BULGARIA AFTER THE EU ACCESSION:CHALLENGES AND POLICY OPTIONS

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BULGARIA AFTER THE EU ACCESSIONCHALLENGES AND
POLICY OPTIONS

• TSVETAN MANCHEV
• DEPUTY GOVERNOR
• BULGARIAN NATIONAL BANK

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OUTLINE

• Key conclusions from the recent development
• Policy options
• The road ahead

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RECENT DEVELOPMENT KEY CONCLUSIONS

• Robust and stable growth at 5 on average for 10
  consecutive years
• Relatively low one digit inflation, but
  accelerating after accession
• Sound government finances and declining public
  debt
• Accelerating capital inflows.

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RECENT DEVELOPMENT KEY CONCLUSIONS

• Investment grade ratings and declining sovereign
  spreads
• Sharp decline in unemployment toward EU average
  rates
• Stable and predictable business environment CBA,
  European legislation, improving law enforcement
  low taxation on both CL

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REAL GDP GROWTH
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REAL GDP GROWTH RATE IN BULGARIA AND IN THE
EUROPEAN UNION
Source Eurostat
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UNEMPLOYMENT RATE
Source National Employment Agency
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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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CURRENT ACCOUNT BALANCE AND FDI
Source BNB
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AVERAGE INFLATION
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ANNUAL GROWTH RATE OF THE CREDIT TO THE PRIVATE
SECTOR
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THE ECONOMIC CHALLENGE SUSTAINABILITY

• Increasing external imbalances
• Inflation - higher than this in the euro area and
  volatile
• high and volatile credit growth
• very low, even negative real interest rates
• the flexibility of the labour market.

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GENERAL CONCLUSION

• Bulgarias recent development is similar to this
  in all the other Newly Acceded Countries with a
  CBA
• All Fixers

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SOME DIFFERENCES

• The degree of political stability
• The banking structure
• Currency structure of the agents balance sheets
• Bulgaria is not in the ERM II
• CBA? monetary policy with fixed exchange rate
  regime in the former central banks do not create
  inflationary financing by printing cheap money

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POLICY OPTIONS TO COPE WITH THE CHALLENGES

• The populists view not to care about the
  macroeconomic stability and sustainability,
  nominal or real convergence, and to seek only a
  quck catch-up in the euro denominated wage and
  income
• Monetary and exchange rate regime change
  (friendly fire from the some of the European
  institutions and key politicians)
• Well targeted nominal and real convergence based
  on the medium-term integrated reform agenda for
  the public sector aiming a greater efficiency

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BULGARIAS OFFICIAL POLICY TO ADDRESS THE
CHALLENGES

• Tough fiscal and income policies should continue
  to avoid adding pro-cyclical pressures that could
  widen internal and external imbalances. The
  spending and tax levers of the budget could be
  used to accelerate real convergence and
  productivity growth, including through the
  efficient absorption of EU funds
• Consistent and predictable financial sector
  policies should contribute for safeguarding
  financial stability through continued close
  monitoring of banks risk management and capacity
  to absorb adverse shocks
• Structural reforms are essential for accelerating
  real convergence in the sense the scope for
  catching up to living standards and real wages in
  the EU in a sustainable manner should depend
  ultimately on raising the efficiency of available
  human and real resources while providing
  incentives to add to available resources.

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The Key Message

• More politics than economics does the European
  integration need that?

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Thank you for your attention!