Thirdly, the significant and long-lasting growth since 2003 in the prices of oil and other energy resources considerably contributed to the international imbalances, and more particularly to Bulgaria’s current account deficit. This process accounted for the considerable growth of the expenditures for imports of energy resources incurred by the importer countries, and for the enormous cash flows channeled to the exporting countries. For Bulgaria, these developments in energy resource prices resulted in an increase in the costs of import of such products from EUR 1.7 billion in 2002 (the year after which the process of sustainable oil price increase started) to almost EUR 3.0 billion in 2005. This trend was very strongly manifested in the past year, when the country’s expenditures for energy resource imports grew by 52% against 2004. These three global trends, in combination with the approaching full-fledged EU membership of our country, produce a unique environment that the Bulgarian economy has never before faced. This makes the analysis of the processes and economic policy decisionmaking very complex and difficult. As I have already noted, in the recent several years, enormous volumes of capital were channeled into the country, the banking system acting as the natural intermediary for the effective distribution of these resources. This is not surprising at all, given the successfully implemented privatization of the banking sector in Bulgaria. At present, over 80% of the Bulgarian banking sector is owned by foreign investors, the majority of which are from euro area countries.
Looking at the prospects and having in mind the country’s strategy for expeditious accession to the euro area, however, this is a macroeconomic variable which faces the country with the greatest challenges. The inflation criterion, as defined in the Maastricht Treaty (this is not the place to deal with the issue how good this definition is), is very strict and requires a purposeful policy going beyond the monetary and fiscal policies. In Bulgaria’s case, under the currency regime of fixed exchange rate and extremely conservative fiscal policy, untapped prospects should be sought in encouraging competition and improving the business climate, thus ensuring to the economy the flexibility to respond to exogenous changes (including with regard to the prices of raw materials) and enabling supply to react more promptly to increases in demand (both domestic and external). In the past year, inflation reached 6.5 % under the strong proinflationary impact of the increase in the prices of energy resources (direct contribution of 1.0 % in the overall price increase).In addition, the largescale floods resulted in an unexpected increase in foodstuff prices (contribution of 2.6 % in the overall price increase). This year, inflation is expected to decline to 6.0%. The slow process of decreasing inflation is mainly determined by the harmonization of indirect taxes with the minimum levels in the EU, pursued early in the year.