site.btaIMF Chief Georgieva: Bulgaria’s Euro Adoption Is Even More Urgent in a Riskier World

International Monetary Fund (IMF) Managing Director Kristalina Georgieva told BTA’s Spas Stambolski Sunday it’s even more important for Bulgaria to meet all euro-area entry criteria and put its house in order at the close of the Spring Meetings of the IMF and the World Bank in Washington DC.

The country needs to meet the criteria for membership and use this opportunity to strengthen its competitiveness, Georgieva said.

She also noted the need for reforms in the pension and tax systems to ensure long-term stability.

Regarding the meetings of the World Bank and the IMF, Georgieva said these are always useful because members can discuss the current state and direction of the global economy together. This allows them to better understand the global situation and future trends.

The full text of the interview follows below:

Madam Georgieva, the main part of the Spring Meetings of the International Monetary Fund and the World Bank has ended. What are your takeaways?

The IMF’s Spring and Annual Meetings are always useful because our member countries have the opportunity to discuss the state and direction of the world economy together and thus improve their understanding of where the world is heading.

This is always important, but it is even more so in today’s climate of high uncertainty.

It is worth noting that the meetings opened amid heightened tension, yet by the end the mood had calmed.

Broadly speaking, the outcomes fall into three areas.

First, there is a shared understanding that growth is slowing, and the causes of that slowdown help unite [the Fund’s 191] member countries. I was greatly encouraged to hear many ministers and governors of central banks say plainly that, in an economy more frequently hit by shocks and crises, they realize they must first make their own countries more resilient. That means no longer postponing reforms that will give their economies better conditions for development and greater resistance to external shocks.

Before the meetings began, I used the phrase “get your own house in order”. I heard many ministers and governors repeat it, acknowledging that this cannot be delayed.

We are now witnessing developments in the European Union that were previously considered impossible. Germany has reformed its “debt brake.” The recommendations in Mario Draghi’s report have a real chance of being put into practice, which would mean establishing a banking union, a capital-markets union, and removing barriers to growth within Europe. This reflects the important understanding that there is no time to lose and that decisive action is needed domestically.

The second conclusion is that it is important to have an open dialogue about the direction of global trade policy and to recognize that the absence of rules leads to chaos.

Such a world would be unsafe for everyone. The fact that we now live in a multipolar world, not as it was in the past, means we need principles, predictability, and rules. In this context, I was encouraged by the unity among our members regarding the need not to accept a world without rules or principles.

The third result is that everyone now clearly understands our current situation and the direction we are heading. Where are we now? Prospects for growth are worsening in economies that together produce 85% of the world’s GDP. At previous meetings, concerns centred on low growth and high debt; now, the slowdown in economies is even more pronounced. In this context, the new tariffs the United States plans to introduce, although it is still unclear how discussions will conclude, present a challenge. However, the larger issue is unpredictability. Uncertainty was the main theme of the week. Because of this, investors hesitate, and consumers reduce their spending. As a result, we signalled that global growth is expected to slow from 3.3% to 2.8%, and our analysis shows the likelihood of a recession increasing from 17% to 30%. While we are not currently forecasting a recession, we cannot exclude the possibility that it could happen if conditions deteriorate further.

You said that Europe is starting to change, and one of the steps is the intention to increase spending on defence capabilities. We see that Germany has already taken steps in this direction. In your opinion, how should these additional defence expenditures in Europe, including in Bulgaria, be managed, considering that they represent extra budgetary costs?

We greatly appreciate Germany’s decision, as it benefits all of Europe. Without Germany’s reform of the debt brake, fiscal pressure across Europe would have been much higher.

The effect depends on two main factors: how the funds are allocated and what they are used for. If the investment boosts production within Europe and supports research and development, it will have a positive impact on growth in both the short and long term. For example, the United States economy saw significant gains from defence-related research and development, with many innovations later benefiting the civil sector.

This is especially important for Europe, which trails the US in labour productivity because the European economy is less innovative than its American counterpart.

The second aspect of increased defence spending depends on how carefully other expenditures are prioritised. If the EU reallocates funding away from areas that do not contribute to economic development, this would be beneficial for the Community.

It is important to proceed carefully because if these funds are spent on imports instead of supporting the local economy, the positive impact will be limited.

For Europe, all of this matters, but it is even more important to remove barriers to the movement of labour, capital, and goods, especially services, within the single market.

Currently, EUR 300 billion of European citizens’ savings are invested in the American economy. If the EU establishes a more integrated capital market, especially in cooperation with the United Kingdom, these funds are more likely to benefit Europe.

One positive development in recent months is that the European Union and the UK are working together and moving closer to economic cooperation. It is important for Europe to strengthen its relationships with neighbouring countries, but also to develop trade with other regions such as ASEAN, Canada, Australia, New Zealand, and African countries.

How do you view Bulgaria’s progress towards joining the euro area?

Bulgaria is at a very decisive point, and the country must be extremely careful in the coming months to meet all entry criteria.

It was already important for Bulgaria to adopt the euro; now this is even more important as we see that Europe’s integration increases its competitiveness in a rapidly changing world. We also see that the euro is becoming more appealing in a multipolar world. For Bulgaria, it has long been a priority to reduce transaction costs and strengthen its economic profile, but in today’s increasingly uncertain environment, joining the euro area is even more necessary.

Several IMF missions, and you personally, have said that Bulgaria’s tax system should be reviewed. In light of the government’s intention to re-examine the pension model, do you still believe that a review of the tax system is necessary?

We know that the pension system will not be sustainable unless we take measures to strengthen it. Bulgaria’s population is ageing, and if we want to ensure future pension payments, we must address this issue now. The main tools are raising the retirement age and improving the financial stability of the system—both necessary and reasonable steps. During these meetings, the IMF published a report on global demographics, which shows that ageing countries need to invest more in keeping people healthy and employable for longer. The message is “seventy is the new fifty”, and I am living proof of that.

As for the tax system, each country should regularly review its accounts and consider whether current policies support the nation’s potential. I also think that the flat tax policy should be reassessed from time to time. Any decision to change it should be based on a careful evaluation of the benefits and the risks.