Download bulgarian economy on the road to european union and economic

BULGARIAN ECONOMY ON THE ROAD
TO EUROPEAN UNION AND
ECONOMIC AND MONETARY UNION
IVAN ISKROV
GOVERNOR
BULGARIAN NATIONAL BANK
14 July 2006
Athens
OUTLINE
• INITIAL CONDITIONS AND TRANSITION PROCESS
• MACROECONOMIC AND FINANCIAL FRAMEWORK
• ECONOMIC DEVELOPMENTS AND POLICY
CHALLENGES
• EU AND EMU PERSPECTIVES
• REGIONAL PERSPECTIVES
2
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 society’s priorities was a key
prerequisite for successful transition
3
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
4
GENERAL GOVERNMENT BALANCE
4
3
% of GDP
2
1
0
-1
-2
Maastricht criterion
-3
-4
1999
2000
2001
2002
2003
2004
2005
5
GOVERNMENT DEBT
90
80
70
Maastricht criterion
% of GDP
60
50
40
30
20
10
0
1999
2000
2001
2002
2003
2004
2005
6
EMBI+ Bulgarian Sovereign Spread
14/4/06
14/1/06
14/10/05
14/7/05
14/4/05
14/1/05
14/10/04
14/7/04
14/4/04
14/1/04
14/10/03
14/7/03
14/4/03
14/1/03
14/10/02
14/7/02
14/4/02
14/1/02
14/10/01
14/7/01
14/4/01
14/1/01
14/10/00
14/7/00
14/4/00
BULGARIAN SOVEREIGN SPREAD
1200
1000
800
b.p. 600
400
200
0
EMBI+ Emerging Market Spread
7
REAL GDP GROWTH
6
5
4
%
3
2
1
0
1999
2000
2001
2002
2003
2004
2005
8
FOREIGN DIRECT INVESTMENTS IN
BULGARIA
16
14
% of GDP
12
10
8
6
4
2
0
1999
2000
2001
2002
2003
2004
2005
9
REAL GROWTH OF GROSS FIXED
CAPITAL FORMATION
25
20
15
%
10
5
0
1999
2000
2001
2002
2003
2004
2005
10
SHARE OF THE GROSS CAPITAL
FORMATION IN GDP
30
25
% of GDP
20
15
10
5
0
1999
2000
2001
2002
2003
2004
2005
11
GROWTH OF THE REAL GDP PER
PERSON EMPLOYED
10
8
6
4
%
2
0
-2
-4
1999
2000
2001
2002
2003
2004
2005
12
GROWTH OF THE UNIT LABOUR COSTS
10
8
6
%
4
2
0
-2
-4
-6
-8
1999
2000
2001
Nominal Unit Labour Costs
2002
2003
2004
2005
Real Unit Labour Costs
13
EMPLOYMENT GROWTH
8
6
4
%
2
0
-2
-4
1999
2000
2001
2002
2003
2004
2005
14
UNEMPLOYMENT RATE
25
20
15
%
10
5
0
1999
2000
2001
2002
2003
2004
2005
15
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
16
REAL GROWTH OF CONSUMPTION
10
9
8
7
6
%
5
4
3
2
1
0
1999
2000
2001
2002
2003
2004
2005
17
SAVINGS AND INVESTMENTS BALANCE
5
% of GDP
0
-5
-10
-15
-20
1999
Current Account
2000
2001
2002
Government "S-I" Balance
2003
2004
2005
Private Sector "S-I" Balance
18
EXTERNAL POSITION
0
% of GDP
-5
-10
-15
-20
-25
1999
2000
2001
2002
Current Account Balance
2003
2004
2005
Trade Balance
19
CREDIT TO THE PRIVATE SECTOR
50
45
40
% of GDP
35
30
25
20
15
10
5
0
1999
2000
2001
2002
2003
2004
2005
20
GROWTH RATE OF THE CREDIT TO
THE PRIVATE SECTOR
60
50
40
%
30
20
10
0
1999
2000
2001
2002
2003
2004
2005
May-06
21
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
22
LONG-TERM INTEREST RATES
9
8
7
Maastricht criterion
6
%
5
4
3
2
1
0
2002
2003
2004
2005
23
AVERAGE INFLATION
12
10
8
6
4
2
0
-2
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
Jul-99
-4
Jan-99
%
Inflation
Maastricht inflation criterion
Inflation excl Administrative Prices and Excise Tax Effects
24
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
25
GEOGRAPHICAL STRUCTURE OF
FOREIGN TRADE (2005)
All
6%
EU
4%
10%
23%
9%
10%
4%
52%
14%
5%
6%
15%
19%
9%
13%
EUROPEAN UNION
BALKAN COUNTRIES
OTHER EUROPEAN COUNTRIES (incl Russia)
ASIAN COUNTRIES
AMERICAN COUNTRIES
OTHER
GERMANY
GREECE
BELGIUM
UK
NEW MEMBER STATES
ITALY
FRANCE
SPAIN
OTHER OLD MEMBER STATES
26
GEOGRAPHICAL STRUCTURE OF THE
EU’s FDI IN BULGARIA
All
EU
12%
18%
5%
35%
6%
7%
7%
82%
EU
REST OF THE WORLD
7%
12%
8%
AUSTRIA
GERMANY
NETHERLANDS
GREECE
ITALY
UK
CYPRUS
BELGIUM
Rest of EU
27