, as well as lingering uncertainty in the
outlook for key euro area trading partners, remain key risks to
the outlook," the IMF said in a statement on Thursday.
The Fund also cited Bulgaria's dependence on Russian energy
supplies as a potential risk. Acrimonious talks between Russia
and the Ukraine over gas prices could spark another energy war.
The country's small and open economy has struggled to climb
return to the growth it saw before the global financial crisis
began in 2008. Foreign investment has also fallen sharply and
unemployment remains high.
The IMF, which has just finished a mission in Sofia, said
significant risks remained to the government's revenue
expectations. Restraint in spending was needed to maintain a
budget deficit target of 1.8 percent of GDP, it said.
Longer term, the IMF also urged Bulgaria to address a
temporary freeze in the country's retirement age, highlighting
the "significant long-term public spending challenges" that
would stem from an ageing and shrinking population.
"Accelerated growth, job creation, and income convergence
with EU partners will require more rapid progress in addressing
critical institutional and broader structural rigidities," the
"Key in this regard are efforts to strengthen human
capital, address infrastructure gaps, increase the ease of doing
business, and reduce corruption and cronyism, including through
independent regulation and audit, as well as measures to
reinforce the rule of law."
(Writing by Matthias Williams; Editing by Larry King)