Real effective exchange rate still overvalued?
Overview:
The economic recovery in Bulgaria remains weak and narrow-based even if GDP growth is now back in positive territory once again. Net exports are providing a positive contribution to growth but domestic demand remains weak. This has helped, at least, to lead to a major improvement in the external account position; not before time as external debt to GDP is already high. The fiscal position has deteriorated during the recession but the government has committed to successively smaller budget deficits. Public debt to GDP is low and the government still has a sizable deposit at the central bank. However, the large appreciation in the real effective exchange rate seen during the boom has only partially been reversed. It is possible that poor competitiveness may, thus, hinder the pace of the recovery.