1. BULGARIAN ECONOMY - OPPORTUNITIES AND PERSPECTIVES
PLAMEN ORESHARSKI
MINISTER OF FINANCE
Sofia
18 June 2008

2. 2007 – ECONOMIC INDICATORS
High and sustainable economic growth of around 6%
Adequate budget balance and falling government debt
Inflation - influenced by external and internal shocks
Lowering unemployment and rising economic activity of the labor force
FDI cover the current account deficit
Stable and sustainably high economic growth
Higher than EU average growth
Substantial rising of international oil and food prices
Unfavorable weather conditions and results in the agricultural sector
Convergence process of price and income levels
Changes in administrative prices
Weakening impact of the rising of excise duty rates
Stable economic growth – continuous rising of employment and falling of unemployment rate
Employment rose by 4.6% as a result of new jobs creation in the private sector and enhanced economic activity
Unemployment dropped strongly to 6.9% on the average for 2007.
Unemployment is stably dropping from around 19% in 2001 to around 6.9% in 2007 – comparable to and even lower than the EU-25 average levels.
In 2007 the labor productivity growth in the Bulgarian economy accelerated to 3.3% in real terms compared to 2006.
The income of the population also continued to rise – the average salary in 2007 rose by 19.7 and 10.4% in nominal and real terms respectively compared to 2006
For the period 2000 – 2007 there is consistency between income growth and labor productivity growth
Despite the increased labor costs in 2007 the share of employed compensation lags considerably behind this indicator for EU-25 which allows competitiveness to be preserved.
In 2007 the current account deficit reached 21.5% of GDP
FDI cover 98% of the deficit according to preliminary data
The foreign currency reserves continue to grow sustainably
Sustainability of the current account
Macroeconomic stability
High economic growth
Accelerated investment activity
Enhancing foreign trade openness
High degree of capital openness
Stable financial system
Favorable foreign debt structure
FX reserves covering 6-month import of goods and services
Main objectives of the fiscal policy: to help maintain the economic stability and sustainable economic growth
Meets the rules of the Stability and Growth Pact
budget balance within the Maastricht criteria, while maintaining budget surpluses
avoiding any pro-cyclic policy
The prudent fiscal policy ensured smooth reduction of government debt
Considerably lower service costs
The fiscal reserve ensures good coverage of the government debt
Maintaining budget surpluses and high economic growth will help keep the government debt as a percentage of GDP well below the Maastricht criterion
Widening current account deficit as a result of accelerated investment growth, which is ahead of the savings growth.
Fundamental:
High return on domestic investment
Substantial FDI growth
Growing domestic demand, investment in particular
Positive expectations for future income
Of a temporary nature :
Liberalization of trade in garments in 2005
The floods in 2005 and the drought in 2007
Slow down of production and exports as a result of the restructuring of certain sectors

3. Source: NSI, AEAF, Eurostat
ECONOMIC GROWTH
Source: NSI, AEAF, Eurostat
Stable and sustainably high economic growth
Higher than EU average growth

4. GOVERNMENT BUDGET AND DEBT
Main objectives of the fiscal policy
Adequately addresses the imbalances in the economy
Meets the rules of the Stability and Growth Pact
Considerable reduction of government debt
Main objectives of the fiscal policy: to help maintain the economic stability and sustainable economic growth
Meets the rules of the Stability and Growth Pact
budget balance within the Maastricht criteria, while maintaining budget surpluses
avoiding any pro-cyclic policy
The prudent fiscal policy ensured smooth reduction of government debt
Considerably lower service costs
The fiscal reserve ensures good coverage of the government debt
Maintaining budget surpluses and high economic growth will help keep the government debt as a percentage of GDP well below the Maastricht criterion
Source: MoF

5. INFLATION Substantial rising of international oil and food prices
Source: MoF
Substantial rising of international oil and food prices
Unfavorable weather conditions and results in the agricultural sector
Convergence process of price and income levels
Changes in administrative prices
Weakening impact of the rising of excise duty rates

6. LABOR MARKET Stable economic growth Employment rose by 4.6%
UNEMPLOYMENT (%)
EMPLOYMENT
Stable economic growth – continuous rising of employment and falling of unemployment rate
Employment rose by 4.6% as a result of new jobs creation in the private sector and enhanced economic activity
Unemployment dropped strongly to 6.9% on the average for 2007.
Unemployment is stably dropping from around 19% in 2001 to around 6.9% in 2007 – comparable to and even lower than the EU-25 average levels.
Source: NSI
Stable economic growth
Employment rose by 4.6%
Unemployment dropped strongly to 6.9%.

7. CURRENT ACCOUNT DEFICIT AND FDI
Sustainability of the current account
Macroeconomic stability
High economic growth
Accelerated investment activity
Enhancing foreign trade openness
High degree of capital openness
Stable financial system
Favorable foreign debt structure
FX reserves covering 6-month import of goods and services
Widening current account deficit as a result of accelerated investment growth, which is ahead of the savings growth.
Fundamental:
High return on domestic investment
Substantial FDI growth
Growing domestic demand, investment in particular
Positive expectations for future income
Of a temporary nature :
Liberalization of trade in garments in 2005
The floods in 2005 and the drought in 2007
Slow down of production and exports as a result of the restructuring of certain sectors
Source: BNB, AEAF
In 2007 the current account deficit reached 21.5% of GDP
FDI cover 98% of the deficit according to preliminary data
The foreign currency reserves continue to grow sustainably

8. INCENTIVES TO INVEST IN BULGARIA
Favorable business climate
Favorable tax environment
Equal tax treatment of local and foreign investors
Investment credit rating
Good technical skills of labor force
Comparatively low operational costs
Support for the building of infrastructure to large investment projects
Consistent efforts to improve the business environment
10% tax on profit – the lowest in Europe
Flat personal income tax rate of 10%
Simplified procedures for tax payment and tax refund
Lowering employers’ costs on social security contributions
Constantly improving business climate – the index level has almost doubled in the past two years
Record-breaking level of industrial production capacity use – 75% at the end of 2007
The share of companies not encountering any difficulties in their development is increasing in all sectors
Rising domestic and foreign demand for locally produced goods and services
Liberalization of procedures for starting-up and doing business
Launch of an e-Company Register as from 1 January 2008
One-stop shop services
Adoption and implementation of a Better Regulation Program
Adoption of the national objective for reduction of the administrative burden – by end-September 2008

9. FINANCIAL SYSTEM Adequate increase in FX reserves
High level of credit activities with good quality of Commercial Banks’ portfolios
Sustainable growth of deposit base
Greater role of non-banking financial institutions
High degree of coordination of policies ensuring
Effective regulation of the financial system
Sustainably high growth of FX reserves (33.7% annual growth in 2007) supported by
Significant FDI and great inflows of financial resources
Well-regulated fiscal policy and growth of the fiscal reserve
Higher minimum required reserves of CB at the BNB
Despite the negative influence of some external factors, BNB FX reserves ensure high level of coverage of monetary base and supply
Implementation of a strict regulation of the banking sector in line with the Basel II requirements
Conservative policy with regard to the minimum required reserves of commercial banks
Consistent amendments to the legislative framework in accordance with best practices and acquis communautaire
Provision of legislative environment for stable operation and ensuring the security of accumulated financial resources
Improvement of market information transparency standards
Liberalization of the investment regime of non-banking financial institutions
Adoption of a new Markets of Financial Instruments Act to regulate trade by taking into account the country’s joining the European Single Market and expanding the base of financial instruments subject to regulation

10. INCREASE IN FX RESERVES
Sustainably high growth of FX reserves
High level of coverage of monetary base and supply
Sustainably high growth of FX reserves (33.7% annual growth in 2007) supported by
Significant FDI and great inflows of financial resources
Well-regulated fiscal policy and growth of the fiscal reserve
Higher minimum required reserves of CB at the BNB
Despite the negative influence of some external factors, BNB FX reserves ensure high level of coverage of monetary base and supply
Source: BNB, AEAF

11. CREDIT ACTIVITY OF BANKS
Household Credits
Corporate Credits
Source: BNB, AEAF
Source: BNB, AEAF
Increase of credits for the private sector
Retention of good quality of credit portfolio
Pressure on interest rates due to great competition in the banking sector

12. ECONOMIC POLICY...
Maintenance of the Currency Board Arrangement with the current rate of exchange 1 EUR = BGN until the country joins the Euro area
Maintenance of rigid fiscal discipline
More active labor supply, better labor market flexibility
Public sector wage growth will not be ahead of labor productivity
Coordination between the Government and the Central Bank when making commitments concerning the medium-term economic policy
Careful monitoring of risks in the economy and timely reaction, where needed

13. ... AND PROSPECTS FOR DEVELOPMENT
Maintenance of a sustainable and high growth
Increase of capital in the economy resulting from internal investment demand, sustainable inflows of FDI and absorption of EU funds
Sustainable low level of unemployment and gradual increase of employment and economic activity
Stable increase in real income and well-being
Deepening of financial intermediation while preserving the system’s stability
Price increase due to the process of convergence towards leading economies

14. PLAMEN ORESHARSKI MINISTER OF FINANCE
THANK YOU!
PLAMEN ORESHARSKI
MINISTER OF FINANCE