Economic developments and perspectives

1. Economic developments and perspectives Petar Chobanov EXECUTIVE DIRECTOR AGENCY FOR ECONOMIC ANALYSIS AND FORECASTING

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

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

4. GOVERNMENT BUDGET AND DEBT Source: MoF • 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

5. INFLATION • 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 Source: MoF

6. LABOR MARKET Unemployment (%) Employment • Stable economic growth • Employment rose by 4.6% • Unemployment dropped strongly to 6.9%.

7. INCOME AND LABOR PRODUCTIVITY * GDP in fixed prices per employed (NAS) • Labor productivity growth accelerated to 3.3% in real terms in 2007 • Average salary in 2007 rose by 19.7 and 10.4% in nominal and real terms • Share of compensation of employees lags considerably behind this indicator for EU-25

8. CURRENT ACCOUNT DEFICIT AND FDI • 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 Source: BNB, AEAF

9. 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. 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 • Effective regulation of the financial system

11. INCREASE IN FX RESERVES • Sustainably high growth of FX reserves • High level of coverage of monetary base and supply Source: BNB, AEAF

12. CREDIT ACTIVITY OF BANKS Household Credits Corporate Credits • 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 Source: BNB, AEAF Source: BNB, AEAF

13. ECONOMIC POLICY... • Maintenance of the Currency Board Arrangement with the current rate of exchange 1 EUR = 1.95583BGNuntil 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

14. ... 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

15. THANK YOU! Petar Chobanov EXECUTIVE DIRECTOR AGENCY FOR ECONOMIC ANALYSIS AND FORECASTING