1. BULGARIA: CURRENT ACCOUNT DEVELOPMENTS & FINANCING REQUIREMENTS Presentation for the Investor Trip organized by JP Morgan Sofia, 27 September 2001 Prepared by Emil Dimitrov Dimitrov.E@bnbank.org

2. Worsening of the External Environment in 2001 »Overall world GDP growth 1.4% in 2001 compare to 3.8% in 2000 u GDP growth decline in EU (51.3% share of exports in 2000) 1.9% in 2001 compare to 3.4% in 2000 u Germany, 0.9 in 2001 (3.0% in 2000) u Italy, 1.9% in 2001 (2.9% in 2000) u Crises in Turkey (10.1 % exports share in 2000) u Between 6-7% GDP decline in 2001 compare to 7.2 % growth in 2000 »Key Commodity prices decline (as of July 2001, yoy) u Steel - 26-34% u Copper -15.2% u Urea - 26%

3. The worsened external environment was behind the mixed exports picture in Jan-July 2001 (1) TOTAL EXPORTS WERE UP 7.3% YOY (25% YOY IN 2000) »Exports growth increase: u Consumer goods 17 % yoy (7.8% in 2000) –Clothing and footwear 28.4% yoy (20.7 in 2000) u Investment goods 5.2% yoy (-11.1% in 2000) »Exports growth decline: u Intermediate goods 0.4% yoy (34.6% in 2000) u Mineral fuels & electricity 10.5% yoy (153% in 2000)

4. The worsened external environment was behind the mixed exports picture in Jan-July 2001 (2)

5. The worsened external environment was behind the mixed exports picture in Jan-July 2001 (3) TOTAL EXPORTS WERE UP 7.3% YOY (25% YOY IN 2000) »Exports increased to: u CEFTA countries 42.6% yoy (10.2% in 2000) u USA 51.1% yoy (29.6% in 2000) u CIS and Baltic countries 6.0% yoy (-25.5% in 2000) »Exports declined to: u EU 11.8% yoy (23.5% in 2000) u Italy 1.7% yoy (39.1% in 2000) u Turkey -10.0% yoy (69.4% in 2000)

6. The worsened external environment was behind the mixed exports picture in Jan-July 2001 (4)

7. Lower External Demand and Lower Oil Prices Affected the Imports Growth in Jan-July 2001 (1) TOTAL IMPORTS WERE UP 14.1% YOY (19.2% IN 2000) »Imports growth increase: u Consumer goods 23.2 % yoy (9.0% in 2000) u Intermediate goods 22.7% yoy (13.1% in 2000) »Imports growth decline: u Investment goods 9.1% yoy (10.0% in 2000) u Mineral fuels & electricity 2.2% yoy (50.6% in 2000)

8. Lower External Demand and Lower Oil Prices Affected the Imports Growth in Jan-July 2001 (2)

9. Real Exchange Rate Appreciation Contributed to the Imports Growth in 2001 (1) »Real effective exchange rate appreciated 8.1% in June 1997 - July 2001 »Factors behind that appreciation were: u CPI difference u Net capital inflows u Ballassa-Samuelson effect »However, against the DM real exchange rate appreciation was 30.1% »Total imports growth Jan-July 2001 was 14.1% yoy while the imports from EU 23.2 % yoy

10. Real Exchange Rate Appreciation Contributed to the Imports Growth in 2001 (2)

11. Real Exchange Rate Appreciation Contributed to the Imports Growth in 2001 (3)

12. The Travel - a Key Current Account Item

13. The Trade Balance is Behind the Increasing Current Account Gap

14. Higher Financing Requirements in 2001-2002 u In 2001 larger public sector principal payments 57.9% yoy, but slightly lower in 2002 3.9% yoy u Under this scenario the current account deficit is 6% of GDP in 2001 and 5.5% in 2002.

15. Despite the financing sources the IMF support in 2002 is necessary u A decrease in public sector disbursements 15.8% in 2001 yoy but 26.1% increase in 2002 u Almost 50% of the FR in 2001 are expected to be covered by FDI, and 55% in 2002

16. BULGARIA: CURRENT ACCOUNT DEVELOPMENTS & FINANCING REQUIREMENTS Presentation for the Investor Trip organized by JP Morgan Sofia, 27 September 2001 Prepared by Emil Dimitrov Dimitrov.E@bnbank.org