Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

BULGARIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of January 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: September 24, 1998.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Yes.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Bulgaria is the Bulgarian lev.
Exchange rate structureUnitary.
Classification
Currency board arrangementAn amendment to the Law on the Bulgarian National Bank (BNB) effectively established a currency board arrangement. The peg currency is the euro at the rate of lev 1.95583 per €1. The BNB is required to buy and sell euros on demand against leva on the basis of spot exchange rates that may not differ from the official exchange rate by more than 0.5%, inclusive of any fees, commissions, and other charges to the customer. Effectively, the BNB is buying and selling euros in noncash transactions at the parity rate; in cash transactions it levies a commission of 0.5% on the buying side.
Exchange taxYes.
Exchange subsidyNo.
Forward exchange marketNo.
References to legal instruments and hyperlinksLaw on the Bulgarian National Bank.
Arrangements for Payments and Receipts
Prescription of currency requirementsBalances remain on clearing accounts maintained under former bilateral arrangements. These arrangements are now inoperative, and the only transactions that take place are those that are intended to settle the balances. Valuation and settlement of the balances take place in convertible currencies.
Controls on the use of domestic currency
For current transactions and paymentsYes.
For capital transactions
Transactions in capital and money market instrumentsYes.
Credit operationsYes.
Payments arrangements
Bilateral payments arrangements
InoperativeThere are arrangements with Cambodia, Guinea, the Democratic People’s Republic of Korea, the Lao People’s Democratic Republic, and the Syrian Arab Republic. Bulgaria has outstanding transferable ruble accounts with Cuba and Mongolia.
Regional arrangementsUpon accession to the EU on January 1, 2007, Bulgaria terminated its membership in CEFTA as well as its bilateral trade agreements, and adopted all EU trade agreements.
Barter agreements and open accountsThere are inactive agreements with the Islamic Republic of Afghanistan, Guyana, and Mozambique.
Administration of controlForeign exchange control is exercised by the MOF, the BNB, the customs administration, and the postal authorities.
Payments arrears
PrivateOne commercial bank, which is in bankruptcy, has outstanding debt-service arrears.
Controls on trade in gold (coins and/or bullion)Residents carrying out extracting, processing, or other transactions involving precious metals and stones as their business activity are obliged to register with the MOF within 14 days before starting their activity.
On domestic ownership and/or tradeBanks may trade in precious metals.
On external tradeResident and nonresident natural persons may freely export and import precious metals and stones or products thereof for personal use in amounts prescribed by MOF regulations. Transactions exceeding these quantities are treated as commercial goods and must be declared to customs. The export or import of precious metals and stones by mail is prohibited except in the case of parcels with declared values. This prohibition does not apply to the BNB and commercial banks. Imports of raw diamonds are subject to the Kimberley Process Certification Scheme.
Controls on exports and imports of banknotes
On exportsResident and nonresident natural persons may export domestic or foreign currencies in cash without a declaration if the amount is less than the equivalent of lev 8,000. Amounts exceeding lev 8,000 must be declared to customs. In the case of exports exceeding lev 25,000, resident and nonresident natural persons must present a certificate from the tax authorities stating that they do not have any tax arrears and must declare to customs the type, amount, and origin of the funds. Nonresident natural persons may export cash amounts exceeding lev 25,000 or its equivalent in foreign currency with a customs declaration, provided the amounts do not exceed the amount of foreign currency previously imported and declared to customs. The export of domestic and foreign banknotes by mail is prohibited, except in cases of parcels with declared values. This prohibition does not apply to the BNB and commercial banks.
Domestic currencyYes.
Foreign currencyYes.
On importsResident and nonresident natural persons may import unlimited amounts of domestic and foreign currency in cash; however, amounts exceeding lev 8,000 or its equivalent in foreign currency must be declared to customs.
Domestic currencyYes.
Foreign currencyYes.
References to legal instruments and hyperlinksCurrency Law; Ordinance No. 10 of the MOF on the Export and Import of National and Foreign Currency Cash, Precious Metals, and Stones and Products Thereof for Inclusion in the Customs Registers.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyThe crediting and debiting of up to the equivalent of lev 25,000 are not subject to regulations. Transfers abroad exceeding the amount of lev 25,000 are made by commercial banks after declaring, for statistical purposes, the reason for the transfer. For payments abroad, the declaration must be submitted on the day of the order; for receipts, within 30 days after the account of the beneficiary has been credited. In cases where amounts exceed the equivalent of lev 25,000, the transferor must submit documentation. If the transfer is related to transactions for which a BNB statistical declaration is required, the commercial bank should verify the declaration with the BNB.
Held abroadYes.
Approval requiredApproval is not required, but a declaration for statistical purposes must be submitted to the BNB within 15 days after the account has been opened.
Accounts in domestic currency held abroadApproval is not required, but a declaration for statistical purposes must be submitted to the BNB within 15 days after a payment is made.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksCurrency Law; BNB Ordinance No. 27 on the Balance of Payments Statistics; BNB Ordinance No. 28 on Information Collected by Banks about Cross-Border Transfers and Payments.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Approval requiredTransfers abroad exceeding the equivalent of lev 25,000 are made by commercial banks after declaring, for statistical purposes, on the day of the order, the reason for the transfer.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsn.a.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for imports
OtherYes.
Import licenses and other nontariff measures
Negative listEffective January 1, 2007, Bulgaria has adopted all EU trade policies. Previously, imports of certain goods—such as dangerous substances with ozone-depleting potential; machinery and equipment for air-conditioning using Freon-12; or refrigerators, freezers, and other equipment using Freon-11 or–12—were banned for health, environmental, and security reasons.
Licenses with quotasEffective January 1, 2007, Bulgaria has adopted all EU trade policies. Previously, prior licensing was required for imports of the following products originating in the EU subject to tariff quotas (opened in accordance with the European Association Agreement): meat of domestic swine, fresh, chilled, or frozen; meat of swine, salted, in brine, dried, or smoked; sausages and similar products; prepared or preserved meat, meat offal, or blood of swine; meat or edible offal of poultry; frozen subcutaneous pig fat, salted or in brine; milk and cream, in powder, granules, or other solid form; and prepared or preserved meat of poultry.
Effective January 1, 2006, prior licensing is required for the import of raw cane sugar not containing added flavoring or coloring, which is subject to a global tariff quota (imposed in accordance with the WTO schedule of concessions and commitments of the Republic of Bulgaria).
Other nontariff measuresEffective January 1, 2007, Bulgaria has adopted all EU trade policies. Previously, nonautomatic licenses (permits) were used to monitor trade in arms and ammunition and to protect human, animal, and plant health and life. They were required for imports of nuclear materials, radioactive substances and other sources of ionizing radiation; asbestos, asbestos products, and asbestos-containing materials and products; polygraph production for public supply; powder, explosive, and pyrotechnic materials and derivatives thereof for civil application; trinitrotoluene (TNT); certain weapons and ammunition; medications for humans; products for plant protection; veterinary medical products; live game and its genetic material; wild flora and fauna species included in CITES, including live or dead species as well as parts and products thereof; alien flora and fauna species designated for propagation and breeding (except for some parrot species); military and special products, and products and technologies for possible dual (civil and military) use; narcotic and psychotropic substances; controlled chemicals used for the production of narcotic and psychotropic substances; certain types of waste, according to the Basel Convention on Hazardous Wastes; ozone-depleting substances, according to the Montreal and Kyoto Protocols; and raw diamonds.
Import taxes and/or tariffsEffective January 1, 2007, Bulgaria has adopted the EU import duty schedule for trade with countries outside the EU and does not levy tariffs on trade within the EU. Previously, there were 22 tariff bands; import tariffs ranged from zero to 74% and were calculated on a transaction-value basis in foreign currency and converted to leva. The maximum rate of import tariffs for nonagricultural goods was 27%, and for agricultural goods, 74%. The arithmetic mean tariff for all products was 11.6%. The simple unweighted average level of Bulgaria’s MFN tariffs was 11.10%. The average tariff for industrial goods was 8.62%, and for agricultural products, 21.69%.
State import monopolyNo.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirements
Letters of creditYes.
Guaranteesn.a.
Domiciliationn.a.
Preshipment inspectionn.a.
OtherYes.
Export licensesEffective January 1, 2007, Bulgaria has adopted EU policies for export licenses. Previously, automatic licenses (registration) were required for exports of precious metals and unsawn timber (coniferous and deciduous with a diameter at the thin end of more than 4 cm, and all wood species, as well as firewood, except for fire-burnt timber). Nonautomatic licenses (permits) were required for exports of nuclear material, radioactive substances, and other sources of radiation; gunpowder, explosives, pyrotechnic material, and their derivatives for civil uses; TNT; certain weapons and ammunition; artifacts and objects with historical, archeological, numismatic, ethnographic, artistic, or antiquarian value, as well as museum-grade natural specimens; wild plants and parts thereof, as well as tetter and moss; wild mushrooms; wild animals and parts thereof (other than those that are subject to the regulations of the Hunting and Game Protection Act); clams, sea and land snails, and frogs, including those raised on farms; live game and genetic material thereof, as well as hunting trophies, shed game horns and antlers, and game products; military products or special-purpose products, and products and technologies for possible dual use (civil and military); narcotic and psychotropic substances; controlled chemicals used in the production of narcotic and psychotropic substances; and raw diamonds.
Without quotasYes.
Export taxesNo.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersTransfers abroad exceeding the equivalent of lev 25,000 are made by commercial banks after declaring, for statistical purposes, the reason for the transfer.
Foreign workers’ wagesForeign workers’ wages may be transferred abroad, provided applicable taxes have been paid.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsNo.
Repatriation requirementsNo.
Controls on capital and money market instrumentsNo.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsNo.
Controls on direct investment
Outward direct investmentA declaration to the BNB is required within 15 days of concluding a direct investment transaction abroad, except for, effective January 1, 2007, investments in the EU. Direct investment abroad occurs when a resident (1) acquires equity participation in a nonresident juridical entity and is eligible to exercise more than 10% of the voting power at a shareholder meeting, (2) extends a loan for the above-mentioned purpose, (3) makes additional investments to an existing direct investment, or (4) acquires real estate for business purposes. Registration is not required for investments in amounts up to the equivalent of lev 25,000; however, for purposes of balance of payments statistics, such transactions must be declared to the BNB within 15 days of their conclusion. For investments exceeding this limit, the appropriate documents must be submitted to a domestic bank.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsFor purchases exceeding the equivalent of lev 25,000, the appropriate documents must be submitted to a domestic bank for statistical purposes.
Purchase locally by nonresidentsNonresidents, effective January 1, 2007, with the exception of nonresidents from EU member countries, may not purchase or own land. If they inherit land, they must dispose of it within three years. Foreign citizens and foreign legal entities may acquire the right of ownership in premises and limited property rights to real estate, unless otherwise prohibited by law. A foreign state or an intergovernmental organization may acquire right of ownership in land or premises, and limited property rights to real estate on the basis of an international treaty, by way of legislation, or through an act of the Council of Ministers.
Controls on personal capital transactionsNo.
References to legal instruments and hyperlinksAccession Treaty of Bulgaria and Romania to the European Union, April 25, 2005.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Open foreign exchange position limitsEach bank must maintain daily (1) a maximum ratio of up to 15% between its open position in any particular currency and the amount of its own funds, excluding the euro; and (2) a maximum ratio of up to 30% between its net open foreign currency position and the amount of its own funds, excluding the euro.
Provisions specific to institutional investors
Insurance companiesGenerally, controls specific to insurance companies, restrictions on investments because of rules on the technical or mathematical reserves, solvency margins, premium reserve stocks or guarantee funds, etc., are defined under chapter six of the Insurance Code, where (1) Section I contains the solvency requirements for an insurer and a reinsurer; (2) Section III defines the types of assets eligible to cover technical reserves, the general rules for diversification, the currency conformity rules and special rules for the cover of reserves for the investment fund related to life insurance; (3) Section IV defines own funds, solvency margin, and guarantee capital; and (4) Section V provides additional solvency requirements for insurers belonging to an insurance group.
Different types of assets are eligible to cover technical reserves of the insurance companies (Article 73 of the Insurance Code).
There are no restrictions on investing technical reserves in financial instruments issued by nonresidents. The only difference for investments in a third state is the requirement that shares, bonds (to be qualified), and other debt securities (to be qualified) have to be listed on internationally recognized and liquid regulated securities markets.
All assets must be valued in compliance with the prudence concept, taking into account liquidity risk. Insurers must invest the gross amount of technical reserves set up in assets under Article 73 of the Insurance Code in compliance with general rules for diversification (Article 74 of the Insurance Code).
Currency-matching regulations on assets/liabilities compositionThe assets covering the technical reserves must be in the same currency as the liabilities ensuing from contracts under which technical reserves have been set up. Currency matching is required when the assets in a certain currency exceed 7% of the assets in the other currencies.
Up to 20% of the total amount of technical reserves may be covered by assets in a currency other than the one in which they have been set up, provided the total amount of assets for cover of technical reserves in all currencies is at least equal to the total amount of liabilities in all currencies.
If the technical reserves have been set up in Bulgarian leva, euros, or another currency of a member state, the assets for their cover may be in euros (Article 78 of the Insurance Code).
Pension fundsControls specific to pension funds in Bulgaria are arranged in the Social Insurance Code. Chapter 14 on Assets and Investments and Chapter 16 on Investments are connected to the requirements for the investments of compulsory and voluntary pension funds, respectively. The mandatory reserves requirements are settled under Chapter 25 on Pension Reserves and Investments.
Effective July 12, 2006, some changes were introduced under Bulgarian legislation by amendments to the Social Insurance Code, and on January 1, 2007, the restrictions on investing the assets of a supplementary pension fund in foreign securities were eliminated.
However, some limits remained concerning the diversification of supplementary pension funds’ investment portfolios (Articles 178 and 251 of the Social Insurance Code). These restrictions are the same for investments in local and in foreign securities.
Limits (max.) on investment portfolio held abroadn.a.
Currency-matching regulations on assets/liabilities compositionNo more than 20% of the assets of a supplementary pension fund may be denominated in any currency other than Bulgarian leva and euros (according to Article 178, Paragraph 10 of the Social Insurance Code).
Investment firms and collective investment fundsIncorporated measures that impose limitations on the composition of the collective investment funds’ investments and other activity requirements are widely defined under Chapter 16 on Open-Ended Investment Companies and Contractual Funds of the Law on Public Offering of Securities. The financial instruments in which investment firms and collective investment funds can invest are included in Article 195 of the Law on Public Offering of Securities. Investments in local and foreign securities are not treated differently.
Limitations exist concerning the diversification of investment portfolios of collective investment schemes (Article 195 of the Law on Public Offering of Securities), which are the same for residents and nonresidents.
References to legal instruments and hyperlinksInsurance Code; Social Insurance Code; Law on Public Offering of Securities.
Changes during 2006
Imports and import paymentsJanuary 1. Prior licensing was required for the import of raw cane sugar not containing added flavoring or coloring, which is subject to a global tariff quota.
Provisions specific to the financial sector
Provisions specific to institutional investorsJuly 12. Some changes concerning pension funds were introduced under Bulgarian legislation by amendments to the Social Insurance Code.
Changes during 2007
Arrangements for payments and receiptsJanuary 1. Bulgaria terminated its membership in CEFTA and its bilateral trade agreements, and adopted all EU trade agreements.
Imports and import paymentsJanuary 1. Bulgaria adopted the EU import duty schedule for trade with countries outside the EU trade and does not levy tariffs on trade with countries within the EU.
January 1. Bulgaria adopted all EU trade policies.
Exports and export proceedsJanuary 1. Bulgaria adopted all EU policies for export licenses.
Capital transactions
Controls on direct investmentJanuary 1. No declaration to the BNB was required for investments within the EU.
Controls on real estate transactionsJanuary 1. Nonresidents from EU member countries were allowed to purchase or own land in Bulgaria.
Provisions specific to the financial sector
Provisions specific to institutional investorsJanuary 1. The restrictions on investing the assets of a supplementary pension fund in foreign securities were removed.

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