1. MINISTRY OF FINANCE ENSURING STABILITY AND GROWTH PLAMEN ORESHARSKI MINISTER OF FINANCE 12 December 2007 Sofia

2. 2 GROWTH ESTIMATES GROWTH ESTIMATES The key medium-term priority of the Government is to maintain macroeconomic stability and high economic growth rates.

3. 3 EXPECTATIONS FOR 2008-2010: ECONOMIC GROWTH  Accelerating potential growth to around 7.5% per annum by 2010  Main contributor – capital growth as a result of:  Continued high domestic investment demand  Sustainable Foreign Direct Investment inflows  European Funds absorption  Greater contribution of the total factor productivity

4. 4 TAX RATES AND BUDGET REVENUE: CORPORATION TAX  Increasing corporation tax revenue despite the lower rate  Expanding the tax base in 2007 – positive net effect of the lowered tax rate Source: MoF *estimate

5. 5 TAX RATES AND BUDGET REVENUE: PERSONAL INCOME TAX  Introduction of flat tax rate of 10% in 2008  Removal of the personal allowance  Expected positive effect as a result of stimulating the economic activity of the population and encouraging the highly qualified labour Source: MoF *estimate **plan

6. 6 EXPENDITURE POLICY PRIORITIES  Investment policy supported by EU Funds – focused on transport infrastructure and environment  Education and healthcare remain key priorities of the budget  Focus on certain social activities – rising child allowances and benefits Source: MoF

7. 7 MONETARY STABILITY  Maintaining sufficiently high fiscal reserve levels – outcome of the positive budget balance policy  FX reserve – covers more than 180% of the monetary base and 5-6-month imports  Measures to curb the credit activity of commercial banks (as at 1 September 2007) Source: BNB, AEAF

8. 8 CURRENT ACCOUNT DEFICIT In terms of the balance between savings and investment the current account deficit is mainly due to higher domestic investment and less - to lower national savings

9. 9 CURRENT ACCOUNT DEFICIT: FACTORS Fundamental:  EU membership  High return on domestic investment  Considerable FDI growth  Increasing domestic demand, in particular investment  Positive expectations for future income Temporary:  Liberalization of trade in garments in 2005  The floods in 2005 and the drought in 2007  Slow down of production as a result of restructuring certain sectors

10. 10 CURRENT ACCOUNT: SUSTAINABILITY INDICATORS  Macroeconomic stability  High economic growth  Strong investment activity  Increasing foreign trade openness  High degree of capital openness  Sound financial system  Favourable structure of external debt  FX reserve, covering the 6-month import of good and services Key challenges facing the policy:  Business environment and labour market flexibility  Diversification of international trade

11. 11 EURO ADOPTION  Bulgaria will maintain the stability of the Currency Board Arrangement, while keeping the current exchange rate (BGN 1.95583/EUR 1), until joining the Euro area.  The Government and the Central Bank have already formulated and are in the process of taking the relevant measures to include the Bulgarian currency in ERM II.

12. 12 READINESS FOR EU FUNDS ABSORPTION  The implementation of the National Strategic Reference Framework and the Operational Programs whereby it is implemented has been launched  The European Commission officially approved NSRF on 22 June 2007  All OPs have been officially approved as of the beginning of November 2007  Pending approval of the Rural Development Program and OP Fisheries and Aquaculture  Institutional and administrative capacity  Audit and internal control systems; transparency of EU funds management

13. MINISTRY OF FINANCE THANK YOU! PLAMEN ORESHARSKI MINISTER OF FINANCE