Financial Stability Report No1 20 December 2010 - Banka Qendrore ...

Financial Stability ReportNumber 18.3.4 BulgariaBulgaria has a currency board with EURO, with a final goal of EURO area membership.The currency board has served Bulgaria in anchoring inflation and keeping fiscal deficit atmoderate levels. High inflation during 2006-2008 was a consequence of the high capitalinflows, which raised the credit growth and has boosted domestic demand.Figure 61. Inflation, average consumerprices141210864202006 2007 2008 2009 2010 projChange in CPI, BulgariaChange in CPI, EurozoneChange in CPI, CEFTASource: WEO April 2010, IMFFigure 62. Real growth and budgetbalance, in percent76543210-1-2-32006 2007 2008 2009 2010 projBudget balance (% of GDP)∆ in real GDPSource: WEO April 2010, IMFFigura 63. Current account, in percentof GDP806040200-20-402006 2007 2008 2009 2010 projImports (% of GDP)Remittances (% of GDP)Exports (% of GDP)Current Account (% of GDP)Source: BNB (2010); WEO April 2010, IMF andWorld BankThis was manifested with higher prices andwages (however lowest in EU). Nevertheless,with a start of the global crisis, Bulgaria washit by a sharp decline in capital inflows,which in effect impacted domestic demandand the budget revenues. In return,Bulgaria’s economy fell 5 % after years ofeconomic boom. The effects of the crisis inBulgaria mainly felt in 2009, where therecession of the trading partners hit exportsand the decline in domestic demanddecelerated imports.Main trading partners of Bulgaria are EUcountries (62 % of exports and 53 % ofimports). Within EU, Greece is a country geographically and economically linked withBulgaria. Bulgaria exports around 9 % and imports around 5 % in Greece.In 2009, loans issued in euro comprised 57.9 %, while deposits were 58.7 % of the total.Greece banks’ assets pertain around 16 % of the total assets of the banking sector.However, existing capital buffers of the banking sector in Bulgaria are pretty sufficient toabsorb counter cyclical increase in NPLs and provisions. Moreover, Bulgarian NationalBank (BNB) has advised banks to fully retain their profit in Bulgaria.| 67