Reports on Observance of Standards and Codes

Bulgaria and the IMF

Bulgaria ROSC
I.  Overview
II.  Data Dissemination
III.  Fiscal Transparency
IV.  Transparency of Monetary Policy
V.  Banking Supervision
VI.  System of Deposit Insurance
VII.  Insurance Supervision
VIII.  Securities Market Supervision

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IV.  Transparency of Monetary Policy1

Prepared by a staff team from the International Monetary Fund on the basis of information provided by the Bulgarian authorities.

Prepared in August 1999 and reissued in March 2000

1.  The following considers the transparency practices of Bulgaria in the area of monetary policy as they relate to the broad principles underlying the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies (available on the IMF web site at The Code identifies desirable transparency practices for central banks in their conduct of monetary policy. Following the Code, this chapter focuses on: the clarity of roles, responsibilities, and objectives of the central bank; the processes for formulating and reporting of monetary policy decisions by the central bank; public availability of information on monetary policies; and accountability and assurances of integrity by the central bank.


2.  In making the objectives of monetary policy public, the central bank enhances the public’s understanding of what it is seeking to achieve, and provides a context for articulating its own policy choices, thereby contributing to the effectiveness of monetary policy. Further, by providing the private sector with a clear description of the considerations guiding monetary policy decisions, transparency about the policy process makes the monetary policy transmission mechanism generally more effective, in part by ensuring that market expectations can be formed more efficiently. By providing the public with adequate information about its activities, the central bank can establish a mechanism for strengthening its credibility by matching its actions to its public statements.

A.  Description of Practice

Clarity of roles, responsibilities, and objectives

3.  The objectives and institutional framework of monetary policy are defined in laws and regulations. With effect from July 1, 1997, Bulgaria adopted currency board rules embodied in a new Law on the Bulgarian National Bank (LoBNB). The exchange rate is fixed to the euro, and can only be changed by an act of the National Assembly to change the law. The BNB’s purpose is to “contribute to the maintenance of the stability of the national currency,” and the currency board provisions of the Law explicitly ensure the achievement of that objective. The autonomy of the BNB in conducting monetary policy is further protected by the provisions of the LoBNB for appointing and removing the Governor and the Managing Board. The Governor is elected by the National Assembly as are the three Deputy Governors from the recommendations of the Governor. The other three non-executive members of the Managing Board are appointed by the President of the Republic. All seven members service for (staggered) six-year terms and can only be removed for good cause as defined in the LoBNB. The central bank and persons authorized by it may not be held liable for damages caused while exercising their supervisory powers unless they acted with intent.

4.  In addition to its monetary policy function, the BNB also is empowered by the LoBNB to assist in the establishment and functioning of efficient payment mechanisms, to regulate and supervise banks, and has the exclusive right to issue banknotes and coins in Bulgaria.

5.  The institutional relationship between the BNB and the government is defined in explicit agreements between them and in the laws. As stipulated in the LoBNB, the BNB may extend credit to the government only against purchases of SDRs from the IMF as part of a stabilization program supported by the IMF. Otherwise, the BNB is not permitted to buy or sell government securities or any other securities issued by residents. The distribution of the BNB’s net income to the government is also provided for in the LoBNB, and the actual distribution of net income is reported in the BNB’s Annual Report. The BNB operates the primary sales and registers the secondary sales of government securities as agent of the MOF in accordance with agreements between the two. In addition, the BNB registers, monitors, and services foreign and domestic public debt as agent of the government. The market is given all relevant information on a timely basis about government borrowing plans and auction outcomes (in the Ministry of Finance and BNB Monthly Bulletin on Government Debt Management, and the BNB monthly bulletin on Secondary Market of Government Securities). Finally, the BNB is the government’s official depository and provides payment services for the government, but is explicitly prohibited from charging for them, except for payments related to public debt. Accordingly, the MOF pays fees to the BNB for maintaining the debt registry and for making debt service payments. The BNB, jointly with the Ministry of Finance, has selected banks from the list of primary dealers to act as (subcontracted) depositors and to provide payment services for the government.

Open process for formulating and reporting policy decisions

6.  Within the currency board arrangement, where the BNB must fully back all of its monetary liabilities with euros, the BNB has one policy instrument (reserve requirement) and a limited lender of last resort facility. The level of the reserve requirement, which is defined in BNB Regulation No. 21, can be changed, but this instrument is not expected to be used actively, except in the event of a liquidity crisis. The lender of last resort facility is established in BNB Regulation No. 6, which includes explicit conditions of lending to banks. Since the adoption of currency board rules, the reserve requirement ratio has not been changed, and the lender of the last resort facility has not been utilized. The distribution of the government’s deposits between the BNB and banks is determined by the MOF.

Public availability of information

7.  Extensive publications on the activities of the BNB are available to confirm the fulfillment of the BNB’s obligations under the currency board arrangement. The BNB publishes the balance sheet of its monetary operations for each week on Tuesday of the following week. Detailed balance sheets for the BNB are published monthly generally by the following month, but without an explicit time table. A semi-annual summary balance sheet for the first half of the year is published in September. Summary audited balance sheets are published in the BNB’s Annual Report to the National Assembly in April. Detailed information on the foreign exchange operations and position of the BNB, and the totality of its monetary operations, are reported weekly, monthly, quarterly, semi annually and annually. These and other data can be found on the BNB’s web page ( The same web page also contains the laws and regulations relevant to its operations.

8.  The BNB also publishes occasional analytical papers, press releases, information brochures, and other educational material (many of them in English), and its officials make frequent appearances on TV and in other public forums.

Accountability and assurances of integrity for monetary policy

9.  The LoBNB includes articles to assure public accountability for activities related to monetary policy. Officials of the BNB are required to report to the National Assembly on the activities of the BNB and to share information with the Council of Ministers. In addition, the BNB’s internal procedures and controls, while still requiring further development, have now been documented in Mission Statements, and functions for each unit. The statements are available to the public. Finally, information on the expenses and revenues in operating the BNB are submitted to the National Assembly, examined by the National Audit Office, and published in the official gazette.

10.  The LoBNB stipulates that members of the Managing Board must report their, and their families’, property status and other interests. The declarations shall be kept in a special register at the BNB. Although the rules for the register are public, the information in the register is not. There is no corresponding register for other BNB staff, and no formalized “Code of Conduct,” though the LoBNB binds all employees of the BNB to sign declarations that they will observe the law, properly perform their functions, and keep bank and trade secrecy.

B.  IMF Staff Commentary

11.  The currency board arrangement is clearly and explicitly set out in the LoBNB. As a result, monetary policy design and implementation are transparent. The BNB provides the public with all important monetary policy information on a timely basis and it is of good quality. The financial results of the BNB’s operations are published regularly in accordance with international accounting standards and its officials report regularly to the National Assembly and to the public. The BNB’s internal standards of conduct for members of the Managing Board are fully established and are available to the public. The monetary policy activities of the BNB meet high standards of transparency.

12.  Nevertheless, there is room for improvement in the following areas:

  • While the Managing Board’s role and composition are clearly laid out in the LoBNB, the autonomy of the BNB can be solidified by sharpening the criteria for removing the Governor and other members of the Managing Board to prevent potential abuse. Best practices would also recommend that the BNB budget be approved by its Board rather than the National Assembly. In either case the budget should be published and its implementation audited.
  • The costs and benefits of holding funds on behalf of the MOF and providing payment services could be made more transparent. Currently, the BNB is explicitly prohibited to charge for the services rendered as the government’s official depository and for providing payment services, except for those related to public debt. In return, the BNB pays the MOF less than market rates on its deposits. This cross subsidy distorts incentives.
  • The selection criteria for determining which banks are allowed to act as depositories and provide payment services for the government should be publicly available.
  • While the reports on the BNB’s activities are comprehensive and the information is timely, the BNB should establish exact deadlines for the publications of each report, and should hold its staff accountable for meeting the deadlines.
  • With regard to internal procedures, the impressive progress made over the past year should continue so that earlier traditions of secrecy and arbitrary use of management authority can be fully overcome. There is an urgent need for further development of internal controls and audit within the BNB, including a modern system for budget preparation and monitoring.
  • A comprehensive BNB Code of Conduct for its staff should be introduced, to establish explicit and transparent standards.

1 Prepared by Mr. Kähkönen and Mr. Feyzioğlu (both European I Department) and a team from the Monetary and Exchange Affairs Department of the IMF led by Mr. Coats, in consultation with the Bulgarian authorities. In preparing this chapter, IMF staff held discussions with officials of the Bulgarian National Bank, the Public Debt Department of the Ministry of Finance, the Bankers’ Association, and representatives of five banks, and reviewed the Law on the Bulgarian National Bank, Law on Banks, Law on Bank Deposit Guaranty and other laws and regulations published in Banking Laws and Regulations, Bulgarian National Bank, July 1999 (available in English and Bulgarian). The report also drew heavily on the answers to a questionnaire on transparency practices prepared by the staff of the BNB.


III. Fiscal Transparency         Bulgaria ROSC         V. Banking Supervision