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IMF Revises Bulgarian GDP Growth Forecast to 1% From 0.8%

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Oct. 2 (Bloomberg) -- The International Monetary Fund raised this year’s economic growth forecast for Bulgaria to 1 percent from a 0.8 percent estimate on April 17, citing stronger domestic demand boosted by European Union aid.

The economy will expand 1.5 percent next year “as exports recover,” the IMF said in an e-mailed statement today. Bulgaria’s 2012 budget deficit is on track at 1.25 percent of gross domestic product, the IMF said, and urged the government to keep it unchanged next year. Average inflation will be 2.5 percent this year, according to the IMF.

“Strong buffers and steadfast policy implementation have allowed Bulgaria to maintain stability in a challenging environment,” the IMF said. “However, growth remains weak, unemployment is high, and the economy remains exposed to external risks, particularly from the euro area crisis.”

Bulgaria, the EU’s poorest country in terms of economic output per capita, weathered the global crisis without borrowing from international lenders. Growth slowed to 0.5 percent from a year earlier in the second quarter, the same as in the first three months. The government works to cut the budget gap to help contain the fallout from the euro debt crisis.

The government needs to “resist pressures” for wage increases and transfer any budget over performances to the fiscal reserve, the IMF said.

Growth in bad bank loans reached 16.7 percent of total lending in June, while “strong deposit growth and subdued credit demand have boosted liquidity buffers,” the IMF said, assessing the bank system as stable.

Bulgaria’s economy grew 1.7 percent last year, after a revised 0.4 percent in 2010. The European Commission forecasts the economy to expand 0.5 percent this year and 1.9 percent in 2013.

To contact the reporter on this story: Elizabeth Konstantinova in Sofia at ekonstantino@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net