Bulgaria’S Macroeconomic Policy on the Verge of the Twenty-Fifth Anniversary of the Currency Board Arrangement

The currency board arrangement (CBA) in Bulgaria will soon mark its twenty fifth anniversary, a period full of important policy challenges and difficult choices for the policymakers. This paper summarizes the evolution of Bulgaria’s macroeconomic policy set under this monetary and exchange rate regime and the way forward. It concludes that Bulgaria's long experience with the CBA has been generally positive so far. However, it is not straightforward and unambiguous in view of the growing global and domestic development challenges ahead.The Bulgarian experience is an example of how a currency board can function in present circumstances as global monetary systems evolve. The Bulgarian macroeconomic policy under the CBA facilitated macroeconomic stability, economic growth, and integration in the global value chains. Bulgaria has not experienced a systemic financial crisis too. However, it failed to deliver the expected income convergence to the EU average levels in the past decade. Although low, inflation is still volatile, and inequality has increased. Bulgaria’s integration in the global supply chains and trade has also been slower than one of the peers. Thus, the country urgently needs a detailed, well-designed, and credible medium-term policy framework in line with the evolving European laws to better guarantee the ultimate macroeconomic objective of the Bulgaria’s development. An important policy trade-off is to set a predictable path towards the euro adoption or the governments to continue non-transparently implement monetary policy under the CBA