Implementing a tight fiscal policy improves Bulgaria's chances for joining the European Exchange Rate Mechanism (ERM II). However, Bulgaria will have to change its development model and take steps to boost its
competitiveness and exports, according to Greece's Eurobank EFG's latest report on markets in new Europe, the bank said.

According to the report, made public in Bulgaria by Postbank, economic growth is unlikely before the second half of 2010. The report takes stock of the budget deficit for 2009 and the unblocking of 300 million euro from the EU pre-accession funds, which helped restore the confidence of the international rating agencies in Bulgaria.

Bulgaria needs a new development model, focused on boosting competitiveness and exports. Between 2004 and 2008, Bulgaria attracted 27.1 billion euro in direct foreign investments, primarily in the real property market. However, analysts think that the times, when foreign investment used to be an engine of economic growth have gone and now Bulgaria has to seek for new sources of growth. The country has to shift from laxer lending and encouraging demand to improving competitiveness and boosting imports, the report says.

Banks are posting one of best results in the region. Banking sector capital adequacy is 17.6 per cent and the ratio between capital and assets is 12.7 per cent, which is enough to dispel fears over rising numbers of defaulted loans. Despite a projected surge in defaulted loans in 2010, the bank experts believe that the banking sector has enough buffers to offset the increase. BTA