31 May - 1 June 2007 Brussels Economic Forum 2007 ECONOMIC AND FINANCIAL DEVELOPMENTS IN BULGARIA ALONG ITS EU INTEGRATION PLAMEN ORESHARSKI MINISTER OF FINANCE REPUBLIC OF BULGARIA 31 May - 1 June 2007 Brussels Economic Forum 2007

Year 2007 – a key one for Bulgaria Bulgaria’s membership in EU – proof of the progress of the economic reforms Functioning market economy in place Readiness of the Government to continue the policy of sustainable economic growth

The course of Bulgaria during the years of transition Political and economic reforms – less favorable starting position : The inherited huge external debt The crisis in former Yugoslavia and the enforced embargo Unstable political environment Hesitant and inconsistent economic reforms at the beginning of 1990s

Dimensions of the economic crisis in mid 1990s Hyperinflation (annual average) of 1,058.4% in 1997 (242.4% monthly inflation in February 1997) Devaluation of the local currency – 3.4 times in February compared to January 1997 or 9.5 times in 1997 compared to 1996 Bankruptcy of more than 1/3 of the commercial banks Negative economic growth of 9.4% in 1996 and 5.6% in 1997 Debt burden of over 120% of GDP

The new economic policy The crisis of 1996-97 – a catalyst for a new type of economic policy Change of the monetary regime : Stabilization of the banking and financial systems Strengthening and modernization of the public finances Privatization and restructuring of production assets

Bulgaria’s economy today High and sustainable economic growth of around 6% per annum More than 75% of the economy is privately owned 100% private banking sector Dynamic development of the capital market

Public finance status Budget surplus for three consecutive years – over 3.3% in 2006 Current fiscal reserve – almost six-month tax revenues Dramatically reduced public debt – from over 120% in mid 1990s to around 20% presently

Monetary sector Pegged exchange rate – EUR 1 = BGN 1.95583 FX reserves – rising, covering over 6-month imports Low interest rates Acceptable inflation level FDI – over 15% of GDP for 2007 Positive perception about the business climate in the country and abroad

Current policy goals Maintaining macroeconomic stability Continuing with the structural reforms Enhancing fiscal consolidation Strong fiscal stance in view of curbing the current account imbalance : Reaching surplus of minimum 2% Keeping budget expenditures below 40% of GDP

Situation and perspectives Bulgaria covers 4 of the 5 nominal convergence criteria The inflation criterion expected to be met in the medium term Preserving the Currency Board Arrangement is crucial for: Maintaining the economic agents’ trust in the stability of the macroeconomic framework Ensuring smooth transition to the Euro

Focal points of the future economic policy measures Leading goal - to maintain the macroeconomic equilibrium and to observe the inflation criterion in a sustainable manner To improve the competitiveness of the economy To enhance the flexibility of the labor market To modernize key publicly financed spheres

THANK YOU! PLAMEN ORESHARSKI Minister of Finance