Country Report Bulgaria September 2009

Outlook for 2009-10

• After gaining 116 of 240 seats in the parliamentary election in July, the centre-right Citizens for European Development of Bulgaria (CEDB) will govern alone, despite lacking a majority. This presents some risk to political stability.
• The EU will keep Bulgaria under close scrutiny, continuing to demand both judicial reform and results from efforts to combat corruption and crime.
• Given its large external debt and current-account deficit, the Economist Intelligence Unit assumes that Bulgaria will require some financial assistance from the IMF and the EU.
• Real GDP growth is forecast to contract by 5.3% in 2009, mainly because of limited external finance and the poor economic outlook for the euro zone.
• Growth is forecast to rebound weakly, to 0.8%, in 2010.
• Inflation will continue to fall from the high rate seen in 2008 as domestic demand pressures ease, food inflation drops and world oil prices remain low relative to 2008. Inflation is forecast to average 2.8% in 2009 and 2.4% in 2010.
• Owing to a sharp contraction in domestic demand, we forecast that the current-account deficit will diminish from 25.2% of GDP in 2008 to about 11.2% of GDP in 2009 and 9% in 2010.

Monthly review

• The full line-up of the new CEDB government has been finalised and appears to show reformist leanings across the main ministries.
• Polls indicated that 64% of Bulgarians are satisfied with the outcome of the July parliamentary election.
• Although the consolidated general budget remained in surplus in the first half of 2009, it fell into deficit in July.
• The government aims to cut spending by Lv1.15bn (US$800m) in the remainder of 2009??