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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I.  Overview

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.  Since mid-1997, Bulgaria has implemented wide-ranging reforms under a comprehensive economic adjustment program. In July 1997, a currency board arrangement was adopted to anchor the stabilization strategy. Structural reforms have been initiated in all key areas, and they have resulted in accelerated enterprise privatization and restructuring, strengthened prudential regulations and banking supervision, improved public expenditure management and tax administration, and further price and trade liberalization.1


2.  Within the context of the adjustment program, Bulgaria has made considerable efforts to improve the process of formulating economic policies and disseminating information on these policies and their outcomes to the public. The Bulgarian authorities have aimed at increased transparency in economic and social statistics, in fiscal, monetary, and financial policies, and in banking supervision. In addition, they have striven to adhere to international standards, often going beyond the disclosure elements, including in the area of financial policies. To these ends, laws and regulations have been revamped in the areas of statistics, banking supervision, deposit insurance, insurance supervision, securities market, and accounting, and further amendments are in the pipeline. Moreover, the 1999 budget included several expenditure and revenue-related reforms toward more transparent government operations.

3.  This report considers Bulgaria’s practices against a set of internationally accepted standards and codes. The coverage includes the core areas of IMF surveillance: data dissemination (considered against the General Data Dissemination System, GDDS); fiscal policy (considered against the Code of Good Practices on Fiscal Transparency); monetary and financial policies (considered against the Code of Good Practices on Transparency in Monetary and Financial Policies); and banking supervision (considered against the Basel Committee’s Core Principles for Effective Banking Supervision). In addition, the report reviews transparency practices in deposit insurance, securities and insurance supervision.

4.  On the basis of the review, it is evident that Bulgaria has made significant progress toward meeting internationally recognized standards in most areas. The country now disseminates generally good quality statistics in a timely manner, with comprehensive coverage in most sectors. Bulgaria’s decision to participate in the GDDS is a significant step in improving data compilation and dissemination. In the fiscal policy area, a solid institutional and legal framework is in place, and the Ministry of Finance (MOF) has made significant efforts to improve the transparency of fiscal operations. With Bulgaria’s currency board arrangement set out clearly in the legislation, monetary policy design and implementation are transparent, and the Bulgarian National Bank (BNB) provides high-quality, timely, and comprehensive information about its operations. The country has a competent, professional staff in banking supervision, and a satisfactory legal and regulatory framework within which to supervise banks. Indeed, Bulgaria is fully or largely compliant with most of the 25 Basle Core Principles for Effective Banking Supervision. The deposit insurance system is transparent and in many respects conforms with best practices. The regulatory framework of the securities market is also transparent, and is being updated to better correspond to the International Organization of Securities Commissions (IOSCO) and European Union standards. Similar efforts are ongoing in insurance supervision where the framework is being revised to conform to that of the International Association of Insurance Supervisors (IAIS).

5.  Nevertheless, further progress can be made. The key areas where improvements in transparency and observance of international standards could be made include the following:

  • In data dissemination, while current data compilation and dissemination practices meet or exceed most GDDS recommendations, it would be desirable to address the remaining weaknesses in trade data, the measurement of output and inflation, details of fiscal data, and the dissemination of external debt data.
  • In fiscal transparency, the government could explain more clearly the objectives and benefits of reforms in public finance. Building on significant progress already made, further steps should be taken toward a well-functioning Treasury system, and more progress is needed in ensuring uniform interpretation and enforcement of tax laws.
  • In monetary policy, the autonomy of the BNB could be solidified by sharpening the criteria for removing the Governor and other members of the Managing Board. Moreover, the internal audit and control functions within the BNB should be developed, and a comprehensive code of conduct for BNB staff could be introduced.
  • In banking supervision, further attention should be given to improving the banks’ risk management, implementing consolidated supervision, and tightening the rules on collateral. Also, the procedures for examinations should be documented and made publicly available.
  • In nonbank financial areas, efforts to move toward international standards, including through new legislation and regulations, should continue. The Deposit Insurance Fund’s relationship with the BNB could be clarified. The Securities and Stock Exchange Commission (SSEC) could establish information sharing protocols with the relevant national and international agencies. It would also be important to pass the draft Law on Public Offerings of Securities which is broadly in line with international standards. An amendment to the Insurance Act to improve its consistency with international standards should be passed.
The IMF staff welcomes the initiatives that are in many cases already underway to achieve the intended improvements.

1 For a full discussion of the adjustment strategy and its results, see the IMF Staff Country Report No. 99/26 (“Bulgaria: Recent Economic Developments and Statistical Annex,” April 1999).


Bulgaria ROSC         II. Data Dissemination