The International Monetary Fund Wednesday backed the efforts of Bulgaria's embattled new government to help the poorest Bulgarians and ease red tape for businesses, amid continuing street protests in the country.
"The new government's intention to maintain macroeconomic policy continuity, to increase protection for the most vulnerable in society, and to address key structural rigidities is welcome," IMF chief in the country Michele Shannon said in a statement.
She called on authorities to slash red tape, improve efficiency in the energy sector and tackle corruption and cronyism.
These moves are "essential to support growth and employment," she added.
Prime Minister Plamen Oresharski has come under massive pressure from protesters to step down after only a month in office after the controversial appointment of a media mogul as top security chief.
About 5,000 people gathered outside the government headquarters in downtown Sofia for a 20th consecutive day on Wednesday, some shouting "Resignation!" and "Mafia!"
Oresharski has refused to quit and tried to appease protesters by rushing through parliament a series of measures to help the poorest Bulgarians and lower electricity prices.
High winter power bills in the EU's poorest country forced out the previous conservative government in February.
The IMF said the political turmoil had so far had a limited impact on the economy but remained a risk factor along with continued euro area uncertainty.
The economy is expected to "improve only slightly" this year compared to last year and unemployment remains unacceptably high, the IMF said.
Stronger exports and European Union funds are providing much-needed support to the economy, while inflation has declined and is expected to remain low, Shannon said.
Bulgaria's economy grew by 0.8 percent last year and is forecast to grow by about 1.0 percent this year. Official unemployment hit 10.8 percent of the workforce in June.
Commenting on recently announced plans to review the country's budget and increase the budget deficit, the IMF said the planned deficit target of 1.4 percent of output was "achievable."
"However, any revenue shortfalls as a result of weaker-than-budgeted economic activity or delays in the reimbursement of EU funds should be accommodated and not offset by compressing expenditure below budgeted amounts," it added, warning that this will pile up more pressure on an already fragile recovery.
The IMF praised the country's financial system as "stable and well capitalised."