Financial stability bg_casestudy

Financial Stability WorkshopFinancial Stability WorkshopCENTRE FOR TECHNICAL CENTRAL BANK COOPERATIONCENTRE FOR TECHNICAL CENTRAL BANK COOPERATION

DEUTSCHE BUNDESBANK (22.02.2010 – 26.02.2010)DEUTSCHE BUNDESBANK (22.02.2010 – 26.02.2010)

Author of the presentation: Yordan Radev, expert in the Payment systems Author of the presentation: Yordan Radev, expert in the Payment systems oversight division, Bank Policy Directorate at the Bulgarian National Bankoversight division, Bank Policy Directorate at the Bulgarian National Bank

16 Feb 201016 Feb 2010 BULGARIAN NATIONAL BANKBULGARIAN NATIONAL BANK 22

CONTENTS:CONTENTS:

I. KEY MACROECONOMIC DATA OVERVIEW

II. THE FINANCIAL CRISIS AND ITS IMPACT ON THE BULGARIAN ECONOMY

III. CRISIS RESOLUTION MEASURES

IV. MACROECONOMIC OUTLOOK


I.I. KEY MACROECONOMIC DATA FROM BULGARIAKEY MACROECONOMIC DATA FROM BULGARIA

1.1. GROSS DOMESTIC PRODUCT AND GROWTH RATES:GROSS DOMESTIC PRODUCT AND GROWTH RATES:

According to the preliminary data for 2009 Q4 the GDP for Bulgaria is BGN 66 197 millions or EUR 33 846 millions, which makes 5.1 decrease in comparison with 2008 on Y-t-Y basis.

This decline in the GDP data followed a consecutive Y-t-Y % increase in the GDP in 2006, 2007 and 2008, respectively by 6.3%, 6.2% and 6% (or 6.2 average increase)

The real volume of the GDP dropped in Q1, Q2, Q3 and Q4 of 2009 respectively by 3.5%, 4.9%, 5.4% and 6.2% (flash estimates) in comparison with the data for the same periods in 2008

Source: Bulgarian National Statistical Institute officials figures, flash estimates and press releases: http://www.nsi.bg


I.I. KEY MACROECONOMIC DATA FROM BULGARIAKEY MACROECONOMIC DATA FROM BULGARIAGDP data per year and per quarter for the period 2000 – 2009*


*For 2009 Q4 figures are on flash estimates basis

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

GDP in millions

Q4

Q3

Q2

Q1

http://www.nsi.bg/


I.I. KEY MACROECONOMIC DATA FROM BULGARIAKEY MACROECONOMIC DATA FROM BULGARIA

2.2. EMPLOYMENT / UNEMPLOYMENT RATES:EMPLOYMENT / UNEMPLOYMENT RATES:

According to the official statistics the population of Bulgaria as of 31.12.2008 is 7.6 millions of which 6,6 millions are over 15 years and 5,3 millions are in between the age frames 15-64 years;

In 2009 Q3 the total number of employed people aged 15 and over was 3.3 millions or 49.8% of the population of the same age group;

For 2009 Q3 the rate of unemployment for Bulgaria is 6.7% of the labor force or 234.5 thousand people. In comparison with 2008 Q3 the unemployment rate for 2009 Q3 for Bulgaria has increased by 1.6% or 49.4 thousands people;

In September 2009 the average wage and salary for Bulgaria is estimated to be BGN 594 or EUR 304, which is a 10.4% increase on Y-t-Y basis in relation with Sept. 2008



I.I. KEY MACROECONOMIC DATA FROM BULGARIAKEY MACROECONOMIC DATA FROM BULGARIA3. INFLATION The annual average inflation rate for January - December 2009 for Bulgaria is 2,5%

Inflation - Unemployment rates dynamics

0.0%

3.0%

6.0%

9.0%

12.0%

Year

%

Annual average inflation Unemployment rate

Annual average inflation 6.1% 6.0% 7.4% 7.6% 12.0% 2.5%

Unemployment rate 11.8% 9.9% 8.4% 6.1% 5.0% 6.7%

2004y-to-y

2005y-to-y

2006y-to-y

2007y-to-y

2008y-to-y

2009y-to-y


II.II. THETHE FINANCIAL CRISISFINANCIAL CRISIS AND ITS IMPACT ON THEAND ITS IMPACT ON THE BULGARIAN ECONOMYBULGARIAN ECONOMY

1. SINCE THE END OF 2007 AND UNTIL THE MID-SEPTEMBER OF 2008 THE GLOBAL ECONOMIC CRISIS HAD A LIMITED IMPACT ON THE BULGARIAN ECONOMY.

The first effect of the crisis was observed on the Bulgarian Stock Exchange with a downward trend of indices and decreasing daily turnover due to the global uncertainty and reduced liquidity.

The increased international risk perceptions and the lower liquidity affected the Bulgarian interbank market, where spreads started to increase versus the interest rates in the euro area.

Banks operating in Bulgaria started strengthening their lending conditions and standards and increased their lending rates;

The uncertain environment and revision of consumption and investment plans by non-bank institutions and households led to a lower demand for loans, particularly long-term loans and investment loans

There was a rapid decrease in inflation rates in Bulgaria, due to the fall in a number of international commodity and fuel prices since the second half of 2008.

2.2. FOLLOWING THE LEHMAN BROTHERS DEFAULT, THE GLOBAL FINANCIAL AND FOLLOWING THE LEHMAN BROTHERS DEFAULT, THE GLOBAL FINANCIAL AND ECONOMIC CRISIS LED TO A SEVERE SLOWDOWN IN ECONOMIC ACTIVITY IN ECONOMIC CRISIS LED TO A SEVERE SLOWDOWN IN ECONOMIC ACTIVITY IN ADVANCED ECONOMIES AND THE SIGNIFICANT DECLINES IN THE VOLUMES OF ADVANCED ECONOMIES AND THE SIGNIFICANT DECLINES IN THE VOLUMES OF WORLD TRADE AND GLOBAL INPUT MARKEDLY AFFECTED THE BULGARIAN WORLD TRADE AND GLOBAL INPUT MARKEDLY AFFECTED THE BULGARIAN ECONOMY.ECONOMY.

Source: Bulgarian National Bank research and publications, BNB periodical publications: Economic Review, Issue 1, 2009, Issue 2, 2009 and Issue 3, 2009. Internet web page: http://www.bnb.bg


II.II. THE FINANCIAL CRISIS AND ITS IMPACT ON THE BULGARIAN ECONOMYTHE FINANCIAL CRISIS AND ITS IMPACT ON THE BULGARIAN ECONOMY

3. IN 2008 THE GLOBAL FINANCIAL CRISIS INCREASINGLY AFFECTED BULGARIA.

Real GDP growth in 2008 remained relatively high (at 6%). But in the Q4 the global financial crisis impact on the economic activity in Bulgaria slowed down the growth rate to 3.5%, followed by an industry negative growth and industrial export sales decline;

4. AT THE END OF 2008 AND THE BEGINNING OF 2009 THE BULGARIAN ECONOMY SUFFERED FROM AN INCREASED UNCERTAINTY LEVELS AFFECTING THE ECONOMIC ENVIRONMENT, WHICH IS CONSIDERED TO BE A SERIOUS CONSTRAINT TO THE BUSINESS DEVELOPMENT IN ALL ECONOMIC SECTORS.

Some of the companies were forced to postpone their investment projects and the intentions to hire more employees. At the same time boosting the production efficiency and the reduction of expenditures play their role as a crucial instrument for companies to counteract the crisis and mitigate its negative effects.




5. THE CONTINUING DECLINE IN GDP GROWTH IN 2009 AFFECTED MOST OF THE BULGARIAN ECONOMIC SECTORS

In 2009 the economic and financial crisis led to a change in the structure of real economic growth, with net exports of goods and services having a positive contribution to growth, while domestic demand contributions turning negative;

The sustainability of Bulgaria’s external position was preserved in 2009 due to the figures in the BoP and the External debt data, which followed a sustained pattern of positive net inflows of financial resources into the Bulgarian economy, with reasonable expectations for a decrease in the BoP CA deficit;

In 2009 interest rates on time deposits remained relatively high, but with a tendency to start falling gradually shortly;




6. BANKING SECTOR, INTEREST RATES AND INFLATION PACE IN 2009

The decline in interest rates in the interbank money markets in the Euro area and in Bulgaria could not influence positively the high lending interest rates, which reflect the unfavorable macroeconomic environment, high risk premiums and the costly bank depository base resources;

The tight credit approval standards and policies applied by the banking sector, the unfavorably high lending interest rates and the uncertain macroeconomic environment reasonably led to weak demand for loans and a sustained downward trend in credit growth in Bulgaria in 2009;

The annual inflation rates remained at low level in 2009 Q4 and the beginning of 2010, but with an expectation that fuel prices will begin to exert a slight pro-inflationary pressures and no inflationary pressures anticipated on the part of domestic demand;




7. HOUSEHOLD BEHAVIOR IN 2009

The economic behavior of the Bulgarian households was highly influenced by:o The unfavorable economic conditions in 2009;o The worsened expectations of the economy’s development;o The tighter consumer lending conditions;o The higher deposit and lending interest rates;o The higher risks of unemployment and uncertainties of future incomesResulting in:o An emphasis on the importance of a timely increase of savings;o Continued decrease in consumer demand;o Postponing some purchases of durable goods and home repairs;o Limited non-food expenditures



III.III. CRISIS RESOLUTION MEASURESCRISIS RESOLUTION MEASURES

1. THE CURRENCY BOARD

In Bulgaria The Currency Board regime plays a key role in maintaining the macroeconomic stability. Its benefits as a specific regime of monetary policy are clearly evident in the current global crisis.

The operation of the currency board is laid down in the Law on the Bulgarian National Bank:

The operation of the currency board guarantees stability of the exchange rate, while introducing prudent fiscal policy together with stringent banking supervision policy.

Under the conditions of the currency board BNB has no control over the interest rates and therefore the monetary conditions in Bulgaria follow to a great extent those in the euro area.

The main instrument used by the BNB to affect monetary conditions is the regulation of the minimum required reserves maintained by the banks within the central bank.




2. ACTIONS UNDERTAKEN BY THE BULGARIAN NATIONAL BANK TO CUSHION THE NEGATIVE EFFECTS OF THE CRISIS:

Amendments of BNB Ordinance № 21 on the minimum required reserves maintained within the BNB by the banks:

— reducing the minimum required reserve rate to facilitate banks operating in Bulgaria in the management of their liquidity, given the lack of efficiency in the functioning of the world financial markets.

Amendments of BNB Ordinance № 9 on the evaluation and classification of banks’ risk exposures and the allocation of provisions to cover credit risk and of BNB Ordinance № 8 on capital adequacy of credit institution

— anti-cyclic policy in regulating credit institutions’ activities in Bulgaria by creating conditions that allow banks to be more flexible with their viable consumers who are experiencing temporary difficulties in a complicated economic situation

— ease credit institutions in negotiating credit conditions and in converging with the international practices of the more conservative approach applied so far for the classification and loan loss provision


http://www.bnb.bg/



2. ACTIONS UNDERTAKEN BY THE BULGARIAN NATIONAL BANK TO CUSHION THE NEGATIVE EFFECTS OF THE CRISIS:

CONSERVATIVE NATURE OF THE PRUDENTIAL REGULATIONS IN BULGARIA AND BNB POLICIES:

— Higher capital adequacy requirements for banks than Basel standards;— No help for the banks in the form of government guaranteed bonds;— No equity participation by the government in the banks;— No emergency liquidity assistance for the banks.

BNB IS A TARGET 2 PARTICIPANT THROUGH THE TARGET 2-BNB NATIONAL COMPONENT FOR A BETTER INTEGRATION WITH THE EU MONEY MARKET AND A BETTER ACCESS TO LIQUIDITY IN THE EUROZONE;

FINANCIAL STABILITY DIRECTORATE IN THE BULGARIAN NATIONAL BANK:

— facilitates and coordinates the activities for the maintenance and the preservation of the financial stability;— conducts regular observations and analyses of the financial system and its environment, facilitates the preparation and the conduct of macro-stress tests and the elaboration of plans for crisis situation management;— strives at the identification, analysis and shaping out of threats, risks and imbalances in the environment than endanger the stability of the financial system;— reporting on financial stability issues;



3. ECONOMIC MEASURES AND ACTIONS UNDERTAKEN TO RESTORE BULGARIAN ECONOMY AND TO CUSHION THE NEGATIVE EFFECTS OF THE CRISIS:

Measures for the maintenance of the stability of the macroeconomic system— The currency board regime should be maintained till the entrance into the Euro zone. Putting an emphasis upon joining ERM II and meeting Maastricht criteria;— Maintenance of balanced budget and fight against fiscal larceny and tax frauds;

Measures for the maintenance of the stability and resilience of the financial system— Decrease of the inefficient expenditures in the structure of the state budget for 2009 by 15% and second decrease by the end of 2010;— Decrease in the number of ministers by 2 and decrease of the administrative expenses by 15%, reorganization of the public administrations and decrease in their staff;— Maintenance of VAT rate at 20% in January 2010;— Fight against the corruption in the usage of the Euro funds;— Conservative state policies towards running into new government debts;— Actions towards the improvement of the systems for financial management and control by putting an emphasis upon the role of the internal audit procedures and policies;

Source: Republic of Bulgaria, Council of Ministers, Resolution № 772 as of 1.10.2009 for the economic measures to restore the Bulgarian economy. Internet web page: http://www.government.bg



3. ACTIONS UNDERTAKEN TO CUSHION THE NEGATIVE EFFECTS OF THE CRISIS

Measures towards improvement of the business environment and business climate:

— Decrease in the initial capital requirements for new businesses;

— Streamlining the procedure for VAT refunding;

— Centralized management of the concession activities and strict control;

— Decrease in the quasi-tax burden by liberating the product markets regulations as a precondition for the fight against corruption and the influence of the special interests groups;

— Development of funds for risk-capital investments and guarantee fund schemes;

—Speed up the insolvency legal proceedings, simplify the procedures, introduce mechanisms for the clearing of

obligations; Measures for the development of agricultural production; Measures for the development of infrastructure; Measures for stimulating employment and social help; Measures for the building up and development of a knowledge-based economy Measures for the prudent and efficient European funds management.

Source: Republic of Bulgaria, Council of Ministers, Resolution № 772 as of 1.10.2009 for the economic measures to restore the Bulgarian economy. Internet web page: http://www.government.bg


IV.IV. MACROECONOMIC OUTLOOKMACROECONOMIC OUTLOOK

The Bulgarian Government strives for the successful joining the Exchange Rate Mechanism II (ERM II);

Strategic objective is the implementation of consistent policies to further increase the resilience and flexibility of the Bulgarian economy, as well as insurance of a sustainable convergence within the EU;

The main medium term objective of Bulgaria is the Euro-area membership, which will provide enhanced macroeconomic stability, smooth transition from the currency board to the euro and higher investor confidence in the Bulgarian economy;

The main medium-term goal of the fiscal policy is to maintain a balanced budget by means of structural reforms and increased efficiency of the state;

Long-term sustainability of public finances.

Source: Convergence Programme of the Republic of Bulgaria 2009 - 2012


THANK YOU !THANK YOU !1. Author: Yordan Radev, expert at the Payment system oversight division, Bank

Policy Directorate, Bulgarian National Bank2. Sourceso http://www.bnb.bg, Bulgarian National Bank;o http://www.nsi.bg, National Statistical Institute of Bulgaria - officials figures, flash

estimates and press releases;o http://www.government.bg, Council of Ministers of the Republic of Bulgaria;o Economic review, issue 1/2009, Bulgarian National Bank periodical publications, BNB

economic research and projections directorate;o Economic review, issue 2/2009, Bulgarian National Bank periodical publications, BNB

economic research and projections directorate;o Economic review, issue 3/2009, Bulgarian National Bank periodical publications, BNB

economic research and projections directorate;o Convergence Programme of the Republic of Bulgaria 2009 – 2012, adopted by the

Bulgarian Government on January 27, 2010;o Republic of Bulgaria, Council of Ministers, Resolution № 772 as of 1.10.2009 for the

economic measures to restore the Bulgarian economy.o Bulgarian National Bank, Financial Stability Directorate

http://www.bnb.bg/

http://www.nsi.bg/

http://www.government.bg/


APPENDIX: TABLES AND FIGURESAPPENDIX: TABLES AND FIGURES


YEAR 2003 2004 2005 2006 2007 2008 2009

QUARTER Q4 Q4 Q4 Q4 Q4 Q4 Q3

Total population n/a 7,761.0 7,718.8 7,679.3 7,640.2 7,606.6 n/a

BG population over 15 years n/a 6,687.8 6,671.7 6,647.4 6,616.8 6,585.0 n/a

Total unemployed 411.4 391.0 328.5 288.4 215.3 177.7 234.5

Labour Force 3,237.10 3,302.80 3,310.90 3,448.00 3,521.80 3,541.20 3,514.60

Total employed 2,825.60 2,911.90 2,982.30 3,159.60 3,306.40 3,363.50 3,280.00

Males employed 1497.7 1545.6 1596.7 1686.2 1769.8 1802.3 1744.6

Males unemployed 223.2 220.0 179.0 147.8 105.5 93.4 127.0

Females employed 1327.9 1366.3 1385.7 1473.4 1536.7 1561.2 1535.5

Females unemployed 188.3 170.9 149.5 140.6 109.8 84.3 107.5

Age frames (unemployed)

15-24 80.7 84.0 67.1 51.6 43.8 35.8 48.1

25-34 111.8 95.1 78.3 70.3 40.9 38.0 47.2

35-44 85.8 85.7 77.9 69.9 52.0 42.4 57.6

45-54 97.1 90.8 75.9 61.6 49.2 37.5 52.5

55 and over 36.1 35.4 29.3 35.0 29.4 24.0 29.1

Age frames (employed)

15-24 210.6 227.0 227.2 244.5 257.7 260.9 243.3

25-34 697.5 704.5 699 741.6 745.2 714.2 698.6

35-44 797.1 836.7 878.3 909.2 958.1 993.7 954.2

45-54 778.9 795.9 801.5 831.8 879.5 888.6 877.5

55 and over 341.5 347.8 376.5 432.5 466.0 506.1 506.5

Unemployed/Employed people

Thousands

Thousands

Thousands




YEAR 2003 2004 2005 2006 2007 2008 2009

QUARTER Q4 Q4 Q4 Q4 Q4 Q4 Q3

Percentage unemployed from the labour force 12.7% 11.8% 9.9% 8.4% 6.1% 5.0% 6.7%

Total employed from BG population 15 years and over 42.3% 43.6% 44.6% 47.4% 49.7% 50.8% 49.8%

Males employed from BG males 15 and over 46.8% 48.2% 49.8% 52.8% 55.5% 56.8% 55.3%

Males unemployed from the labour force 13.0% 12.5% 10.1% 8.1% 5.6% 4.9% 6.8%

Females employed fromBG females 15 and over 38.2% 39.3% 39.9% 42.5% 44.5% 45.3% 44.8%

Females unemployed from the labour force 12.4% 11.1% 9.7% 8.7% 6.7% 5.1% 6.5%

Age frames (unemployed out of the labour force)

15-24 27.7% 27.0% 22.8% 17.4% 14.5% 12.1% 16.5%

25-34 13.8% 11.9% 10.1% 8.7% 5.2% 5.1% 6.3%

35-44 9.7% 9.3% 8.1% 7.1% 5.1% 4.1% 5.7%

45-54 11.1% 10.2% 8.7% 6.9% 5.3% 4.0% 5.6%

55 and over 9.6% 9.2% 7.2% 7.5% 5.9% 4.5% 5.4%

Age frames (employed out of BG 15 and over)

15-24 19.8% 21.4% 21.6% 23.6% 25.2% 26.1% 25.1%

25-34 65.1% 67.6% 69.4% 74.3% 77.9% 78.3% 75.9%

35-44 74.8% 76.3% 77.8% 80.8% 84.3% 84.7% 83.0%

45-54 68.1% 69.7% 72.3% 76.2% 79.9% 81.1% 79.8%

55 and over 34.3% 34.8% 37.7% 43.4% 46.8% 50.6% 50.0%

Unemployment/Employment ratios

Percentage (%)

Percentage (%)

Percentage (%)



PRICE INDICES

Inflation rates on Y-to-Y basis:CPI data, December of the previous year = 100 4.0% 6.5% 6.5% 12.5% 7.8% 0.6%

Annual average inflation rates for the current year:CPI data, Jan-Dec of the current year

(previous 12 months = 100) 6.1% 5.0% 7.3% 8.4% 12.3% 2.8%Inflation rates on Y-to-Y basis:

HCPI data, December of the previous year = 100 4.0% 7.4% 6.1% 11.6% 7.2% 1.6%Annual average inflation rates for the current year:

HCPI data, Jan-Dec of the current year(previous 12 months = 100) 6.1% 6.0% 7.4% 7.6% 12.0% 2.5%

2005y-to-y

2004y-to-y

Year Price indeces

2009y-to-y

2008y-to-y

2007y-to-y

2006y-to-y



APPENDIX: TABLES AND FIGURESAPPENDIX: TABLES AND FIGURESOTHER KEY MACROECONOMIC INDICATORS:


Output 2006 2007 2008Industrial confidence (arithmetic average of balances to replies on production expectations, orderbooks and stocks of finished products (the latter with inverted sign)). % 4.10 8.70 6.60Industrial production (measure of the dynamics of the industrial production in value. The indexincludes Mining, Manufacturing and Electricity, gas and water supply) yoy %ch.* 6.20 9.70 0.90Gross domestic product yoy %ch.* 6.30 6.20 6.00Private cosumption 2006 2007 2008Consumer confidence (arithmetic average of balances of opinions regarding the development offinancial situation of households, general economic situation, savings and unemployment expected inthe next 12 months (the latter with inverted sign) % -34.40 -31.65 -36.60Retail sales (Receipts from sales in 'Retail trade, repair of personal and household goods') yoy %ch.* 12.70 19.40 3.50Private consumption (Individual final consumption = households final consumption expenditures +government final consumption expenditures for rendered individual services to households + finalconsumption of non-profit institutions serving households). yoy %ch.* 8.50 5.10 4.50Investment 2006 2007 2008Capacity utilization in industry (Average capacity utilization in industrial enterprises as a percent offull capacity) % 68.40 72.58 74.90Gross fixed capital formation (it includes the expenditures for the acquisition of non-financial fixedassets (tangible and intangible), including the increase of unfinished construction projects) yoy %ch.* 14.70 21.70 20.40Change in stocks (it includes: The change in stocks of raw materials, work-in-progress, finished goodsand goods for resale in the enterprises & The change in stocks of the households, result from theirunincorporated activities) % of GDP 5.80 7.00 5.00


APPENDIX: TABLES AND FIGURESAPPENDIX: TABLES AND FIGURESOTHER KEY MACROECONOMIC INDICATORS:


International transactions 2006 2007 2008Exports of goods (The exports and imports of goods of the BOP Current Account covers movablegoods for which changes of ownership between residents and non-residents occur. Up to December2006 the data on imports and exports FOB (Free on board) are based on customs declarations. FromJanuary 2007 the data on Bulgarian trade with other EU member states are reported from the systemINTRASTAT) mln. EUR 12011.90 13511.90 15203.80Imports of goods mln. EUR 17574.10 20757.20 23801.10Trade balance (The trade balance reflected the difference between the imports and exports of goods inthe country) mln. EUR -5562.30 -7245.30 -8597.30Current account (The Current Account comprises the acquisition and provision of goods and services,income, and current transfers between the country and the rest of the world) mln. EUR -4647.80 -7274.00 -8653.10Direct investment (net) (Direct investment covers direct investment abroad, direct investment inreporting economy and mergers and acquisitions) mln. EUR 6021.50 8283.60 5685.00Portfolio investment (net) (Portfolio investment stocks comprise holdings of and liabilities on equitysecurities and debt securities; the latter are subdivided into bonds and notes (with an original maturityof one year or more) and money market instruments (with an original maturity of less than one year)

mln. EUR 292.20 -518.40 -469.70Exports of goods and services (The exports and imports of goods are reported at FOB prices and arebased on the customs declarations. The services are assessed from the data in the current account ofbalance of payment, formed by Bulgarian National Bank) yoy %ch.* 8.70 5.20 2.90Imports of goods and services (The exports and imports of goods are reported at FOB prices and arebased on the customs declarations. The services are assessed from the data in the current account ofbalance of payment, formed by Bulgarian National Bank) yoy %ch.* 14.00 9.90 4.90



OTHER KEY MACROECONOMIC INDICATORS:


Monetary and financial indicators 2006 2007 2008SOFIBOR (3 months) (The index SOFIBOR (Sofia Interbank Offered Rate) is a fixing of thequotations for unsecured BGN deposits offered in the Bulgarian interbank market) index 3.69 4.90 7.14М3 (The monetary aggregate M3 (broad money) is formed from repos and debt securities issued up totwo years (the least liquid financial instruments) together with the M2 monetary aggregate. The M2monetary aggregate comprises the M1 monetary aggregate and quasi-money. The M1 monetaryaggregate (narrow money) includes currency outside banks and overnight deposits in national andforeign currency (the most liquid instruments used in settlements). Quasi-money comprises depositswith agreed maturity of up to two years and deposits redeemable at notice of up to three months(including savings deposits). yoy %ch.* 26.90 31.20 8.80Credit to Non-financial Corporations and Households and NPISHs (Loans to Non-financialCorporations and Households and NPISHs - loans to non-financial corporations (public and private) andhouseholds and non-profit institutions serving households (NPISHs) yoy %ch.* 23.70 63.70 32.50Exchange rate USD/BGN value 1.56 1.43 1.34



MACROECONOMIC OUTLOOKMACROECONOMIC OUTLOOK

ASSUMPTIONS ON THE MAIN ECONOMIC INDICATORS

Year 2009 2010 2011 2012

Exchange rate USD/EUR 1.4 1.45 1.45 1.45

GDP (in real terms, percentage change) – World Economy -1.2 3.1 3.5 4

GDP (in real terms, percentage change) – EU27 -4.1 0.7 1.6 2

Oil price (USD/barrel) 62.1 67.5 77 84

Six-month LIBOR on USD-denominated deposits 1 1.7 2.5 3

Three-month LIBOR on EUR-denominated deposits 1.2 2 2.8 3.5

Commodity prices[1] (2005=100) 147.4 134.1 137 134.5

Food 135 138.3 135.8 134.4

Beverages 151.7 173.5 170.3 177.5

Agricultural raw materials 94.5 112.2 113.3 111.7

Metals 119.5 140.7 143 138.1

Source: Convergence Programme of the Republic of Bulgaria 2009 – 2012; European Commission, International Monetary Fund, Agency for Economic Analysis and Forecasting

Note: Assumptions are based on statistical information published as of 17 December 2009

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