BTA // IMF Managing Director: End of Ukraine War Not to Make Defence Spending Shrink, Could Increase Investment Flow

Meeting with journalists here on Monday, International Monetary Fund (IMF) Managing Director Kristalina Georgieva said that the end of the war in Ukraine will not make defence spending shrink but there would be more investment flows in the region.

Taking a BTA question, she expressed the hope that the path to peace is followed. If this is to happen, for Ukraine, it removes a major obstacle to the functioning of their economy. For Europe, peace does not eliminate but reduces the negative impact the war has had in a sense that Europe can direct more funding to stimulate the Ukrainian economy, which would create demand for goods and services produced in Europe. For the whole of Europe, the war in Ukraine has been a wake-up call not to take security for granted and has led to a significant reassessment of defence spending. Such spending usually injects more energy in research and innovation and contributes to competitiveness, but it takes resources away from other public service tasks, Georgieva noted.

Taking a question on Bulgaria joining the eurozone, Georgieva described that as a very good development for the country. In her words, Bulgaria is already reaping some benefits,  because borrowing costs for the country have gone down. The move to the euro so far has been orderly, she commented, adding that the IMF sees no reason why that would not continue. It is too early to say what the inflationary impact of joining the eurozone is for Bulgaria, she said further. In other countries, it has been a one-time impact between 0.1% and 0.3%. For Bulgaria, that would become known in a couple of months when enough data is collected, she specified.

On EU-USA tariffs, Georgieva commented that the damage caused by them has been relatively mild, because world economy has demonstrated quite a lot of resilience. Tariffs mean erosion of profitability for European companies. The IMF projects half a percentage GDP loss for this and next year because of this erosion. In her words, the message from this story is that in a world of more uncertainty, adding to it is affecting markets and it risks to also affect longer-term growth.

"If I have one message to Europe, it is accelerate reforms. Europe has been lagging in productivity for decades now," Georgieva said.