Bulgaria achieves medium overall compliance with international standards and codes, with a score of 52.5 out of 100 in our Standards Compliance Index. Bulgaria's compliance in the area of macroeconomic fundamentals is high. However, it is poor in the areas of market infrastructure and financial supervision. The exception is banking supervision, where the Bulgarian National Bank has made strong efforts to achieve compliance with international standards and practices. As a European Union member, Bulgaria has brought most of its other standards in line with EU and international regulations, but it lags behind its counterparts in implementation. Also, Bulgaria's compliance rating is adversely affected by a number of standards where there are no publicly available assessments of compliance. These include money laundering, payment systems, insurance supervision and auditing.

Macroeconomic Policy and Data Transparency

On December 1, 2003, Bulgaria subscribed to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS). According to a 2007 IMF report, Bulgaria compiles and submits data to the IMF of sufficient quality and in a timely manner to adequately permit program monitoring and surveillance. Bulgaria meets SDDS specifications for coverage, periodicity and timeliness for all data categories. In addition, the access, integrity and quality dimensions of its data also meet IMF requirements. The IMF indicates in its 2007 review that despite recent progress, there are still areas where the country can make improvements. More »

According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Monetary Transparency in Bulgaria, the Bulgarian National Bank (BNB) maintains a very high standard of disclosure and transparency in its conduct of monetary policy operations. Since 1997, Bulgaria has maintained a currency board arrangement (CBA). Under the CBA, the BNB has a limited role in monetary policy operations. The law limits BNB's policy operations to lender of last resort situations involving systemic risks and foreign exchange cover for its monetary liabilities. The Law on the BNB and the associated regulations clearly delineate the BNB's role in monetary policy actions. Since Bulgaria's accession to the EU on January 1, 2007, Bulgaria must treat its exchange rate policy as a matter of common interest. Therefore, any exchange rate policy that might threaten the smooth operation of the single market has to be avoided. According to the BNB, the existing currency board regime is fully compatible with the requirements of the criteria for entering ERM II. The next phase will mark the entry into the EMR II exchange rate mechanism. The final phase will be Bulgaria's entry into the Euro area, which is envisioned for the end of 2009 or the beginning of 2010. More »

Bulgaria has taken significant steps over the past few years to improve fiscal transparency. According to the 2005 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) - Fiscal Transparency Module, Bulgaria meets the requirements of the fiscal transparency code in a number of areas, and in several areas Bulgaria's practices approach best practices. Further, there has been significant recent legislative action, much of it linked to European Union (EU) accession requirements. The Financial Management Information System (FMIS) began operating at the Ministry of Finance (MoF) on September 1, 2005. The FMIS contributes to improved planning, execution, reporting and control of the consolidated government budget in line with modern practices in EU Member States. However, in a 2007 review, the IMF expressed concern that the Bulgarian authorities had stepped back from their commitment to improve budgetary transparency. More »

Institutional and market infrastructure

In the 2004 European Bank for Reconstruction and Development (EBRD) Insolvency Sector Assessment, which measured the compliance of insolvency legislation with international standards set by the World Bank, the Asian Development Bank, the International Monetary Fund and the United Nations Commission on International Trade Law (UNCITRAL), the Bulgarian insolvency law was one of only 6 laws to receive an overall score of "high compliance." The EBRD assessment was based solely on the content of the insolvency law. According to the EBRD, the insolvency law in Bulgaria effectively deals with the avoidance of pre-bankruptcy transactions. It provides sufficient detail to determine which types of transactions will be subject to challenge and the circumstances that must be established to affect such a challenge. Although reorganization processes were the weakest area of performance in this legislation, it still provides for a relatively well-designed reorganization process. The EBRD states, however, that the Bulgarian insolvency law could be significantly improved in a number of ways. For example, the law could provide a clearer (and therefore more transparent) description of what precisely constitutes insolvency; it could provide more stringent sanctions for the failure of officers and directors of a debtor company to comply with their respective obligations under the insolvency law; and it could also remove some of the legal obstacles that make immediate insolvency financing difficult to obtain. The EBRD 2004 Legal Indicator Survey on Insolvency, which examined the effectiveness of insolvency regimes in creditor-initiated insolvencies, revealed a large "effectiveness" gap (the difference between the quality of the legislation and the effectiveness of the insolvency regime in practice) in Bulgaria. The EBRD points out that this gap underscores the need for further reform work to strengthen courts and other institutions that implement insolvency legislation. More »

As a result of the European Commission Regulation (EC) No 1606/2002, starting January 1, 2005 all European Union (EU) listed companies are required to prepare consolidated accounts following the International Financial Reporting Standards (IFRSs) endorsed by the EC. Member States may decide as well to extend this permission or this requirement to other companies as regards the preparation of their consolidated accounts and/or their annual accounts. Bulgaria became an EU Member State on January 1, 2007. Pursuant to the Accountancy Act of 2002 (AA 2002), since 2003, all listed companies in Bulgaria as well as banks, insurance companies, mutual funds, and other financial institutions, have been required to prepare their consolidated financial statements according to IFRSs. Starting in 2005, IFRSs are required in both consolidated and individual company financial statements of listed companies and financial institutions as well as all large Bulgarian limited liability entities. Small and medium size enterprises (SMEs) may choose whether to apply IFRSs or National Accounting Standards (NASs). NASs are based on the EU 4th and 7th Directive as well as on IFRSs. More »

According to the 2004 European Bank for Reconstruction and Development (EBRD) Corporate Governance Sector Assessment, Bulgaria is a country whose corporate governance related laws (i.e., "laws on the books") when compared to the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance were rated as "medium compliance", meaning that the legal framework is generally in line with international standards, but with a number of shortcomings. Major weaknesses were found in the rights and equitable treatment of shareholders. The Bulgarian law does not impose restrictions on transactions involving shareholders in conflict of interest situations, and there are no checks to guarantee that the price paid for the transaction is fair. With reference to the effectiveness of corporate governance legislation, in 2005, the EBRD completed a Legal Indicator Survey to test how corporate governance legislation works in practice. Bulgaria was found to have a relatively effective system with reference to the possibility of a minority shareholder to obtain disclosure, but with some shortcomings in the possibility of obtaining redress, due to the limited actions available to obtain a successful outcome. More »

On May 17, 2006, Directive 2006/43/EC of the European Parliament and the Council came into force requiring all statutory audits to be carried out on the basis of International Standards on Auditing (ISAs) as adopted by the European Commission (EC). European Union (EU) member states shall adopt and publish the provisions necessary to comply with this Directive before June 29, 2008. Member states may impose additional requirements relating to the statuary audits of annual and consolidated accounts for periods expiring on June 29, 2010. Under the Bulgarian Independent Financial Audit Law of 2002, audits should be carried out in accordance with ISAs from July 1, 2003 (in practice, for the audits of 2003 financial statements). Auditors are also obliged to comply with the Professional Code of the Institute of Certified Public Accountants of Bulgaria (ICPAB) which is required by law to be based on the International Federation of Accountants (IFAC) Code of Ethics. However, there is no publicly available information as to Bulgaria's compliance with the most recent set of ISAs promulgated by the International Auditing and Assurance Standards Board (IAASB). More »

According to the U.S. Department of State (DoS), as of 2003, Bulgaria's anti-money laundering legislation was determined to be in full compliance with all European Union (EU) standards. Although Bulgaria has enacted legislative changes consistent with international anti-money laundering standards, lax enforcement remains problematic. The U.S. DoS points out that the Government of Bulgaria (GoB) must take steps to improve and tighten its regulatory and reporting regime, particularly with regard to nonbank sectors. The GoB needs to provide sufficient resources to the Financial Intelligence Agency (FIA) so that the agency can incorporate technological improvements. The FIA should also continue to improve inter-agency cooperation in order to ensure effective implementation of Bulgaria's anti-money laundering regime and to improve prosecutorial effectiveness in money laundering cases. Furthermore, a May 2006 report from the EU regarding the status of Bulgaria's application for admission to the EU called Bulgaria's enforcement of anti-money laundering provisions an area of "serious concern," requiring "urgent action". In response, Bulgaria's Parliament tightened the Law on Measures Against Money Laundering with further amendments. Overall, these amendments are expected to strengthen the investigative capabilities of both the FIA and law enforcement when dealing with money laundering cases. Experts view this legislation as comprehensive and in line with international standards. Nevertheless, there is no significant information publicly available as to Bulgaria's actual compliance with the Financial Action Task Force's (FATF) 40+9 Recommendations. More »

The 2002 International Monetary Fund (IMF) Financial System Stability Assessment (FSSA) of Bulgaria defined the Banking Integrated System for Electronic Transfers (BISERA), as a systematically important payment system (SIPS). BISERA is an automated clearing house for retail payments in Bulgaria. The FSSA also assessed the then existing Express Service Payment System (ESPS) for large inter-bank payments and payments between the government and banks; however since the 2002 IMF assessment ESPS has been replaced by the Real-Time Interbank Gross Settlement system (RTGS) RINGS. The 2002 IMF report noted that BISERA failed to comply with certain important Committee on Payment and Settlement Systems (CPSS) Core Principles. However, the report also stated that some of these deficiencies would be addressed in full once RINGS became operational and RINGS became operational in 2003. Based on information on the Bulgarian National Bank (BNB) website, RINGS is compliant with the CPSIPS. However, apart from this statement from the BNB there is insufficient information publicly available as to Bulgaria's compliance with the BIS CPSIPS. More »

Financial Regulation and Supervision

The 2002 International Monetary Fund (IMF) Financial System Stability Assessment (FSSA) of Bulgaria found the banking supervisory system to be fully compliant or largely compliant with almost all of the 25 Basel Core Principles. The Bulgarian National Bank (BNB) has made strong efforts to achieve compliance with international standards and practices and the practices and requirements of the European Union (EU). However, the 2002 IMF assessment indicated that more work could be done on principles relating to information sharing, ownership, capital adequacy, country risk, market risks, other risks, internal control and audit, and consolidated supervision. In its 2006 Article IV Consultation with Bulgaria, the IMF states that implementation of the 2002 FSSA banking sector recommendations has been strong. The Bulgarian authorities have expressed an interest in a follow-up to the FSSA during the latter part of 2007. More »

According to the 2002 International Monetary Fund (IMF) Financial System Stability Assessment (FSSA), Bulgaria had implemented the majority of the International Organization of Securities Commissions (IOSCO) Objectives and Principles for Securities Regulation. In 2003, the securities regulatory agency changed from the Bulgarian National Securities Commission (BNSC) to the Financial Supervision Commission (FSC). The FSC was established with the purpose of consolidating the supervision of the non-banking sector in Bulgaria by merging the BNSC, the State Insurance Supervision Agency, and the Insurance Supervision Agency. In the 2004 European Bank for Reconstruction and Development (EBRD) Securities Markets Legislation Assessment, which benchmarked the securities markets framework against the IOSCO Objectives and Principles of Securities Regulations, Bulgaria achieved "medium compliance" its main weaknesses being with regard to Investment Services Providers and Self-Regulation. However, since Bulgaria joined the European Union (EU) in 2007, most laws and decrees have been amended to implement the EU harmonization program. Nevertheless, according to the EBRD these changes have not led to an obvious upgrading of Bulgaria's rating. This reflects the fact that in 2004 the country was already close to high compliance. More »

According to the 2002 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) on Bulgaria's adherence to the Insurance Core Principles (ICPs) promulgated by the International Association of Insurance Supervisors (IAIS) in 2000, as of 2002, Bulgaria either 'observed' or 'largely' observed the majority of the 17 IAIS core principles, but significant weaknesses were found in the implementation of the law. However, in 2003 the ICPs were revised, and there is no information publicly available as to Bulgaria's compliance with the new, more demanding ICPs. Further, the 2002 IMF assessment was conducted while the supervisory agency in Bulgaria was the Insurance Supervision Agency (ISA), which was replaced by the Financial Supervision Commission (FSC) in 2003. The FSC is a specialized government body for regulation and control over the financial system which unifies the regulatory functions that were carried out by the former State Securities Commission (SSC), the State Social Security Supervision Agency (SSSSA) and the ISA. More »

Legend:

Credit Ratings

Moody's Baa3/Positive

Fitch BBB/Negative

Standard & Poor's BBB+/Stable

Macroeconomic Data

2007 GDP (Current Prices): 39.609 billion USD (IMF)

2007 GDP (Per Capita): 5,186 USD (IMF)

2008 GDP (Growth Forecast): 5.5% (IMF)

2008 Inflation (CPI): 9.7% (IMF)

2007 Unemployment: 8% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 5.172 billion USD (UNCTAD)

FDI (Outward): 0.156 billion USD (UNCTAD)

2006 Official Development Assistance

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

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