An overview of the effects of monetary policy in Bulgaria on GDP and inflation, from 1991 to the present day.

% annual growth rate:

  M3 Nominal GDP
1991-2022 33.63% 43.51%
1991-2000 83.86% 171.73%
2001-2010 18.16% 10.42%
2011-2020 8.43% 4.73%

Sources: M3 from OECD database and nominal GDP from IMF database, as at February 2022.

The medium-term relationship between money and nominal GDP growth in Bulgaria, 1991-2022

Five-year moving averages of annual % changes, with 1993 being the start of the first five-year period

Comment on monetary trends in Bulgaria

In 1878, in the aftermath of the Russo-Turkish war, Bulgaria became an independent country, ending over 400 years of Ottoman rule. The economy was initially dominated by agriculture, but significant industrialisation took place in the years 1880-1945. From 1946 until the end of the Cold War, Bulgaria was part of the Soviet bloc and its economy was centrally planned. 

Following the collapse of communism, the country moved towards a free market system.  However, the economy initially contracted and GDP did not begin to grow until 1994. Furthermore, following a huge spike in broad money growth, inflation rose dramatically from 1994-1996, peaking at 311% in 1996. This resulted in the formation of a currency board, which stabilised the economy by pegging the Lev (Bulgaria's national currency) to the Deutschmark. Broad money growth nonetheless remained above 20% for much of the decade until the Global Financial Crisis of 2007-8 and inflation took a while to drop below 10%.  Under the currency board, the cash in circulation must correspond to the foreign currency reserve of the Issue Department. Bulgaria joined the European Union  in 2007. Under the terms of its accession treaty, it is required to join the Eurozone at some point and originally planned to do so in 2013. This has not happened, although the Lev has been pegged to the Euro since the single currency was launched in 1999, replacing the earlier Deutschmark peg. Bulgaria joined the European Exchange Rate Mechanism (ERM-II)  in June 2020, a necessary preliminary to adopting the single currency.

Bulgaria's national bank, the Balgarska narodna banka (Българска народна банка), was established in 1879. The degree of independence it has enjoyed has varied throughout its history. After being essentially an arm of the state in the Soviet era, its independence was restored in the early 1990s.  Thanks to the currency board, it does not have freedom to set monetary policy, but price stability remains its principal objective. Indeed, after the Global Financial Crisis, it  succeeded in bringing inflation down to single figures, although the fiscal and monetary stimuli of 2020 caused inflation to rise above 10% again in early 2022. It fell back below 10% in 2023 even though the central bank has not raised interest rates as aggressively as many of its counterparts.