Transcript Presentation of the minister of finance Plamen Oresharski 13/12/2006

MINISTRY OF FINANCE
BULGARIA –
ECONOMIC
PROSPECTS
PLAMEN ORESHARSKI
MINISTER OF FINANCE
December 13, 2006
Kempinski Hotel Zografski
2006 – ECONOMIC INDICATORS :
 High economic growth - around 6%
 Dropping unemployment rate
 Financial stability and high level of confidence
 Prudent fiscal policy
 Government debt below 30% of GDP
 FDI cover more than 100% of the current account deficit
 Moderate inflation
2
ECONOMIC GROWTH
 Most dynamic economic
sector is industry (real
growth of 9% for the first
half of 2006)
 Growth is driven by
domestic demand
 High investment activity
due to the highly rated
business environment
and the positive
expectations
 Higher domestic
demand
3
7
6
5
4
3
2
1
0
2000
2001
2002
2003
2004
2005
2006f
HIGHER THAN THE AVERAGE FOR EU
GROWTH RATES
7
6
per cent
5
4
3
2
1
0
2000
2001
2002
2003
EU-25
4
2004
Bulgaria
2005
2006
(f)
INFLATION
Inflation - 12 monthly change
10
8
6
4
2
0
1
'2005
4
7
CPI
5
10
1
'2006
4
Core inflation
7
10
 The expected for 2006
inflation is around 6%, the
average for the last three
years being 5.4%.
 Almost half of the annual
inflation is due to the
changes in the
administrative prices.
 The rising of excise duty on
tobacco products in 2006
forms 2.7 percentage points
of the price increase during
the year.
 The inflation of market prices
(80% of CPI) stayed low –
2.8% for 2006.
FOREIGN DIRECT INVESTMENT
 The prospect of EU
accession is an
important factor for
attracting FDI
 The economic and
political stability are a
guarantee for the
interests of foreign
investors
 The annual average
FDI growth rate in the
period 2007-2009 is
expected to be 8-10%
6
FDI in Bulgaria
mln. EUR
4000
3500
3000
2500
2000
1500
1000
500
0
2001
2002
Total FDI
2003
2004
Non-privatization equity capital
2005
2006*
Source: BNB, AEAF
BALANCE OF PAYMENTS AND
CURRENT ACCOUNT




7
Foreign trade is the reason
for the high current account
deficit
High imports are due to the
growing sales of Bulgarian
companies and the
investment activity in the
country
High FDI and European
funds inflow will foster
imports in the short term
Exports are expected to
reverse the current account
flows in the coming years
0
-2
2004
2005
2006
2007
-4
-6
-8
-10
-12
-14
-16
CAD ( % of GDP)
2008
2009
ENHACING ECONOMIC INTEGRATION
 The share of Bulgarian exports in the overall [external to]
EU imports doubled from 0.47% in 1999 to 0.87% in
2006.
 Increasing the share of EU25 in the overall Bulgarian
exports from around 42% in 1995 to 57% in 2005;
 Over 80% of FDI in 2005 are from EU Member States
8
LABOR MARKET (1)
3200
25
3100
20
3000
15
2900
2800
10
2700
5
2600
2500
0
2000
2001
2002
employment
9
2003
2004
2005
2006
unemployment rate
 Improvement of the labor
market as a result of the
stable economic growth.
 Private sector of the
economy – as a source of
higher employment and
income of the population
growth.
 Employment rose by
around 4% in the period
January – September
2006.
 Unemployment rate
registered its lowest level
since 2000 (9.1%).
LABOR MARKET (2)
EU-25
Bulgaria
2002
2003
25
per cent
20
15
10
5
0
2000
2001
2004
2005
 Sustainably dropping unemployment rate from over 18% in 2001
down to around 10% in 2005
10
INCOME AND LABOR PRODUCTIVITY
10%
8%
6%
4%
2%
0%
2004
Real Average Wage Growth
2005
2006*
Labour Productivity Growth
The income of the population continues to rise, but do not exceed labor
productivity growth.
 For the period 2003-2005 labor productivity registered 7.9% growth,
while real average wage - 4.9%
 Since the beginning of 2006 real average wage has grown by 10.4% in
nominal terms and by 2.4% in real terms.
11
BUDGET EXECUTION
 High economic growth and good tax collection ensure good revenue
performance
 Tight fiscal discipline as regards expenditures
 The surplus counteracts the current account imbalances too
Budget Balance (% of GDP)
6
5
4
3
2
1
0
-1
1997
12
1998
1999
2000
2001
2002
2003
2004
2005
JanOct
2006
GOVERNMENT DEBT
Government Debt (% of GDP)
120
100
 Prudent fiscal policy
ensured the smooth
government debt
reduction
80
60
 Considerably lower
service costs
40
20
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 Sep
2006
13
MEDIUM TERM FISCAL POLICY
 Main objectives: to help maintain economic stability and
sustainable economic growth
 Medium term fiscal policy will stick to the Stability and Growth
Pact
 budget balance within the Maastricht criteria, while
maintaining budget surplus
 avoidance of pro-cyclic policy
 Focus on the quality of public finance and EU Funds
absorption
 Medium term fiscal policy aims are set forth in the
convergency program of the country for the period 2007-2009
14
MONETARY POLICY TRENDS AND STABILITY OF
THE CURRENCY BOARD ARRANGEMENT
 Committing to shortly join
the Euro Area and
introduce the Euro, while
meeting the criteria
 Maintaining the Currency
Board Arrangement
stable until joining the
Euro Area and keeping
the current exchange rate
 Despite the negative
impact of some external
factors the BNB FX
reserves sufficiently
cover the money base
250
200
150
100
50
0
Jan-05
Jul-05
Jan-06
Jul-06
International reserves/monetary base
Sources: BNB, AEAF
15
BANKING SECTOR: DEVELOPMENT AND
MAJOR CHALLENGES

Enhancing financial intermediation

Regulation of commercial banks’
operations in line with the Basel II
requirements



Dynamics of Credit Portfolio
BGN mln.
180
160
140
Curbing credit growth as a result
of the BNB administrative
restrictions and maintaining good
quality of bank credit portfolios
Cancelling the Central Bank’s
credit measures as from the
beginning of 2007
Strengthening the competition in
the sector due to the integration of
the banking system into the
common European financial
market
120
100
80
60
40
20
0
Jan-05
Jul-05
Jan-06
Jul-06
-20
Growth of the Commercial Loans
Growth of the Consumer Loans
Growth of the Residential Mortgage Loans to Individuals
Sources: BNB, AEAF
16
FISCAL STANCE –
BUDGET SURPLUSES
4
3
2
1
0
-1
-2
-3
2000
2001
2002
2003
2004
2005
2006e
Source: Eurostat
17
FISCAL STANCE – DROPPING
PUBLIC DEBT LEVELS
100,00%
80,00%
60,00%
40,00%
20,00%
0,00%
2000
18
2001
2002
2003
2004
2005
2006e
CONVERGENCE OF LONG TERM
INTEREST RATES
9
per cent
8
7
Reference Value
Bulgaria
6
5
4
3
2002
19
2003
2004
2005
20
18
16
14
12
10
8
6
4
2
0
Bulgaria
20
08
20
06
20
04
20
02
Bulgaria (underline
inflation)*
Reference Value
20
00
19
98
per cent
INFLATION CRITERION
*tradable goods and market services
Source: Eurostat
20
PREPAREDNESS FOR EUROPEAN FUNDS ABSORPTION
 Programming
- National Strategic Reference Framework – 2007-2013 and 7
Operational Programs
- National Strategic Plan and Rural Development Program – 20072013
- National Strategic Plan and Fisheries and Aquaculture OP – 20072013
 Institutional and administrative capacity
 Systems for audit, internal control and transparency of
funds management
21
STRATEGIC DOCUMENTS
Community Strategic
Guidelines
National Strategic Plan
for Fisheries and
Aquaculture
National Strategic
Documents
National Strategic
Reference Framework
National Strategic Plan
for Rural Development
Operational
Programmes
Regional
Development
22
Development of
the
competitiveness
of Bulgarian
economy
Human
Resources
Developmen
t
Environment
Transport
Administra
tive
Capacity
Technical
Assistance
PROGRAMMING OF THE STRUCTURAL AND THE
COHESION FUNDS (1)
NSRF – Vision and midterm objectives
As of 2015 Bulgaria will have become a competitive EU
Member State with high quality of life, income and a socially
sensitive society
 Enhancing the competitiveness of the economy so as to
achieve high and sustainable growth;
 Human capital development to ensure higher employment,
income and social integration.
23
PROGRAMMING OF THE STRUCTURAL AND THE
COHESION FUNDS (2)
To attain the midterm objectives, the SF and CF interventions
will focus on four strategic priorities – three thematic and
one territorial :
24

improving basic infrastructure;

raising the quality of human capital with focus on
employment;

promoting entrepreneurship, favorable business
environment and sound governance;

maintaining balanced regional development.
INSTITUTIONAL FRAMEWORK FOR
STRUCTURAL INSTRUMENTS MANAGEMENT
Certifying
Authority
Audit
Authority
Central Coordinating Unit
NSRF Monitoring
Committee
Managing Authority OP
OP Monitoring
Committee
Intermediate Body
Internal
Control
Final Beneficiary
25
MINISTRY OF FINANCE
THANK YOU!
PLAMEN ORESHARSKI
MINISTER OF FINANCE