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Bulgaria
>> Regional Overview >> Bulgaria Overview Activity Data Sheet
PROGRAM: Bulgaria
TITLE & NUMBER: A More Competitive and Market-Responsive Private Financial Sector, 183-014
STATUS: Continuing
PROPOSED FY 2001 OBLIGATION AND FUNDING SOURCE: $9,123,000 AEEB
PROPOSED FY 2002 OBLIGATION AND FUNDING SOURCE: $4,930,000 AEEB
INITIAL OBLIGATION: FY 1997 ESTIMATED COMPLETION DATE: FY 2005Summary: A more competitive and market-responsive private financial sector is critical for Bulgaria's transition to a market economy. USAID support for banking reform will strengthen banking operations, prevent future crises, and establish procedures for supervision of banking operations. Capital markets development will strengthen regulation and provide increased market liquidity. In addition, pension and health care financing reforms will reduce public financing requirements and provide an adequate social security system for pensioners and the general public.
Program Categories include Banking Reform, Non-Bank Financial Institutions Development, Pension Reform, and Health Financing and Policy Reform.
Key Results: The principal results sought under this Strategic Objective are: (1) a stable, regulated and efficient private banking system; (2) a regulated, transparent and liquid securities market; (3) a private pension funds industry; and (4) sound management practices for health care financing.
Performance and Prospects: In FY 2001, USAID intends to obligate $9,123,000 for SO 1.4, a More Competitive and Market-Responsive Private Financial Sector. Progress to date has been significant.
In October 2000, with USAID playing an instrumental role, Bulbank (Bulgaria's largest bank, accounting for over 26% of the banking sector assets) was sold to a foreign strategic investor. As a result, private bank assets rose to 83%. Of total outstanding loans, non-performing loans within the banking sector decreased from 9.4% in 1999 to 6.6% in 2000. This result, indicative of a sounder and more efficient banking system, is due in part to USAID efforts in privatization, regulation and training. In FY 2000, USAID assisted the Bulgarian National Bank develop the system to strengthen its supervisory capabilities. Initially, only the on-site supervisory role was addressed, but was expanded to include off-site supervisory functions in FY 2000. The most significant result was the introduction of comprehensive risk-based examination procedures in both on and off-site supervision. USAID assistance has contributed to bank compliance with International Accounting Standards and the adoption of the Basle Core principles that govern banking activity worldwide. Supporting the bank supervision program, USAID devoted significant effort to developing and strengthening the Deposit Insurance Fund (DIF), modeled after the U.S. Federal Deposit Insurance Corporation (FDIC). USAID worked with the DIF management to develop all operations and systems, including premium collections, investment policies, etc. In 2000, USAID assisted with the drafting of critical bank bankruptcy legislation, that will make bank resolution an administrative process managed by the DIF. Thus, the DIF will become more efficient and transparent, benefiting depositors, creditors, and the credibility of the banking system. In FY 2000, USAID also expanded the commercial banker training program with the International Banking Institute (IBI) that delivers a curriculum of banking and finance courses. These fee-based courses ensure the sustainability of the Institute and will prepare the next generation of bankers to better manage banks. This project will build banking skills and strengthen corporate governance, both of which are critical to a sound banking system that fuels investment and growth. In FY 2001, USAID proposes to obligate $3,473,000 for continued banking reform technical assistance, including continued implementation of supervision procedures and training of banking officials.
In support of non-bank financial institution development, USAID provides technical assistance to the Bulgarian State Securities Commission, the Bulgarian Stock Exchange, and the Central Depository to strengthen market regulation and to provide greater market liquidity. Capital market growth has accelerated since ratification of the 1999 securities law (prepared with USAID technical assistance) that strengthened the process of regulating, issuing and trading securities. A proliferation of new issues and instruments occurred during 2000. For example, the secondary bond market activity in December 2000 alone exceeded the total 1999 volume. From 1999 to 2000, the average daily trading volumes for equities trading increased by more than 30%. The Bulgaria Stock Exchange and Central Depository are leading a regional effort to promote regional issuance, listing, and trading of securities, while the securities regulator is pursuing a similar regional strategy to oversee such cross-border transactions. During FY 2001, USAID proposes to obligate $3,400,000 to continue development of Non-Bank Financial Institutions.
Bulgaria is a regional leader in pension reform, having quickly adopted laws and regulations and initiated systems to assure retirement income for Bulgarian wage earners. Starting in 2000, an initial group of workers was covered under a mandatory private fund, with the larger portion of workers to be covered in 2001. With USAID assistance, the Ministry of Labor and Social Policy and the National Social Security Institute began implementation of systems to collect and account for contributions, to manage assets, and to process payments. USAID assisted the creation of a pension regulatory body that oversees the eight firms currently licensed to collect the private pension contributions. In less than one year, these eight firms have accumulated approximately $150 million from wage-earner contributions and are expected to exceed $750 million when the remainder of public plan workers are transferred in the near future. With such portfolios under management, these pension funds will contribute substantively to investment, capital formation and growth in Bulgarian capital markets. During FY 2001, USAID proposes to obligate $1,550,000 for continued and critical support to pension reform to fully institutionalize the management systems and to improve overall regulation of the pension systems.
In 2000, legislation was passed consolidating employee payments for tax, pension and health in a single agency. Because of the close interactions between health care financing and pension reform, USAID initiated a program supporting health care financing reforms. During FY 2001, USAID proposes to obligate $700,000 for technical assistance to support establishment of accurate record keeping and data management systems, efficient claims payment procedures for the public health care system, and the privatization of municipal polyclinics.
In FY 2002, USAID/Bulgaria intends to obligate $ 4,930,000 to support development and improve regulation of the banking, capital markets, and pension systems. In capital markets, a more proactive policy dialogue with the government will promote the importance of capital markets as a means for economic growth. Listings of state companies on the exchange will be explored to improve liquidity and to attract more capital for smaller businesses. Serious attention will be given to taxation issues, as taxes are currently considered to be a disincentive to investors and a leading cause for the gray economy. In sum, this assistance is expected to facilitate market growth and liquidity for a more viable financial sector.
Beneficiaries: The primary beneficiaries include institutions such as the Central Bank, the Securities Regulator, the National Health Insurance Fund, and the National Social Security Institute. However, the Bulgarian population at large benefits from stable financial systems that mobilize investment and working capital, thus generating economic growth, jobs and prosperity.
Possible Adjustments to Plans: During FY 2001, USAID/Bulgaria will revisit its program strategy to determine the appropriate level and content of activities to support this sector. Assessments and sector specific studies will provide valuable analyses for developing the strategy. Continued support for development of capital markets and pension reform is expected to be a significant set of activities.
Other Donor Programs: USAID plays a leading role in providing technical assistance in all financial sectors, which is implemented in close cooperation with the World Bank, International, and European Union.
Principal Contractors, Grantees, or Agencies: USAID implements its activities primarily through the following partners: Barents Group, Carana Corporation, Financial Management International, the U.S. Securities and Exchange Commission, and the U.S. Treasury.
FY 2002 Performance Table
Selected Performance Measures: A More Competitive and Market-Responsive Private Financial Sector, 183-014
Indicator FY97 (Actual) FY98 (Actual) FY99 (Actual) FY00 (Actual) FY01 (Plan) FY02 (Plan) Indicator 1: Private sector bank assets as a percent of total bank assets 32.7 44 55 83 85 85 Indicator 2: Non-performing loans as a percent of total bank loans 22 11.7 9.4 6.6 5 5 Indicator 3: Market capitalization as a percent of GDP 0 7 3.3 5.9 10 12 Indicator Information:
Indicator Level (S)or(IR) Unit of Measure Source Indicator Description Indicator 1: S Percent Supervision Department of Bulgarian National Bank Private bank assets as a percent of total bank assets Indicator 2: IR Percent Supervision Department of Bulgarian National Bank Gross book value of non-performing loans (more than 60 days past due) to total bank assets Indicator 3: IR Percent Bulgarian Stock Exchange Market capitalization of private sector firms whose shares or securities are listed on a licensed exchange as a percent of GDP U.S. Financing
(In thousands of dollars)
Obligations Expenditures Unliquidated Through September 30, 1999 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 1,656 ESF 1,656 ESF 0 ESF 25,298 SEED 17,120 SEED 8,178 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Fiscal Year 2000 0 DA 0 DA 0 CSD 0 CSD 0 ESF 0 ESF 4,451 SEED 6,231 SEED 0 FSA 0 FSA 0 DFA 0 DFA Through September 30, 2000 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 1,656 ESF 1,656 ESF 0 ESF 29,749 SEED 23,351 SEED 6,398 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA Prior Year Unobligated Funds 0 DA 0 CSD 0 ESF 749 SEED 0 FSA 0 DFA Planned Fiscal Year 2001 NOA 0 DA 0 CSD 0 ESF 9,123 SEED 0 FSA 0 DFA Total Planned Fiscal Year 2001 0 DA 0 CSD 0 ESF 9,872 SEED 0 FSA 0 DFA Future Obligations Est. Total Cost Proposed Fiscal Year 2002 NOA 0 DA 0 DA 0 DA 0 CSD 0 CSD 0 CSD 0 ESF 0 ESF 1,656 ESF 4,930 SEED 0 SEED 44,551 SEED 0 FSA 0 FSA 0 FSA 0 DFA 0 DFA 0 DFA
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Last Updated on: May 29, 2002 |
