It is important to have a government that steers Bulgaria on a clear path towards joining the Eurozone, because this will strengthen the stability of the country’s financial system, the head of the IMF said today Kristalina Georgieva in an interview with BTA. Its head IMF spoke to BTA on the sidelines of the Astana International Forum being held in the Kazakh capital.

He also stated that it is important for the government to have strong support for the reforms it has promised to carry out.

The full text of the interview follows.

– Mrs. Georgieva, how do you see Bulgaria at this particular moment?

– It is good for the economy of Europe that there is a government (in Bulgaria) that is committed to guaranteeing the country’s participation in the programs of the European Union and that leads the country on a clear path of entry into the Eurozone. This is important for Bulgaria for many reasons, but mainly because it will increase the security of our financial system. It is also important for the Bulgarian people – to give them the peace of mind that there is a government that works, that makes sensible decisions and that has strong support to implement the reforms it has promised.

– How do you see the shape of the European economy after the revision of German GDP data a few weeks ago, which showed that the country is in a technical recession?

– We will present our assessment of the Eurozone in the middle of this month in Luxembourg. What I can tell you is that the European economy has slowed significantly, with the IMF predicting that GDP in countries using the euro will grow by 0.8% this year, which continues to be positive growth. The Eurozone economy has, however, shown much more resilience amid the war in Ukraine than both Europe and the IMF had expected. This was helped by the milder winter, which limited the effects of the natural gas crisis.

Today, the priority for the Eurozone is the fight against inflation. We are already seeing positive results from rising interest rates, but those results are not yet reliable enough on the part of prices that directly affects ordinary people. We expect the debate to evolve from how high interest rates will be to how long they will stay high.

Against this backdrop, our forecasts are for inflation to be above the ECB’s target rate (2% p.a.) until the end of 2024 and even early 2025. Why is this a problem? Because the longer interest rates stay high, the more they affect borrowing and lending and consumption and investment activity, and then the risk of a deeper and longer slowdown increases.

At this stage, the IMF predicts that Eurozone growth in 2024 will reach 1.4-1.5%. This is based on the hot job market and expectations for consumer activity.

– Some of the world’s major central banks have begun to signal a pause or halt in interest rate hikes. Do you think it is possible to see such a process in the coming months?

– What we are seeing in terms of consumer and labor market activity does not yet provide a full guarantee that key interest rates will stop rising. We have presented our assessment of the US economy and our view is that the possibility of a further increase in key interest rates to enable this activity to reduce has not been ruled out. The situation with Credit Suisse and the problems of some regional banks in the US, such as the expression one currency has two sides, also led to higher reserve requirements in banks, causing a credit squeeze, which in turn dampened inflation.

Our main message is that we are in a period of great uncertainty and so governments and central banks need to see what the data is showing them and prepare to adjust the exchange rate accordingly. And there’s nothing wrong with having to adapt, because with so much uncertainty the only right approach is to be flexible.