Bulgaria must seek ways to reduce its budget deficit, currently equal to 5 percent of gross domestic product, and build fiscal buffers against more frequent external shocks. Kristalina Georgieva, managing director of the International Monetary Fund, made the comments in an interview at the end of the IMF and World Bank annual meetings in Bangkok.

She said one-off fiscal measures, including proposals for a windfall-profits tax, could provide assistance but were not a systemic solution. Building lasting buffers requires revenue policy to provide funding for the budget’s permanent needs, Georgieva said. This is necessary not only in Bulgaria, as external shocks are occurring more frequently around the world.

The Bangkok meetings took place as the IMF assessed that the global economy remained resilient, while accumulating risks were limiting its ability to absorb new disruptions. Georgieva warned that inflation was likely to remain higher for longer.

She cited high energy prices, which are expected to stay elevated for some time, rising defence spending, continuing trade tensions and stronger demand linked to artificial intelligence. Inflation is a tax on people with low incomes because they feel its effects most strongly, the IMF managing director said.

In her view, monetary policy should be more restrictive to prevent inflation from accelerating again. She expects the European Central Bank to raise interest rates further because of price pressures. Fiscal policy must also be cautious, since higher government spending during a period of inflation creates additional demand and pushes prices upward.

In its October forecast, the IMF lowered its projection for Bulgarian economic growth in 2026 to 2.6 percent, from 2.8 percent in its April forecast. For 2027, it raised the projection from 2.5 to 2.7 percent.

Georgieva said Bulgaria also needed to reconsider its income and tax policies as artificial intelligence developed rapidly. The country and other governments would have to think about whom to tax, how to tax them and at what level in an economy where technology was changing the relationship between capital and labour. She described this as an important issue for the sustainability of public finances in the coming years.

Addressing the changed security environment, Georgieva said the period after the end of the Cold War, when countries benefited from relatively low defence spending, had ended. Russia’s attack on Ukraine and events in the Middle East showed that the world had become more complex, multipolar and insecure. Countries could no longer base their policies on the assumption that peace would continue.

This means that more resources will have to be allocated to defence. Europe would be more effective if it increased defence spending jointly rather than having each country act alone, Georgieva said. The IMF recommends a larger European budget through which countries can finance shared priorities together. In her view, Europe has not yet fully recognised that these are long-term trends requiring adaptation to a new environment.

Georgieva also discussed Bulgaria’s position in artificial intelligence. The country has a well-developed information-technology sector and good digital infrastructure, while people have access to the internet. This provides a strong basis for participation in supply chains, but Bulgaria will not be a producer of the most advanced artificial-intelligence models.

More important than producing or supplying such technology is using it to increase labour productivity, she stressed. Bulgaria needs to improve people’s preparation and transform its education system to meet the demands of a changing economy.

According to Georgieva, more work is also needed to expand the use of artificial intelligence among small businesses and government structures. Bulgaria and Europe lag behind the United States in labour productivity, while Europe has fallen to 70 percent of the US income level. Wider use of new technologies in every business and public institution is necessary to improve competitiveness. Bulgaria has a strong foundation, but it must use it to transform its entire economy.

Source: bta.bg/bg