The European Bank for Reconstruction and Development (EBRD) expects Bulgaria's economy to expand by 2.6% in 2011, following a steep decline of 4.9% in 2009 and a modest increase of 0.2% last year.

The estimate is slightly higher than the bank's previous forecast for 2.4% growth, which was announced in January, but still well below the government's projection for a 3.6% improvement.

"We do not see major reforms in the region and there is a risk that the crisis may be associated only with higher commodity prices, rather than reforms in the system," EBRD chief economist Erik Berglof said in Sofia on Tuesday while presenting the bank's regular annual report on transition economies, which was published in late 2010.

Berglof considers that Bulgaria's major challenge is the fight against corruption. The country should also push ahead with structural reforms, make more investments in infrastructure and energy projects and attract foreign investors in the power sector, he said.

Overall, transition economies should focus on reinforcing local capital markets, ensuring optimal use of domestic currencies, removing obstacles curbing exports growth and improving business environment, according to the economist.