If Bulgaria does not manage to control the proliferation of loans, it will experience economic destabilisation and a currency crisis, according to International Monetary Fund (IMF) experts. The rapid increase in bank loans bears macroeconomic and credit risks. Apart from increasing the trade deficit, they might decrease the quality of banks assets, the experts said in a report on lending in Bulgaria, Dnevnik newspaper reported.
The problem is expected to be among the most discussed items during the IMF evaluation next wek of Bulgaria's economy. During the previous visit by IMF mission head to Bulgaria Hans Flickenschield in December, the fund requested a minimisation of credit expansion in 2006. The IMF requested a maximum rate of 15 per cent but Bulgarian officials negotiated for 20 per cent. For last year, the limit imposed by central bankers was 30 per cent. Credit growth leads to higher property prices and to a boom in investment and consumption, IMF experts said. Consumption growth in turn creates a need for higher imports and raises inflation.