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Bulgaria
Score Rank
Financial Standards Index 55.83 out of 100 23
Business Indicator Index 9.23 out of 12 45

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Overall Standards Summary

Bulgaria achieves medium overall compliance with international standards and codes, with a score of 53.33 out of 100 in our Standards Compliance Index. Bulgaria's compliance in the area of macroeconomic policy and data transparency is high. In the area of institutional and market infrastructure, legal compliance is achieved in almost all the standards but money laundering and payment system. Regarding financial regulation and supervision standards, Bulgaria highly complies with banking supervision and securities regulation. In 2007, the European Bank for Reconstruction and Development (EBRD) conducted a detailed assessment of Bulgaria's securities market legislation, concluding that the regulatory framework achieved high compliance with international standards. A subsequent 2008 EBRD report goes further and notes that not only are the securities sector's laws high in quality, but also they have reached a fair level of effectiveness in their implementation. As a European Union member, Bulgaria has brought most of its other standards in line with EU and international regulations, although it lags behind in implementation. However, Bulgaria's compliance rating is adversely affected by a number of standards where there is no publicly available information on its recent developments, as is the case for Money Laundering, Payment Systems, and Insurance Supervision.

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12 Key Standards for Sound Financial Systems

Compliance Level
Special Data Dissemination Standard
CP
Code of Good Practices on Transparency in Monetary Policy
FC
Code of Good Practices on Transparency in Fiscal Policy
EN
Effective Insolvency and Creditor Rights Systems
EN
International Financial Reporting Standards
EN
Principles of Corporate Governance
EN
International Standards on Auditing
EN
Anti-Money Laundering/Combating Terrorist Financing Standard
ID
Core Principles for Systemically Important Payment Systems
II
Core Principles for Effective Banking Supervision
CP
Objectives and Principles of Securities Regulation
CP
Insurance Core Principles
II
II = Insufficient Information | NC = No Compliance | ID = Intent Declared | EN = Enacted | CP = Compliance in Process | FC = Full Compliance

Macroeconomic Policy and Data Transparency

CPSpecial Data Dissemination Standard

Bulgaria became a subscriber to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) on December 1, 2003. The SDDS website discloses that Bulgaria meets or exceeds specifications for coverage, timeliness, and periodicity in reporting its data. Advance release calendars are produced for all datasets, and data are released simultaneously to all interested parties. In addition, Bulgaria meets SDDS requirements regarding integrity and data quality. The only exception is in terms of the SDDS integrity requirement of publishing advance notice for methodological changes, which the country does not do for several data categories. Nonetheless, the 2007 IMF Article IV Consultations report asserts that there is still room for improvement in Bulgaria's data dissemination regime.

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FCCode of Good Practices on Transparency in Monetary Policy

In its 2000 Report on the Observance of Standards and Codes (ROSC) and its 2002 ROSC Update, the International Monetary Fund found Bulgaria's monetary policy disclosure and transparency practices to be of a very high standard. Since Bulgaria's entry into a currency board arrangement (CBA) in 1997, the Bulgarian National Bank (BNB) has had only limited participation in monetary policy operations, being restricted by the CBA to maintaining appropriate foreign exchange coverage of its monetary liabilities and serving as lender of last resort in systemic-risk situations. The ROSCs found that the BNB's governing laws and regulations provided a clear delineation of the central bank's roles and responsibilities, provided appropriate public access to information regarding monetary policy decision making, and offered a broad array of publications on BNB activities and other monetary policy issues. In addition, the BNB was progressing admirably in the area of assurances of quality and integrity, although the 2002 ROSC Update made several specific suggestions where improvements could be made in this area, such as extending the financial disclosure requirements beyond the BNB Managing Board to apply to all members of the bank's senior management. Bulgaria acceded to the European Union on January 1, 2007, and continues to work toward early entry into the Exchange Rate Mechanism (ERM-II), with a target date of 2009 or 2010. However, the IMF's 2007 Article IV Consultations report suggested that the country faced significant difficulties in achieving such an early ERM-II entry, given the inflation requirements established by the Maastricht Treaty.

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ENCode of Good Practices on Transparency in Fiscal Policy

According to the IMF's original ROSC of 2000, as well as ROSC updates published in 2001 and 2005, Bulgaria has made steady, significant progress in improving its fiscal transparency practices. The 2005 ROSC update asserts that Bulgaria had at that time attained compliance with the IMF's Code of Good Practices on Transparency in Fiscal Policy in a number of areas, and in some areas had even begun to approach best practices. Legislative reforms were undertaken in anticipation of Bulgaria's accession to the European Union (which took place on January 1, 2007) that further contributed to improved transparency. A 2006 Open Budget Index assessment authored by Latchezar Bogdanov rated Bulgaria at 47%, or "some" openness in its budget process. Since that assessment, Bulgaria has continued to move forward, for instance, by adopting accrual accounting practices. However, the authors of the IMF's 2007 Stand-By Agreement, issued prior to Bulgaria's formal accession to the European Union did take pains to note its concerns that Bulgaria's authorities recently appeared to have stepped back from their commitment to improving transparency in the budget process.

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Institutional and Market Infrastructure

ENEffective Insolvency and Creditor Rights Systems

In 2003, the European Bank for Reconstruction and Development (EBRD) conducted an assessment of insolvency regimes in the countries of its operation, including Bulgaria. The final report prepared by R. Harmer and N. Cooper summarizes compliance of insolvency frameworks with standards developed by a variety of international bodies, including the World Bank, the Asian Development Bank, the International Monetary Fund, and the United Nations Commission on International Trade Law. Harmer and Cooper found that, overall, Bulgaria's insolvency law achieved "medium" compliance, based solely on the content of the law and with no reference to actual effectiveness. A subsequent 2008 EBRD assessment, however, assigns a "high compliance" rating to Bulgaria, although calling for introducing requirements for the third parties to hand over property of the debtor or information about the debtor. Moreover, it was recommended to impose sanctions for the failure to comply with the law. The 2008 EBRD report cites the results of the 2004 Insolvency Legal Indicator Survey which concluded that there is a large "effectiveness" gap between the high quality of Bulgarian insolvency legislation and a much lower quality of insolvency practice due largely to insufficiencies in training and to perceptions of corruption and undue influence in the judiciary. According to the European Commission's 2006 monitoring report on Bulgaria's preparedness for entering the European Union, which took place on January 1, 2007, Bulgaria was making progress in reforming its justice system and was addressing issues of ineffective implementation of the law as well as in dealing with corruption within the judiciary.

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ENInternational Financial Reporting Standards

Bulgaria became a European Union (EU) member state in 2007. However, in anticipation of its EU membership, Bulgarian companies have been applying International Financial Reporting Standards (IFRSs) in preparation of their consolidated accounts since 2003. According to a 2002 World Bank assessment, a new Law on Accounting came into force in 2002 incorporating the EU Fourth and Seventh Directives for the implementation of IFRSs in Bulgaria. This was also in line with the European Commission's (EC) Regulation No. 1606 of 2002, which requires EU listed companies to use IFRSs as endorsed by the EU in preparation of consolidated accounts. The 2008 EC report on the implementation of Regulation No. 1606 notes that Bulgaria requires IFRSs for the consolidated and annual accounts of all companies except for certain small and medium size-enterprises (SMEs). Only SMEs are entitled to use the National Financial Reporting Standards which differ from IFRSs.

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ENPrinciples of Corporate Governance

In its 2004 Corporate Governance Sector Assessment Project, the results of which were published in 2005, the EBRD came to the conclusion that corporate governance legislation in Bulgaria is in "medium compliance" with the Organization for Economic Co-operation and Development (OECD) Principles of Corporate Governance. In an earlier assessment conducted in 2002, the World Bank identified certain weaknesses and made three main recommendations pertaining to the strengthening of the Commerce Law, establishing a code for corporate governance and an Institute of Directors to provide training and dissemination of international practices for the boards of directors. A 2008 EBRD report points out that Bulgaria has significantly reformed its commercial law framework and "outstanding progress" has been achieved in recent years. For instance, capital markets legislation has been improved and insolvency laws have been extensively revised. Another 2007 EBRD report confirms that the Commerce Law was last amended in 2006 and a Bulgarian National Code for Corporate Governance was adopted in October 2007. This Code is based on the OECD principles of corporate governance and is implemented on a comply-or-explain basis. Nevertheless, weaknesses persist. The 2008 EBRD report finds that the competence of courts, prosecutors, and market regulators need to be improved. Minority shareholders in Bulgaria have limited options to obtain disclosure of information and the legal framework on related party transaction is also found to be weak.

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ENInternational Standards on Auditing

A 2002 World Bank assessment of Bulgarian accounting and auditing practices notes that the Law on the Independent Financial Audit which came into effect in 2002 seeks compliance with the European Union (EU) Eighth Directive and International Standards on Auditing (ISAs) beginning in 2003. Per this law, other than a few small and medium-size enterprises which are exempt from the audit requirement, listed and unlisted Bulgarian companies are required to have their financial statements audited in accordance with ISAs. A 2006 Institute of Certified Public Accountants of Bulgaria (ICPAB) self-assessment confirms that Bulgaria adopts International Auditing and Assurance Standards Board (IAASB) pronouncements with the same effective date as that of the international pronouncements. Thus, Bulgaria complies with Directive 2006/43/EC of the European Parliament and Council (effective in May 2006) which mandates that all statutory audits of annual and consolidated accounts must be carried out on the basis of ISAs as adopted by the European Commission. The Law on the Independent Financial Audit also requires that the ICPAB's professional code of conduct be based on the International Federation of Accountants code of ethics, which was adopted by the Institute without any modifications.

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IDAnti-Money Laundering/Combating Terrorist Financing Standard

An assessment of Bulgaria's anti-money laundering and combating the financing of terrorism (AML/CFT) regime conducted by the Council of Europe's Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) against the Financial Action Task Force (FATF) 40+9 Recommendations in 2007 concludes that Bulgaria is compliant with 11 FATF recommendations and 2 special recommendations; largely compliant with 15 recommendations and 4 special recommendations; partially compliant with 11 recommendations and 3 special recommendations; non-compliant with 1 recommendation; and two recommendations are not applicable in the Bulgarian context. A 2008 U.S. Department of State (DoS) report seconds this observation by noting that Bulgaria's legislative framework was largely consistent with international AML standards until December 2007. The Law on the Measures against Money Laundering (LMML), enacted in 1998 and amended several times since then, including in 2008, forms the key legislative framework of Bulgaria's AML regime. The anti-terrorist financing law, the Measures against Terrorist Financing Act (MFTA) of 2003 is also deemed consistent with the FATF's Nine Special Recommendations on Terrorist Financing by the U.S. DoS. However, as the report observes, the enactment of the Law on the State Agency for National Security in 2007 has raised questions on the new AML/CFT framework in Bulgaria, especially regarding the powers and operational status of its financial intelligence unit, the Financial Intelligence Agency (FIA). It has led to changes in the provisions pertaining to the FIA in the LMML, the MFTA, and their implementing regulations. It has also led the Egmont Group, of which the FIA is a member, to temporarily suspend some of its rights, particularly those relating to information-sharing.

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IICore Principles for Systemically Important Payment Systems

The Real-Time Interbank Gross Settlement System (RINGS), Bulgaria's large-value payment system, is identified by a 2007 European Central Bank (ECB) report as systemically important. The ECB report further states that all systemically important payments are processed in real time. The retail payment system in the country, the Banking Integrated System for Electronic Transfers, and the card settlement system, the Bank Organization for Payments Initiated by Cards, do not settle in real time. The Bulgarian National Bank (BNB) owns, operates and oversees RINGS, and is a shareholder in the operators of the two ancillary payment systems in Bulgaria, BISERA and the BORICA, both of which are direct participants in RINGS. RINGS was launched by the Bulgarian BNB in June 2003 to develop a modern national payments system infrastructure and to reduce systemic risk in the execution of payments in Bulgaria. Per the BNB website, RINGS is compliant with the Core Principles for Systemically Important Payment Systems (CPSIPS) promulgated by the Committee on Payment and Settlement Systems and the standards applied by the ECB. However, apart from this statement from the BNB, there is no comprehensive information or any other source publicly available assessing Bulgaria's compliance with the CPSIPS. As the 2007 ECB report notes, the Law on Funds Transfers, Electronic Payment Instruments, and Payment Systems regulates payment systems in Bulgaria. Its complementing ordinances add to the overall regulatory framework for payment systems in the country.

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Financial Regulation and Supervision

CPCore Principles for Effective Banking Supervision

In a 2007 report, the IMF commends the BNB for its strong regulation and supervision of the banking sector. The 2002 Financial System Stability Assessment (FSSA) of Bulgaria by the IMF had also found the banking supervisory system to be fully or largely compliant with almost all of the 25 Basel Core Principles (BCPs) for Effective Banking Supervision. However, the FSSA stopped short of assigning individual levels of compliance for each principle. It, nevertheless, attested to considerable efforts by the BNB to conform to international and European Union level standards and best practices in banking supervision. Weaknesses were noted in the areas of information sharing; corporate governance; and country, market, and operational risk management and supervision. A 2006 IMF report found strong implementation of the 2002 FSSA recommendations in these and other areas relating to ownership, capital adequacy, and consolidated supervision. However, a key law governing banking supervision, especially prudential regulation by the BNB - the Law on Banks - was repealed in 2006 by the Law on Credit Institutions. Since this regulatory reform, there has been a lack of publicly available assessments of the country's compliance with the BCPs. Bulgaria had, however, expressed an interest in a Financial Sector Assessment Program Update in 2007. A 2007 Article IV Consultation report by the IMF noted that this update would take place in 2008.

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CPObjectives and Principles of Securities Regulation

The 2002 Financial System Stability Assessment of Bulgaria by the International Monetary Fund concluded that Bulgaria had implemented a majority of the International Organization of Securities Commissions' (IOSCO) Objectives and Principles for Securities Regulation. However, a 2007 report by the U.S. Department of Commerce (DoC) notes that many new and substantive laws have been promulgated in the intervening period, and that one of the key laws governing the securities market, the 1999 Law on the Public Offering of Securities, has been comprehensively amended. Also in 2003, the securities regulatory agency changed from the Bulgarian National Securities Commission to the Financial Supervision Commission, which unified the supervision of the non-banking sector in Bulgaria. These changes are a clear improvement from the former regulatory framework, as attested by the 2007 U.S. DoC report. In 2007, the European Bank for Reconstruction and Development conducted a detailed assessment of the Bulgarian securities market legislation in effect as of July 3, 2007 against the IOSCO Principles. The exhaustive assessment concludes that the regulatory framework is very strong and detailed and that it achieves high compliance with the IOSCO Principles. The areas of minor weaknesses include shareholder rights, eligibility criteria for collective investment scheme (CIS) operators, segregation of client assets by the CIS, disclosure requirements for investment advisors, licensing and ongoing supervision of trading systems, monitoring of large exposures, and supervision of trading and settlement systems. A 2008 EBRD report goes further and notes that not only are the securities sector's laws high in quality, but also they have reached a fair level of effectiveness in their implementation.

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IIInsurance Core Principles

According to the 2002 Financial System Stability Assessment of Bulgaria by the International Monetary Fund, the country either observed or largely observed a majority of the 17 Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000. However, three significant developments took place in the intervening period. First, the key law that provided the legal framework for insurance supervision in Bulgaria, the 1997 Law on Insurance, was repealed in 2005 by the Insurance Code. Second, in 2003, the Insurance Supervision Agency, the insurance sector supervisor, was replaced by the Financial Supervision Commission, which unified and consolidated the supervision of the non-banking sector in Bulgaria, including the securities market, and the insurance and pension fund sectors. Third, the IAIS itself updated its ICPs in 2003 with more demanding requirements. In a related development, Bulgaria also acceded to the European Union in January 2007 and has been harmonizing its legal framework with that of the EU since then. In light of these changes, there is insufficient information publicly available that addresses Bulgaria's compliance with the new, more stringent ICPs.

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Business Indicators

With an overall score of 8.73/12, Bulgaria is progressing toward standard on the economic, legal, and political indicators that make up our Business Index. Bulgaria is a market-based, but still statist economy due to a large number of state-owned enterprises. The implementation of a privatization program to reduce the government's presence in the broader economy has been put in place, and Bulgaria has achieved sufficient progress to qualify for membership in the European Union, which it joined on January 1, 2007. Bulgaria encourages foreign investment, and the government's efforts are directed at further improving the business environment, by bringing the corporate tax rate to 10% in order to attract foreign investment. The law provides for equal treatment of foreign and domestic investors and tax rates are low. However, approval is required for majority foreign ownership in some sectors, and there are frequent changes in the legal framework. Although legal provisions exist to guarantee property rights, this does not necessarily translate into practical protections. Ineffectiveness of its judicial system in the area of commercial disputes and weak enforcement translate into low investor confidence in the courts' ability to protect property rights (including intellectual property rights) and to enforce contracts and the rights of owners and shareholders. Corruption is also an obstacle, as reflected in Bulgaria's ranking of 72nd out of 180 countries in the Transparency International's 2008 Corruption Perceptions Index.

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Global Indices & Quick Facts

Bulgaria is ranked in either the 2nd or 3rd quintile of the global indices benchmarking political, economic, business, and human capital climates, as shown below. The exception is the Bertelsmann Transformation Index, where Bulgaria's rank in the 1st quintile reflects its success in transitioning toward a market democracy. This success was underlined by Bulgaria's January 2007 admission to the European Union. Its low ranking in the Competitiveness Index highlights a financial system still dominated by banks and an inefficient regulatory system that shows weaknesses in its coherent application of business regulations. Especially detrimental in Bulgaria's quest to create an environment conducive to sustainable growth is the relatively high level of perceived corruption, reflected more in its low score than its position in the 2nd quintile in Transparency International's Corruption Perceptions Index.

Name Year Rank Score Quintile
Bertelsmann Transformation Status Index 2010 14/128 8.36/10 1
Heritage Foundation Economic Freedom Index 2010 75/179 62.3% 3
Economic Freedom of the World Index 2009 76/141 6.74/10 3
World Economic Forum Global Competitiveness Index 2009 76/133 4.02/7 3
Milken Institute Capital Access Index 2009 48/122 4.97/10 2
World Bank Ease of Doing Business Index 2009 44/183 N/A 2
UNDP Human Development Index 2009 61/177 0.84/1 2
Transparency International Corruption Perceptions Index 2009 71/180 3.8/12 2
Freedom House Index 2009 Free 2/7

Credit Ratings

BBB-/Negative Fitch

Baa3/Positive Moody's

BBB/Stable Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 51.4 billion USD (IMF)

2009 GDP (Per Capita): 6,823 USD (IMF)

2010 GDP (Growth Forecast): -2.5% (IMF)


2009 Inflation (CPI): 2.7% (IMF)

2008 Unemployment: 6.3% (CIA)


2008 Foreign Direct Investment

FDI (Inward): 9.2 billion USD (UNCTAD)

FDI (Outward): 0.70 billion USD (UNCTAD)


2007 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)

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