This Selected Issues paper examines inflation dynamics in Bulgaria from January 2012 to February 2015 and highlights some stylized facts about inflation in the country. January 2012 to February 2015 is the most relevant period for identifying factors contributing to recent deflation in Bulgaria, as well as their relative importance. Regression analysis suggests that during this period the inward spillover of low inflationary pressure from the European Union to Bulgaria has been the most significant factor, which was further exacerbated by consecutive electricity price cuts in 2013 and fast-falling global commodity prices, especially since late 2014.
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper analyzes whether Kazakhstan has made progress in achieving a more equal income distribution, lower poverty, and a higher level of employment. Given the overarching structural challenges for Kazakhstan, the authorities are stepping up efforts to implement various measures. In order to bolster youth employment and address labor market challenges, the authorities have been revamping a college internship program and a job placement program, which will help to make educated youth competitive in the labor market and to reduce labor market mismatches. The results suggest that Kazakhstan’s economic growth has been broadly inclusive; however, there is room for further improvement. Both income inequality and unemployment in Kazakhstan compare favorably to peers. Fiscal policy could be a useful tool to help reduce income inequality. Better targeting of transfers reduces their fiscal cost and tax levels required to finance them, thus achieving distributional objectives in a more efficient manner. An ambitious structural reform agenda is paramount to Kazakhstan becoming a dynamic emerging market economy and ensuring sustainable and inclusive growth.
Inflation in Southeastern European (SEE) countries has been comparable with euro area inflation, partly owing to on the one hand, high initial price levels. On the other hand, the exchange rate regime is of paramount importance, including the inflation-targeting regime pursued in Albania. The analysis also explores additional heterogeneity between SEE and other regions. Two fiscal rules—a debt rule and an expenditure rule with a debt brake—are discussed in the context of Albania’s current economic outlook. Both rules will contribute toward enhancing fiscal sustainability in Albania.
This Selected Issues paper for Bosnia and Herzegovina (BiH) reports that GDP per capita in BiH is similar to that in neighboring Balkan countries. BiH risks are falling behind rather than catching up with other transition economies in terms of its economic development. This could delay the process of convergence to and integration with the European Union, including its ambitions to eventually adopt the euro. Accelerated structural reforms and macroeconomic stability remain key to achieving higher and sustained growth rates.
Croatia's economic growth accelerated, but external imbalances continued to increase. Executive Directors commended the strong performance accompanied by commendable prudent policies and continued strengthening of financial supervision. They emphasized the need for continued policy efforts to mitigate imbalances and sustain high growth. They stressed the need to continue fiscal adjustment so as to manage domestic demand, address macroeconomic imbalances, and accelerate structural reforms. Directors welcomed the authorities’ intention to continue to reduce general government deficit and also pointed the importance of ensuring the sustainability of the pension system.
The paper reviews key macroeconomic challenges with EU accession in Southeastern Europe (SEE). Most of the countries in the region are years away from EU accession and need substantial progress to meet the key macroeconomic criteria-the establishment of a functioning market economy and macroeconomic stability. The former calls for further structural reforms. While macroeconomic stability is essential throughout the EU accession process, the importance of specific outcomes increases in the last stage of accession, when countries face decisions to apply for entry into the ERM2 and the Maastricht criteria (Bulgaria and Romania). The main challenges with establishing macroeconomic stability in other countries are related to sustainability of their monetary frameworks, risks from rapid financial deepening, and further fiscal consolidation to support growth and stabilization. Most of the SEE countries have room to lower public spending and increase the share of pro-growth spending.
This 2002 Article IV Consultation highlights that Croatia experienced solid growth in the last two years, with growth rates of about 4 percent exceeding those of the euro area and of many other transition countries. The recovery, initially propelled by private consumption and exports, has more recently extended to investment, encouraged by easy access to credit and public infrastructure spending. After decelerating at the end of 2001 in the wake of the slowdown in Europe, growth resumed strongly in the first quarter of 2002 supported by domestic demand. The outlook for 2002 is moderately positive.
Exchange rate targeting is considered the best policy option in dollarized economies when wages and prices are indexed to the exchange rate. Croatia is a highly dollarized economy, but empirical investigation conducted in this paper shows that exchange rate pass-through has been low after stabilization. This finding, which is robust to different methodologies (VAR, cointegration), would suggest that dollarization is mostly limited to financial assets and therefore that strict exchange rate targeting may not necessarily be the best option. However, policy implications are unclear due to the endogeneity of the pass-through to the policy regime.
Mr. David William Harold Orsmond and Mr. Stanley Fischer
Israel’s post-stabilization experience of moderate inflation and eventual disinflation is compared with experiences in other countries. Lessons that emerge from an examination of international experiences indicate the importance of establishing early on credibility in the nominal anchor and a commitment to persevere with disinflation policies, achieving and maintaining a tight fiscal position, measures to reduce nominal rigidities, and widespread structural reform. Israel falls short on several criteria which explains why taming inflation in the post-stabilization period has been difficult. The paper concludes with a consideration of institutional arrangements that could sustain the current low inflation levels.
The Bank of Slovenia (BoS) officially pursues a policy aimed at lowering inflation to European levels and maintaining the stability of the currency. Since 1997, the intermediate target of the BoS has been the growth of the broad monetary aggregate M3 (defined as the daily average of the last quarter of the year relative to the same period last year). During 1995–98, to limit the impact of large inflows of foreign capital on the domestic economy and achieve its monetary targets, the BoS has resorted to heavy capital controls.