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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. OUTLINE. INITIAL CONDITIONS AND TRANSITION PROCESS MACROECONOMIC AND FINANCIAL FRAMEWORK ECONOMIC DEVELOPMENTS AND POLICY CHALLENGES
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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
OUTLINE • INITIAL CONDITIONS AND TRANSITION PROCESS • MACROECONOMIC AND FINANCIAL FRAMEWORK • ECONOMIC DEVELOPMENTS AND POLICY CHALLENGES • EU AND EMU PERSPECTIVES • REGIONAL PERSPECTIVES
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
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
GENERAL GOVERNMENT BALANCE Maastricht criterion
GOVERNMENT DEBT Maastricht criterion
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
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
LONG-TERM INTEREST RATES Maastricht criterion
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