BULGARIAN ECONOMY ON THE ROAD TO EUROPEAN UNION AND ECONOMIC AND MONETARY UNION

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BULGARIAN ECONOMY ON THE ROAD TO EUROPEAN UNION
AND ECONOMIC AND MONETARY UNION

• IVAN ISKROV
• GOVERNOR
• BULGARIAN NATIONAL BANK
• 14 July 2006
• Athens

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OUTLINE

• INITIAL CONDITIONS AND TRANSITION PROCESS
• MACROECONOMIC AND FINANCIAL FRAMEWORK
• ECONOMIC DEVELOPMENTS AND POLICY CHALLENGES
• EU AND EMU PERSPECTIVES
• REGIONAL PERSPECTIVES

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INITIAL CONDITIONS AND TRANSITION PROCESS

• Planning economy with lack of functioning markets
• Bulgarian economy was highly integrated within
  Council for Mutual Economic Assistance
• Economy was not subject to competitive pressure
• Distorted incentives
• Transition was a unique process without
  historical experience to draw from
• Political consensus on societys priorities was a
  key prerequisite for successful transition

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MACROECONOMIC AND FINANCIAL FRAMEWORK

• Euro-based currency board since mid 1997
• Prudent and predictable fiscal policy oriented
  towards balanced budget or surplus
• Withdrawal of the state from the business through
  large scale privatization of the state owned
  enterprises
• Liberalization of the markets free movement of
  goods, services and capital
• Government policy oriented towards improvement of
  investment climate

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GENERAL GOVERNMENT BALANCE
Maastricht criterion
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GOVERNMENT DEBT
Maastricht criterion
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BULGARIAN SOVEREIGN SPREAD
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REAL GDP GROWTH
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FOREIGN DIRECT INVESTMENTS IN BULGARIA
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REAL GROWTH OF GROSS FIXED CAPITAL FORMATION
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SHARE OF THE GROSS CAPITAL FORMATION IN GDP
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GROWTH OF THE REAL GDP PER PERSON EMPLOYED
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GROWTH OF THE UNIT LABOUR COSTS
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EMPLOYMENT GROWTH
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UNEMPLOYMENT RATE
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ECONOMIC DEVELOPMENTS AND POLICY CHALLENGES

• High consumption and investment growth
• Dynamic credit growth
• External imbalances
• Limited scope for policy reaction of the central
  bank
• Limits of conservative fiscal policy

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REAL GROWTH OF CONSUMPTION
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SAVINGS AND INVESTMENTS BALANCE
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EXTERNAL POSITION
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CREDIT TO THE PRIVATE SECTOR
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GROWTH RATE OF THE CREDIT TO THE PRIVATE SECTOR
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EU AND EMU PERSPECTIVES

• BNB and Government signed in 2004 an agreement
  that defines the strategy for Euro adoption
• Joining Exchange Rate Mechanism II immediately
  after EU membership
• Maintaining unilaterally currency board at the
  current exchange rate BGN 1.95583/EUR 1
• Bulgarian economy is in good position to fulfill
  Maastricht criteria
• Inflation criterion is a challenge

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LONG-TERM INTEREST RATES
Maastricht criterion
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AVERAGE INFLATION
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REGIONAL PERSPECTIVES

• Greek business and politicians extended
  consistent support to economic and political
  reforms in Bulgaria
• Greek economy has very strong ties with Bulgarian
  economy through trade of goods and services and
  direct investments
• The accession of Bulgaria and Romania in EU opens
  economic opportunities for the Balkans that our
  region have never had in its history

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GEOGRAPHICAL STRUCTURE OF FOREIGN TRADE (2005)
All
EU
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GEOGRAPHICAL STRUCTURE OF THE EUs FDI IN
BULGARIA
All
EU