#1REPUBLIC OF BULGARIA INVESTOR PRESENTATION NOVEMBER 2023#2Presenting Team Assen Vassilev Minister of Finance 1#3Presentation Overview 1. OVERVIEW 2. ECONOMIC PERFORMANCE 3. EXTERNAL SECTOR 4. MONETARY POLICY AND BANKING SYSTEM 5. FISCAL POSITION AND PRO-GROWTH POLICIES 6. GOVERNMENT DEBT AND FUNDING STRATEGY 7. INDICATIVE TERM SHEET 4 9 16 20 27 32 35 2#41. OVERVIEW#5Key investment highlights Macro Fiscal Banking III sector H L € External FDI EU - Fiscal responsibility and capital investment are expected to promote GDP growth, currently forecasted by the BNB to increase from 1.8% in 2023 to 3.3% in 2024. Price stability criterion in focus – inflation has been contained: since 31 December 2022, there has been a clear disinflationary process with forecast¹ average 2024 inflation expected at 3.8%. At 30 June 2023, the labour maintained a participation rate of 73.7%, up from 73.4% at the same time in 2022. Prudent fiscal policies have resulted in low levels of government debt (budgeted to be -22% of GDP in 2023), which is second lowest in the EU. This provides Bulgaria with enough fiscal headroom against anticipated weak global economic environment. 2025-projected¹ general debt is still low at 28.3% of GDP and 2025 and is a testament to Bulgaria's traditionally efficient debt management strategies. Banking sector is well capitalised and profitable. Over the past few years the banking sector's volume of non-performing loans ("NPLs") has been steadily decreasing. As a result the share of NPLs was 3.1% of total gross loans and advances at 30 June 2023. The macro-prudential measures undertaken by Bulgarian National Bank ("BNB"), including the counter-cyclical capital buffer, have increased the overall resilience of credit institutions. ■ The BNB's gross international foreign exchange reserves amounted to EUR 35.2 billion at 30 June 2023, covering 7.3 months of imports and 439% of short-term external debt. ■ Both As of Q2 2023, the gross international reserves covered 7.3 months of imports and 439% of short-term external debt. The current account balance has improved relative to 2021 and 2022 and for the 12-month period up to 31 August 2023 is broadly balanced. At 31 August 2023 the gross external debt has declined by close to 16% of GDP relative to 31 December 2020 and now stands at 47.1% of GDP, with a similar dynamic observed also in respect to the external debt of the public sector. During the first 8 months of 2023 the FDI inflows have increased by 33.7% relative to the same period in 2022 and were concentrated in the manufacturing and in the financial and insurance services. FDI stock in Bulgaria as of June 2023 came primarily from EU countries, led by Netherlands (14.6%), Austria (9.8%) and Germany (7.6%). Entry into ERM II and commitment to Euro adoption was a groundbreaking step towards adopting the euro. Eurobond spreads are on a converging path to euro-currency peers. Broad political consensus exists about EMU accession, which could be realized in first half of 2024. Bulgaria is one of the highest beneficiaries of EU funds per capita and eligible for grants equating to ca. 30% of 2022 GDP over 2021- 27. The funds are earmarked for decarbonizing the economy, enhancing energy efficiency, and improving access to health and education services. Furthermore, strategic infrastructural investments will create positive spill-over effects on the economy and boost medium-term growth potential, mitigating any potential slow-downs in the wider Euro area. ¹Forecasts are official estimates and there can be no assumption that such figures will be met 4#6Bulgaria overview Key Facts on Bulgaria Territory: Capital (2022): Population (2022): Nominal GDP (2022)1: ☐ Currency: Exchange rate: ☐ Credit ratings: ■ Next regular elections: 110,996.71 sq. km Sofia (population 1.28 million) 6.45 million (1.4% of EU population) Sofia EUR 85.799 billion (BGN 167.81 billion); 3.9% real GDP growth year-on-year Lev ("BGN"), fixed to to Euro since 19992 EUR/BGN: 1.95583 Baa1 (Stable) by Moody's, BBB (Stable) by S&P and BBB (Positive) by Fitch Presidential: 2026 Recent Key Dates EU members Became a Introduced Signed the EU Member of the UN currency board Treaty of Accession New Public Finance Decision on inclusion of Act enforced Bulgarian lev in ERM II was taken Roadmap for Bulgaria accession to the OECD 1955 1990 1997 2004 2005 2007 2014 29 Jun 2018 10 Jul 2020 14 Nov 2021 Joined IMF and IBRD Joined NATO Joined the EU Readiness to join ERM II and Bank Union expressed THE WORLD BANK IBRD -IDA NATO OTAN Black Sea Seats in the Parliament There is Such Parliamentary elections held and a coalition Government was formed 2022 2023YTD 2 April 2023 - Parliamentary elections 6 June 2023 - Parliament elects Nikolai Denkov as Prime Minister 29 October 2023 Local elections ■Bulgarian People; 11 Socialist Party for Bulgaria; 23 Revival; 37 Non-members of parliamentary groups; 1 O Movement for Rights and Freedoms; 36 ㅁ ■ GERB- UDF; 69 We Continue the Change; 63 Sources: National Statistics Institute ("NSI"), Eurostat, BNB; I All data in the presentation referring to GDP in 2022 are according to the data as of 19 October 2023; 2 Bulgaria maintains a currency board arrangement pursuant to which the exchange rate for the Lev has been fixed to the Deutsche Mark since 1 July 1997 and subsequently to the Euro since 1 January 1999 5#7Key economic indicators Real GDP Growth and one of the lowest Government debt levels among EU countries Real GDP growth in 2022 reached 3.9%, following a 7.7% growth rate in 2021 coming out of the COVID-19 pandemic in 2020 (real GDP decreased 4.0% in 2020). In the first two quarters of 2023, the real GDP growth was 2.2% in Q1 and 1.9% in Q2 on an annual basis, with biggest growth in household consumption (9.6% in Q2 2023). After a couple of years of budget surplus reaching 2.1% in 2019 Bulgaria has had a deficit accompanying pandemic related expenses. Nonetheless, this deficit is decreasing (from 4.0% in 2021 to 2.9% in 2022) and remains lower than the EU and EA average (3.3% and 3.6% respectively). As of Q2 2023 Bulgaria had a deficit of 1.9%. Bulgaria had the second lowest Government Debt-to-GDP ratio within the EU of 21.5% for Q2 2023. Source: Eurostat; Ministry of Finance; NSI Government Balance and Debt in 2022 (% GDP) 180 EU Countries Real GDP Growth Rates in 2022 (%, year-on-year) 10 9.4 8 6.9 6.8 6.3 6 4 2 0 -2 5.8 5.6 5.3 5.1 4.8 46 4.6 4.3 3.9 3.7 34 3.4 3.3 3.0 2.8 2.7 2.5 2.5 2.4 2.4 1.8 1.8 1.6 1.4 -0.5 Ireland (IE) Malta (MT) Croatia (HR) Croatia (HR) Portugal (PT) Spain (ES) Spain (ES) Greece (EL) Greece (EL) Poland (PL) Poland (PL) Cyprus (CY) Austria (AT) Hungary (HU) Romania (RO) Bulgaria (BG) Netherlands (NL) FU 27 EU 27 Italy (IT) Latvia (LV) Euro Area gium (BE) Belgium (BE) Sweden (SE) Denmark (DK) France (FR) France (FR) Slovenia (SI) Slovenia (SI) Czechia (CZ) Czechia (CZ Lithuania (LT) Germany (DE) Slovakia (SK) Finland (FI) Luxembourg (LU) Estonia (EE) Source: Eurostat as of 24 October 2023 Government Expenditure and Debt in 2022 (%GDP) 160 IT General Government Debt 160 IT 140 80 60 20 ༄ ༄ ༈ ྨ ཎྜ ྂ & ¥ R ° 120 100 HU GR ES PT FR ◆ BE EU2AT ◆ CY DE FI HR SL SK MT CZ ♦ RO NL IE PL LTLU LV DK BG . EE SE Government Debt 120 80 10 40 0 -10 -9 -8 -7 -6 -5 -4 -3 General Government Budget Balance (ESA 2010) -2 -1 0 1 2 3 4 20 20 EU countries abbreviations: as shown in the x Axes in the top right hand chart Source: Eurostat as of 24 October 2023 25 25 30 35 ES-> PT BE ◆ FR CY EU27 FIAT HR MT SK SL HU DE LT PL NL RO LV CZ BG ♦LU DISE EE 40 60 45 50 55 60 Government Expenditures 6#82. ECONOMIC PERFORMANCE#9Stable development and economic growth Continuous economic growth, solid track record of prudent fiscal policy, well capitalised and liquid banking system 2017-2019 2020-2022 2022-2023 Stable economic growth and building of buffers Macroeconomic policy response to COVID-19 Key macroeconomic indicators* affected by the Russian-Ukrainian conflict Impact of the inflationary context Average real GDP growth of 3.2% for the 2017-2019 period, driven mainly by domestic demand. The labour market strongly improved, with stable employment growth and steadily decreasing unemployment rate, reaching an all-time low level of 4.2% in 2019. Annual growth of exports averaged 3.8% in real terms for the period. Continued fiscal consolidation and building of Government's fiscal reserve buffers - four consecutive years of budget surpluses, averaging 1.8% of GDP in the 2017-2019 period in ESA 2010. the ratio, Sustained reduction in Government Debt-to-GDP down to 20.0% in 2019. Bulgaria continued to have a well capitalised banking system. The COVID-19 state of emergency and the containment measures were lifted on 31 March 2022. The real GDP growth in 2021 was 7.62%, following the decrease of 4.0% in 2020. The recovery of the global and European economies in 2021 were accompanied by higher energy costs, supply chain disruptions and sharp price increases which caused inflation to accelerate in late 2021 to historically high rates. The low debt burden and the availability of significant liquidity buffers provided fiscal space for discretionary measures to deal with the effects of the COVID-19 crisis, while minimising risks related to the sustainability of public finances. Measures to protect the economy and support affected businesses and individuals from the impact of COVID-19 included: increasing the capacity of the health system and schemes to maintain jobs by subsidising salaries. The BNB also implemented measures aimed at increasing Bulgarian banks' liquidity while preserving their capital and asset quality including: freezing dividend distribution, retaining the existing countercyclical buffer, and imposing moratoriums on loan liabilities for certain period. The Russian-Ukrainian conflict has, since February 2022, further complicated the global macroeconomic environment, particularly in Europe, and changed the economic prospects for Bulgaria. In 2022 the Government implemented measures to mitigate the effects of higher inflation, such as: reducing VAT from 20% to 9% for 1 year for district heating and natural for households gas and businesses; removing excise duties for electricity, natural gas and liquefied petroleum gas; partial compensation of the cost for customers outside the regulated market of the electricity; discount on regular fuels price per litre; increasing pensions; and increasing of the amount of tax relief for children and children with disabilities. In this context, Bulgaria nonetheless maintained GDP growth of 3.9% in 2022, above the EU average. Despite additional spending in 2022 to mitigate inflation, Bulgaria's budgetary deficit decreased to 2.9% from 4.0% in 2021. This figure is in line with EU's Stability and Growth Pact and to be close to the 3% of GDP reference value for the EU. Pandemic era monetary policy and the Russian- Ukrainian conflict have posed inflationary challenges to the EU. The ECB raised its main refinancing operations rate to 4.50% in I September, its highest rate ever. The European H Commission, in its Summer 2023 Economic ! Forecast, lowered its inflation forecast for 2023 for the EU to 6.5% from 6.7% prior, while decreasing its economic growth forecasts to 0.8% i from 1.0%. According the Autumn 2023 macroeconomic forecast of Bulgarian Ministry of Finance, real GDP growth is projected to stand at 1.8% in 2023 i and 3.2% in 2024. Headline HICP inflation is projected at 9.1% in 2023 and 4.8% in 2024. So far in 2023, the annual HICP inflation rate slowed from 13.4% yoy in Q1 2023 to 7.2% yoy in Q3 2023. This was related to falling commodity prices throughout H1 2023 as well as base ! effects. Inflation in all major HICP components | slowed, and the contribution of energy turned || negative. Core inflation also fell to 7.6% yoy in September. Bulgaria's public finances remain solid in this environment, running a small deficit on a cash! basis of 0.5% in September. Debt to GDP stood i at 21.5% in Q2 lower than 22.6% at end 2022. Source: Ministry of Finance; * The European Commission's Autumn (Interim) Economic Forecast ------ 8#10Stable GDP growth and continuous convergence The Bulgarian economy has returned to growth following the pandemic downturn Bulgaria and EU27 GDP annual growth rates (%) For the 2010-2019 period, the economy grew on average by over 2.1% per annum with GDP growth reaching 4.0% in 2019. In 2020, the COVID-19 pandemic led to a GDP decrease of 4.0%. However GDP fully recovered in 2021 with growth of 7.7% on the back of robust private consumption growth and strong rebound in goods exports. The Russian-Ukrainian conflict has, since February 2022, changed the global macroeconomic environment. As a result GDP growth in Bulgaria in 2022 stood at 3.9%. GDP growth for 2023 is expected to fall to 1.8% before rising back to 3.2% in 2024. Over the medium term the National Recovery and Resilience Plan aim to increase investment is expected to support GDP growth. Gross Value Added ("GVA") increased by 3.3% on average in the 2018-2022 period, mainly due to the services sector, particularly in the areas of trade, transport, accommodation and food service and information and communication activities. Structure of Gross value added (GVA) by sector (%) 4.0 2.7 2.1 1.8 -4.0 7.7 6.0 3.9 3.4 -5.6 2018 2019 2020 2021 2022 Bulgaria EU Source: Eurostat as of 30 October 2023 Real GDP components (EUR billion) 32.7 30.9 36.6 35.3 32.5 70.2 71.1 70.8 71.2 67.0 9.7 10.1 10.2 9.4 10.0 4.3 3.9 3.8 4.0 8.3 5.0 8.4 9.1 9.2 9.7 3.7 4.2 4.5 4.9 3.8 21.7 20.7 20.3 24.9 -0.3 -0.7 20.1 -2.8 -3.0 2018 2019 2020 2021 -4.6 2022 2018 2019 2020 2021 2022 ■Industry (except construction) ■Construction Agriculture, forestry and fishing Services Private consumption Gross fixed capital formation Government expenditure Net Exports of goods and services Source: Eurostat ¹Forecasts are official estimates and there can be no assumption that such figures will be met Source: Eurostat 9#11Inflation developments Accelerated inflation rate driven by external factors, including increased energy prices Following almost four years of deflation, the growth rate of consumer prices turned positive in 2017 and increased slightly until 2019. Due to the COVID-19 pandemic, the annual HICP inflation rate decreased to 1.2% at the end of 2020'. In the beginning of 2021 the annual inflation rate in Bulgaria started to accelerate, with the annual average HICP inflation reaching 2.8%. The surge in international commodity prices was the main pro-inflationary factor. Energy contributed the most, followed by food and non-alcoholic beverages. The Russian-Ukrainian military conflict from February 2022 led to increased prices of energy recourses and annual inflation reached 13.0%. In 2022, the Government introduced a package of measures in support of businesses and social aid, with a priority on energy, food and household income. Inflation started to ease in Q4 2022 and kept on decelerating in 2023 due to decreasing international commodity prices and favourable base effects. Headline HICP inflation is projected to stand at 6.9% by the end of 2023 and decelerate to 3.3% at the end of 2024 due to the projected decline in international commodity prices. Core inflation will be more persistent due to strong private consumption and tight labour market conditions, but is also expected to slow down in the medium term. HICP Inflation (% change year on year, end of period) 5.8 6.4 3.6 4.3 4.9 1.8 2017 10.6 26.8 21.6 19 10.4 8.2 الاب. 3.2 1.4 2.3 2.7 2 2.5 -6.1 2018 2019 2020 2021 2022 Sep-23 Food and non-alcoholic beverages Non-energy industrial goods Services Alcoholic beverages, tobacco Energy All items HICP Source: Eurostat 10#12Labour market developments Labour market improved in 2023 ☐ In the first half of 2023 the labour market continued strong with a relatively high employment growth (y-o-y) and unemployment remained around the level between 4-4.5%. The participation rate stood at 73.7% in Q2 2023, with a labor force of 2.9 million. The unemployment rate stood at 4.6% in Q3, stable with the beginning of the year. In 2022 and the first half of 2023, the increase of the compensation per employee managed to offset inflation in the country. The nominal unit labour cost ("NULC") increased by 10.7% while the real unit labour cost ("RULC") was still negative. Employment Growth and Unemployment Rate (%) Labour productivity and NULC1 (% change year on year) 14 3 9.5 12 9.5 10.7 2 6.7 3.6 1.8 3.1 9.0 1.2 10 7.5 1 0.3 02 8 2.8 4.3 0 3.7 6.2 -0.1 -0.3 0.9 5.2 5.3 0.7 5.1 6 -1 4.6 4.2 4.1 -1.7 4 -2 -2.3 -3 2017 2018 Employment growth (%) 2019 2 2017 2018 2020 2021 2022 Q2 2023 Average unemployment rate (%) 2019 Real labour productivity growth 2020 2021 2022 Q2 2023 NULC* growth Source: NSI (National accounts data, Labour Force Survey (LFS) and European System of Accounts 2010), Ministry of Finance Source: NSI, Ministry of Finance 1NULC Nominal Unit Labour Cost 11#13☐ Energy sector Bulgaria's priorities in the energy sector are energy security, sustainable development and eco-efficient economy in the context of a more competitive energy market. Due to the vulnerability of energy recourse supplies, amplified by the Russian-Ukrainian conflict, measures for diversification of energy sources became a top priority and immediate actions were undertaken, with focus on diversifying Bulgaria's sources of natural gas supply. Energy import dependency, % 57.5 58.1 60.5 57.5 55.5 Energy sources for production of electricity and heat in 2022, % PV, 4.0% Hydro, 8.0%. Wind, 3.0%. Biomass, 1.0% Imported, 12.00% Nuclear, 33.0% 39.4 36.3 38.1 37.9 36.1 Industrial TPP, 2.0% District heating TPP, 5.0% 2017 2018 2019 2020 2021 EU ⚫Bulgaria Thermal power plant, 45.0% Source: Eurostat Source: Association of Traders with Energy in Bulgaria Note: Nuclear energy by the Eurostat's standards is local energy resource Austria Slovenia Croatia Hungary Bosnia Herzegovina Bulgaria-Serbia gas interconnection (IBS) Note: Nuclear energy is considered (in line with Eurostat's standards) as a local energy resource Natural gas supply diversification projects Status Expected year of Capacity completion (bcm) Balkan Gas Distribution Centre Completed Dec 2019 Bulgaria Greece gas Completed Oct 2022 3.00 interconnection (IGB) Bulgaria - Serbia gas Construction interconnection (IBS) 2023 1.80 Italy Floating, storage and regasification LNG terminal in Greece Ongoing 2023 Expansion of Chiren gas storage facility Construction 2025 1.00 Source: Bulgartransgaz, ATEB Monteneg Romania Expansion of Chiren gas storage facility Serbia Kosovo Bulgaria Macedonia NZ Greece Moldova Local, 88.00% Ukraine Albania Floating LNG terminal Bulgaria-Greece gas interconnection (IGB)arkey (+ Russia 12 12#14Energy sector (continued) Establishing a competitive energy market In line with the Commission's Third Liberalisation Package, Bulgaria takes steps towards the complete liberalisation of the electricity market by the end of 2025 - through elimination of the regulated market segment and introduction of residential consumers to the free market. Bulgarian Gas Exchange started operating in 2019. In 2020 multilateral trading was launched, incl. short-term and long-term segments and brokerage. In 2021, the second gas exchange Bulgarian Energy Trading Platform (BETP) received a license for an organised exchange market for trading in natural gas and gas derivatives for a period of 35 years. Kozloduy Nuclear Power Plant (NPP) has developed a diversification program for the licensing and implementation of alternative nuclear fuel. Measures for financial stabilisation of the energy sector The Security of the Electricity System Fund (the SESF) was set up in 2015 to offset the costs of National Electric Company (NEK) stemming from its obligations to buy electricity at preferential prices and to pay renewable energy premiums and high-efficiency cogeneration of heat and electricity transferred to the free market. Effective from 1 July 2022 the SESF now compensates NEK for the costs of electricity purchased for the regulated market (calculated on the basis of electricity quantities sold to end suppliers. By virtue of a National Assembly resolution dated 8 November 2022, the Council of Ministers must adopt a programme for compensation of non-household end customers of electricity in the period from 1 January 2023 to 31 December 2023. This compensation shall be in the amount of 100 per cent of the difference between the real average monthly price of the Day-Ahead platform at the Independent Bulgarian Energy Exchange (IBEX), and on calculations based on a base price of the MWh for the customers interconnected at high, medium and low voltage. Measures to mitigate the disruptions in the supply of energy resources caused by Russian-Ukrainian conflict On a pan-European level, an alternative solution for natural gas supply was put into place on January 3rd 2023 when Bulgargaz and BOTAS signed and agreement granting access to the gas transmission network and the LNG terminals in Turkey, for a period of 13 years. As of 19 October 2023, the Chiren facility was 96.64% full. On 3 June 2022 the European Council granted Bulgaria an exception from the embargo on the import of seaborne crude oil from Russia until the end of 2024. Bulgaria established a diversification procedure for the supply of nuclear fuel to Kozloduy NPP. Bulgaria has also started construction of a natural gas pipeline in Kostinbrod that will connect Bulgaria and Serbia. 13#153. EXTERNAL SECTOR#16Export and import dynamics Bulgaria's export performance has remained robust in the face of multiple global shocks Despite worsening economic conditions globally in 2022 in the face of the war in Ukraine, inflationary pressures and monetary tightening, Bulgaria has maintained strong export performance. Bulgaria's export of goods market share in global trade has been continuously increasing since the early 2000s. Real exports and imports of goods and services (annual change, %) 15.0 11.2 7.4 5.8 5.2 5.7 4.0 -4.3 1.7 10.7 11.6 -1.3 -7.0 -10.4 2017 2018 Real export growth 2019 2020 2021 2022 H1 2023 Real import growth Germany is Bulgaria's major export market (main exports include machinery and base metals products), followed by Romania and Italy. Source Eurostat, NSI, BNB Bulgaria's real exports of goods and services declined in the first half of 2023 largely specific events- namely, the prohibition on exports of oil and petroleum products produced from Russian crude oil to countries other than Ukraine (entering into effect from 5 February 2023), as well as to planned construction works in some of the largest enterprises in manufacturing and electricity generation sectors in Q2 2023. Export of goods global market share of Bulgaria (%) 0.20 0.18 0.15 0.14 0.11 0.07 Imports in H1 2023 have also weakened significantly due to lower import needs given the strong decline in H1 2023 of the accumulated over the past two years inventories, the high levels of natural gas in the country's storage facility and the one-off factors limiting exports of goods. 2000 Source AMECO 2005 2015 2010 Export of goods global market share 2020 15#17Composition of Bulgarian export and import of goods Composition of Trade (Imports), % of total Import of Goods by Country of Origin (% of total imports) 0.5 0.5 0.6 0.7 0.6 0.0 9.5 15.2 14.5 14.9 12.7 11.1 17.8 18.9 19.3 19.9 20.1 20.6 21.8 18.7 6.6 6.0 5.4 5.8 5.1 5.5 4.2 27.3 9.6 25.9 26.6 26.2 30.9 9.5 9.6 10.3 10.9 10.4 11.5 27.0 24.9 13.2 12.5 12.6 11.0 11.9 16.7 10.2 ** 37.9 36.9 36.7 34.8 37.9 35.6 34.7 51.0 51.1 50.9 50.5 49.6 49.7 44.6 21.6 21.6 22.8 24.6 22.5 20.7 23.3 2017 2018 2019 2020 2021 2022 H1 2023 2017 2018 2019 2020 2021 2022 H1 2023 ■EU (1) ■Other Europe (2) Balkan countries (3) North and South America ■ Asia ■Consumer goods ■Raw materials Investment goods Mineral fuels, oils and electricity ■Other Imports Composition of Trade (Exports), % of total Export of Goods by Destination (% of total exports) 0.2 0.2 0.2 0.3 0.3 0.0 0.0 11.1 10.1 11.0 6.1 8.3 8.9 8.7 6.2 6.1 5.5 4.7 6 14.9 $2 8.1 8.6 8.9 9.2 .8 2.8 24.6 2.4 2.9 3.0 3.3 8.1 3.3 25.2 25.2 24.3 24.2 27.8 12.9 12.0 11.6 10.8 10.8 10.8 10.9 23.3 3.7 4.5 4.5 6.3 5.8 7.3 6.8 39.0 39.7 39.1 41.7 43.1 39.3 39.8 63.3 67.3 66.3 65.4 66.2 65.2 65 24.5 24.8 25.4 27.4 24.2 22.6 23.5 2017 2018 2019 2020 2021 2022 H1 2023 ■Consumer goods ■Raw materials Mineral fuels, oils and electricity Investment goods Other exports Source: BNB 2017 2018 2019 2020 2021 2022 H1 2023 ■EU (1) Other Europe (2) Balkan countries (3) North and South America Asia Other (1) EU - Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden and the United Kingdom) till 2019. Since 2020, EU-27 without the United Kingdom. (2) Other Europe - Russia, Switzerland, Ukraine, Gibraltar (GB), Moldova, Belarus, Norway, Lichtenstein, Iceland, San Marino, Andorra, Faroe Islands and the Holy See (3) Balkan countries - Turkey, Serbia, Macedonia, Albania, Montenegro, Kosovo and Bosnia and Herzegovina (Romania is included in EU) 16#18External position The external position of Bulgaria has improved significantly ☐ The current account balance has improved relative to 2021 and 2022 and, for the 12-month period up to August 2023, is broadly balanced, with a surplus recorded over the period January-August 2023. As of August 2023 the gross external debt has declined by close to 16% of GDP relative to 2020 and now stands at 47.1% of GDP, with a similar dynamic observed also in respect to the external debt of the public sector. The international investment position of Bulgaria has improved significantly over the past decade and, as of June 2023, has a negative balance of - 13.2% of GDP (compared to -92% of GDP in December 2010), with 67% of liabilities being foreign direct investments. Current account (% of GDP) Gross External Debt: Total and by Sectors (% of GDP) 15 6 4.3 2.9 3.3 4 71.8 10 3.3 3.2 2 66.2 1.6 1.2 61.3 63.3 3.3 1.9 1.5 1.6 1.1 58.1 50 5.8 0.9 8 5.9 -1 6.1 0.5 14 7.4 2.9 5.1 0 Ο -0.5 -1.5 -1 4 -3.2 -4.8 -4.7 -4.1-1.7 -5.9 -1.8 -4.3 -5 -3.5 -4.8 -4.2 -4.7 -3.2 -10 2024 6 51.6 24.3 46.0 22.7 21.7 22.6 19.0 16.2 14.6 -2 26.2 23.4 20.7 19.1 17.5 14.9 12.5 -4 8.0 8.1 7.7 7.2 7.1 7.6 6.9 11.7 10.4 9.8 13.0 11.7 10.3 9.9 -6 2017 2018 2019 2020 2021 2022 H1 2023 2017 2018 2019 2020 2021 2022 Q2 2023 Trade Balance Primary Income, net Current and Capital Account Services, net Secondary Income, net Current Account Direct investment: Intercompany lending Other MFIS Other Sectors Central Bank General Government Debt Gross External Debt Source: BNB, Eurostat Standard presentation in accordance with the 6th edition of the IMF Balance of Payments and International Investment Position Manual. Preliminary data for 1 January to 30 September 2023 Source: BNB, Eurostat Data in accordance with the External Debt Statistics: Guide for Compilers and Users, IMF 2014. Preliminary data for June 2023 used in Q2 2023 figures 17#194. MONETARY POLICY AND BANKING SYSTEM 庭#20EUR bn The Currency Board International reserves remain at comfortable levels The currency board contributes towards maintaining overall macroeconomic and financial stability and the implementation of strict fiscal policies. The functioning of the currency board is based on three major principles: a fixed exchange rate of the Lev to the Euro at BGN 1.95583 per EUR 1 the reserve currency is treated on equal terms with the national currency o the total amount of BNB monetary liabilities is fully covered by high quality liquid international reserves Coverage ratios remain at comfortable levels. The BNB's gross international foreign exchange reserves amounted to EUR 35.2 billion as of Q2 2023, covering 7.3 months of imports and 439% of short-term external debt. International Reserves International Reserves Coverage 40 100% 600 34.6 38.4 90% 35 500 30.8 35.2 80% 30 410.9 418.6 25.1 24.8 70% 400 25 23.7 60% 50.1% 48.7% 20 44.8% 50% 40% 15 % of GDP 45.1% Coverage, % 390.0 11.1 44.6% 40.4% 38.6% 30% 10 300 8.6 200 8.5 8.0 514.3 501.1 13 14 ˇㄐ 434.1 438.612 11 10 9.8 6 20% 100 5 10% 0 0% 2017 2018 2019 2020 2021 2022 June 2023 8 78 7.3 7 6 0 2017 2018 2019 2020 2021 2022 June 2023 International Reserves, Ihs (EUR bn) International Reserves, rhs (% of GDP) Source: BNB Short term external debt, Ihs (%) Source: BNB Nominal GDP data for 2022 multiplied by the estimated growth rate for 2023 The indicators represent ratios of international reserves to short-term debt and international reserves to monthly imports, respectively Imports, rhs (months) 19 Coverage, months#21Increase in the minimum required reserve rate to 12% Limited transmission of ECB's monetary policy tightening to interest rates, particularly for households Through the currency board, the BNB has no direct influence over interest rates in Bulgaria. Monetary conditions in the euro area are transmitted to monetary conditions in Bulgaria depending on the level of liquidity in the banking system, the assessment of the risk premium and banks' risk appetite. The main policy instrument used by the BNB to influence domestic monetary conditions is the regulation of minimum required reserves (MRR) which banks maintain with the central bank. As of the beginning of 2023 macroeconomic developments in Bulgaria were characterised by high inflation, strong growth of private sector wages and private consumption, and continued robust growth of loans to households. Weak and slow transmission of ECB's monetary policy tightening to deposit and lending interest rates, especially for households, was driven by ample liquidity in the banking system and strong competition. In view of potential risks to banking system resilience and to the implementation of BNB's primary objective to maintain price stability, on 26 April 2023 the BNB Governing Council took a decision to raise the MRR rate From 1 June 2023 the MRR rate on funds attracted by banks from non-residents was increased from 5 to 10 per cent and equalized with that on funds attracted by banks from residents. From 1 July 2023 the MRR rate on funds attracted by banks from both residents and non-residents was increased from 10 to 12 per cent. The measure aims to tighten monetary conditions by absorbing part of excess liquidity in the banking system, which consequently would decrease commercial banks' credit capacity and would create incentives for faster and more significant transmission from the increased interest rates in the euro area to deposit and lending interest rates in Bulgaria. The increase of the MRR rate to 12% resulted in the absorption of approximately BGN 3.3 billion liquidity (in the form of excess reserves and liquid foreign assets) from the banking system. As of September 2023 the effects of the increased MRR rate on interest rates in the household sector are still relatively limited due to the remaining ample liquidity in the banking system. 20 20#22Stable and well capitalised banking system · The total assets of the banking system in Bulgaria by 31 December 2022 amounted to EUR 79.5 billion, a 14.8% increase year-on-year. At 30 June 2023, the total assets of the banking system amounted to EUR 82.4 billion. " As of 30 June 2023 the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) were well above the required minimum of 100%, standing at 226.1% and 152.5%, respectively. The capital position of the banking sector remained strong. The level of capital exceeding the regulatory requirements and all the applicable buffers was EUR 1.72 billion at 30 June 2023, above the 31 December 2022 level. Banks are required to maintain a set of buffers - a capital conservation buffer (CCOB) at 2.5% of total risk exposures, a systemic risk buffer (SyRB) at 3% of domestic risk exposures and a counter cyclical capital buffer (CCYB) at 2% as of 1 October 2023 (up from 1.5% as of 1 January 2023 ), as well as a capital buffer for 7 systemically important institutions (OSII) in the range of 0.5% to 1%, cumulative to all other buffers. As of Q2 2023, the capital adequacy ratio and the common equity tier 1 ratio (CET 1) of the Bulgarian banking sector were 21.4% and 19.8%, respectively. Capital Adequacy Ratios (%) Banking Sector Liquid Assets Ratios (%) Source: BNB 40 400 22.0 22.0 20.6 20.2 19.3 19.7 35 350 30.6 344.7 29.2 29.6 29.2 28.1 30 27.0 26.4 300 22.7 22.6 20.4 20.4 21.0 21.4 25 293.9 278.9 269.9 274.0 250 2018 2019 Capital Adequacy 2020 2021 2022 Tier 1 Capital Ratio 20 15 Q2 2023 10 2017 Source: BNB 2018 2019 235.0 226.1 200 150 2020 2021 2022 Q2 2023 Liquidity coverage ratio (rhs) Liquid assets to total assets ratio (lhs) 21#23Banking sector - loan quality Stable growth and preserving loan quality The banking sector assets as of end-June 2023 (EUR 82.4 billion) accounted for 92.2% of GDP. At end-June 2023, the system comprised of 17 banks, 12 of which are domestically controlled, and 7 foreign bank branches. Bulgaria's banking sector maintains a stable liquidity position with organic funding from deposits (of which over 90% is resident funding) and shows no dependence on wholesale funding from external markets. As of end-June 2023, non-government sector loans grew by 11.9% YoY. Non-performing loans and advances (NPLs) are on a continuous downward trend from 2018-2023. At the end of 2022, the share of gross NPLs (NPL ratio1; EBA definition; broad scope) amounted to 3.5% of total gross loans and advances. At 30 June 2023 the NPL ratio had decreased to 3.1%. At 31 December 2022, the NPL coverage ratio was 48.2%, which is above the EU average, and stood at 49.6% at 30 June 2023. The share of net NPLs declined further to 1.6% of total net loans and advances. NPLs1 and Advances to Gross Loans Ratio Dynamics (%) 16.0 54.0 51.6 14.0 52.0 49.6 12.0 50.0 48.3 48.2 47.9 10.0 46.6 48.0 7.7 8.0 46.0 6.5 5.6 6.0 44.0 4.5 3.9 3.5 3.5 4.0 3.1 3.1 42.0 2.4 1.8 1.6 2.0 40.0 0.0 38.0 2018 2019 2020 2021 2022 Q2 2023 NPL ratio (lhs) NPL coverage (rhs) Net NPL ratio (lhs) 1 The Non-performing loans to total gross loans indicator has been calculated in accordance with the EBA methodology for the ratio AQT_3.2 Level of non-performing loans and advances (NPL ratio) laid down in the EBA Methodological guide and the List of EBA risk indicators Source: BNB Source: BNB 22 22#24Banking system - profitability The Bulgarian banking system's profit for 2022 (EUR 1.1 billion) increased year-on-year, exceeding pre-pandemic levels. Accordingly, at the end of 2022 the return on assets (ROA) and the return on equity (ROE) were 1.3% and 12.0% respectively, compared to 1.4% and 11.5% for end-2019. As of end-June 2023 the banking system's profit was EUR 862 million, representing an increase of 69.9% YoY. The total net operating income ("NOI") for first half of 2023 was EUR 1.7 billion, driven by the growing net interest income of the banking system. Cost to Income Ratio (%) 54.3 56 54 52 50 48 46 CONDOLE 48.9 46.2 44 40.3 42 40 38 36 34 32 30 2020 2021 2022 Q2 2023 Source: BNB Return on Assets (%) and Return on Equity (%) 12.0 11.5 9.1 8.1 12.0 18.4 1.2 1.6 1.4 0.6 4.6 2.1 1.0 1.3 2017 2018 2019 2020 2021 2022 Q2 2023 ROA ROE Source: BNB 23#25Exchange Rate Mechanism ("ERM II") Agreement to include Bulgarian lev in the ERM II reached in July 2020 Maastricht criteria On 29 June 2018, the Bulgarian authorities officially expressed their intentions to apply to ERM II and to participate in the Single Supervisory Mechanism simultaneously. On 10 July 2020, the ERM II parties decided to include the Bulgarian lev in ERM II. The Bulgarian lev was included in ERM II at a central rate of 1.95583 levs per euro with a standard fluctuation band of ±15%. Bulgaria joined the exchange rate mechanism with its existing currency board in place as a unilateral commitment. The agreement on participation in ERM II was based on a number of policy commitments by the Bulgarian authorities, some of which had already been met when the lev was included in ERM II, with the aim of achieving a high degree of sustainable economic convergence by the time of the adoption of the euro. The new government, which was formed in June 2023, has announced accession to the euro area on 1 January 2025 as one of the five major priorities in its operational programme. 2023 2022 2021 HICP Inflation (% change) 2.8 Reference value 10.8 13.0 6.1 Long-term interest rate, (average annual,% 3.2 1.5 5.1 0.2 Gross debt (% of GDP) Budget balance (% of GDP) Exchange rate stability -3.0 -2.9 -4.0 22.9 22.6 60.0 23.9 -3.0 The Bulgarian lev was included in ERM II at a central rate of 1.95583 levs per euro within the framework of the existing currency board. Note: HICP and long-term interest rate data for 2023 as well as the respective reference values are as of September 2023 (on a 12-month average basis). General government gross debt and budget balance data for 2023 are based on the latest Ministry of Finance forecast. 24 24#265. FISCAL POSITION AND PRO-GROWTH POLICIES#27General Government balance in line with EU countries Prudent fiscal policies have been at the core of Bulgaria's strong economic performance ☐ In the period 2017-2019, the budget balance of the General Government sector was positive, with an average surplus of 1.8% of GDP (on an accrual basis), thus allowing Bulgaria to accumulate buffers in the fiscal reserve Throughout 2017-2020, growth in tax revenue was close or above nominal GDP dynamics. In 2021-H1'23 the increase in tax revenue was slightly lower than the growth in GDP as some of the support programmes had a negative revenue effect. Investment spending during the 2017-2019 period increased due to the accelerated absorption of EU funds, while during 2020-2022 the increase was linked to social protection spending, public sector wages and subsidies for non-financial enterprises as a result of the budgetary measures taken to contain the negative effects of the pandemic and rising energy prices. In 2020, despite the unprecedented fiscal stimulus mobilised to combat the pandemic (3.2% of GDP), the budgetary position of Bulgaria remained stable. In 2021 the fiscal balance of Bulgaria was negative at -4.0% of GDP (ESA 2010 terms), while the EU27 registered a deficit of -4.7 of GDP. In 2022 the budget deficit was -2.9% lower than the average of the Euro area and the EU. The Ministry of Finance expects the budget deficit with the target set in the ABL for 2023 at -2.5% of GDP (cash basis), consistent with 3.0% of GDP in ESA 2010 terms. Thus the budget position for the year is expected to be in line with the Stability and Growth Pact requirements. Fiscal Balance (ESA 2010, % of GDP) 2.1 1.6 1.7 -2.9 -3.0 2017 2018 2019 -3.8 2020 -4.0 2021 2022 F 2023 Source: Eurostat, MoF General Government (GG) surplus (+)/deficit (-), % of GDP -1.9 -2.9 -4.0 -2.6 -3.3 -4.7 -2.9 -3.6 -5.2 BG EU-27 EA - 19 -1.6 GR -2.1 -7.0 -3.1 HU -6.2 -7.2 -4.4 RO -6.3 -7.2 -3.7 SI -3.0 -4.6 -8 -6 -4 -2 0 ■ Q2 2023 2022 2021 Source: Eurostat 26#28Policies aimed at enhancing economic growth Economic growth acceleration is a key priority in the mid-term policy goals set out in Bulgaria's 2023 Budget Plan Policy Priorities Economic and financial policy Debt financing policy Management of EU funds Tax and Income policy Encouraging investments of local and foreign enterprises performing investment projects which in turn will create new production capacities and provide long-term employment opportunities. Establishing an information system for the Bulgarian Investment Agency and the National Innovation Fund to promote research and development activities and increase the competitiveness of enterprises. Developing indicators to measure the social impact of the work of State-owned companies. Current debt management objectives are set in the Debt Management Strategy 2023-2025. The main goal of the debt management is to provide for the necessary funds for maturing debt refinancing, planned budget deficits coverage and securing liquidity of the fiscal reserve. Partaking in the NEXT GENERATION EU initiative and REACT EU mechanism designed to support EU member states most affected by COVID-19, with investments aimed at restoring labour markets, healthcare systems and liquidity of SME's. Using funds available through the National Recovery and Resilience Plan to finance reforms and investments within the domestic market to mitigate the economic and social impact of the COVID-19 pandemic. New mechanism for calculation of minimum wage. Increasing the remunerations for staff in elected positions, employees in the judiciary system and pedagogical specialists A top-up tax and a domestic minimum top-up tax shell be introduced effective from 2024 when approved by Parliament (Council Directive (EU) 2022/2523). Strengthening the fiscal control on high fiscal risk goods to improve tax compliance. Increasing of the minimum and maximum amount of the pensions from 25 December 2021. Pension policy Sectoral policies Source: Ministry of Finance Indexation of pensions from July 2023 and implementation of a new mechanism to improve pension adequacy from October 2022. Education - continuation of integrated policies with focus on education and personal development of children and students, innovations to encourage, qualification of pedagogical specialists and modernisation of educational institutions. Reconstruction and construction of nurseries, kindergarten and schools, and financing student and doctoral activities. Financing health sectors care for disabled; remuneration of emergency staff, and construction of the National Pediatric Hospital Maintaining and developing national defense and collective defense capabilities. 1 27#29Package of anti-crisis measures Supportive measures to groups of society and business ... against COVID-19 impact on the economy and households Measures to support businesses ... and aiming at reducing inflationary pressure Measures to support businesses ☐ " Reduced the VAT rate from 20% to 9% from 1 July 2020 to 31 December 2023 for: ☐ Restaurants and catering services General tourist service under the special scheme for tour agents Sporting facilities' services Introduction as a permanent measure from 1 January 2023 of a reduced VAT rate of 9% for supplies of: Books Baby food, diapers and hygiene items · Reduced VAT rate of: ■ 9% for supplies of district heating until 1st July 2023 9% for supplies of natural gas until 1st July 2023 0% for supply of bread and flour until 31st December 2023 and is proposed to expire after mid 2024 Increased amount of tax relief for 2022 and 2023 for children and for children with disabilities with a possibility to use the two tax reliefs in advance Measures to support households Measures to support households New mechanism for calculation of minimum wage set up at 50% of average gross wage over a preceding 12 month period Increasing the national minimum wage as of 1 January 2024 to 933 BGN (477 EUR) Increasing the salaries in the budget sector and in the educational sector Increasing of the amount of tax relief for children for tax year 2021 and was further increased for tax year 2022 and 2023 Indexation of pensions (from July 2023) and mechanics for their improvement (from October 2022) Funding of increase in the wages of the medical personnel Support to agriculture sector under the existing state aid for animal welfare Source: Ministry of Finance, Budget 2023 28#30National Recovery and Resilience Plan Measures and reforms aiming at restoring, developing and increasing the potential of economic growth structured in four main pillars ☐ INNOVATIVE BULGARIA 25.3% of the resources Business and Innovations: Economic transformation of SME's grants for - technologic modernisation, cybersecurity, renewable energy sources for own consumption, circle economy Education and innovations: grants for STEM centers, equipment of specialised class rooms, qualification of pedagogical specialists in the field of STEM education Education: Reform in pre- school, school education and lifelong learning - increasing focus on applied competences, innovations, STEM and development of cognitive skills; creation of innovative schools, new standard for quality, validation of professional skills Science and innovations: development of research universities GREEN BULGARIA 41.9% of the resources Low carbon economy: Energy efficiency of building stock; ensure finance for energy renewal of residential, public and industrial buildings Green energy and security - construction of renewable energy sources with batteries and infrastructure for energy storage; research activities and pilot project for geothermal power; facilitating bilateral contracts for renewable energy sources; and liberalisation of energy market Biodiversity: Ensuring effective management of National ecological network; integration of eco-systematic approach; and recovery of key climate eco-systems Sustainable agriculture: Updating of the agricultural sector strategic frame; building up the technological and ecological transition of agriculture; and process digitalisation CONNECTED BULGARIA 18.3% of the resources Focusing on increasing the competitiveness and sustainable development of the regions such as transport and digital connectivity, as well as local development Reducing the carbon footprint of the transport sector through investments in the modernisation and digitalisation of the railway segment; updating the strategic framework of the transport sector Wide development of digital infrastructure Wide development of digital infrastructure such as increasing the coverage of high capacity networks and digitisation of public administration and digital public services, enhancing digital skills and supporting the digitisation of businesses as well as the transport and energy sectors Stimulating electric mobility and public transport ☐ ☐ !! FAIR BULGARIA 14.6% of the resources Business environment: addressing disincentives in the business environment and developing the potential of e-Government to improve access Social inclusion: focusing on vulnerable people to achieve sustainable growth, establishing effective and responsible public institutions, and improving the quality and extending the scope of offered social services Health: increasing the resilience of the health system to shocks while increasing the population's access to quality and timely health care Source: Ministry of Finance, Budget 2022 29 29#316. GOVERNMENT DEBT AND FUNDING STRATEGY#32Borrowing strategy Stable and sustainable Government debt position due to a conservative borrowing strategy ■ The Government's debt management key goals are providing necessary resources for refinancing the outstanding debt, the planned budget deficit financing and ensuring the liquidity position of fiscal reserves. On the basis of Eurostat's requirements and the ESA 2010 methodology, Bulgaria's ratio of General Government Debt-to-GDP was the second lowest in the EU, standing at 22.6% of GDP as at 31 December 2022 (EUR 19.353 billion) and 21.5% as the end of the second quarter of 2023 (EUR 19.623 billion). Government Debt Redemption Profile (EUR million)** 2,931 1,800 1,866 1,344 1,408 1,298 1,285 ----- Domestic debt ■ External Debt Total State Debt General Government Debt (% of GDP) 6,482 i 25.1 22.1 20.0 2031-2050 24.6 23.9 22.6 21.5 Source: Ministry of Finance 2017 2018 2019 2020 2021 2022 Jun-23 Notes: * National methodology; **Outstanding debt (principal amounts) as of 25 October 2023 Source: Eurostat, Ministry of Finance 31#33Prudently managed Government debt structure Predominant fixed rate and EUR and BGN denominated securities ■ The nominal amount of state debt as of September 2023 was EUR 18.6 billion in total, of which EUR 13.1 billion was external debt and EUR 5.4 billion was domestic debt. ■ As of September 2023, Bulgaria's outstanding marketable government debt consists of EUR 5.4 billion equivalent in domestic government securities and EUR 10.5 billion in international bonds issued under Bulgaria's GMTN Programme. As of September 2023, the domestic state-guaranteed debt represented 0,03% of the GDP and the external state-guaranteed debt was 0.8% of GDP. The state-guaranteed debt ("SGD") was 0.8% of GDP as of the same period. So far this year, a new EUR 1.5bn 10-year benchmark was issued on the international market in January 2023. Historical evolution of long-term debt yield (10y) as per EU data for convergence purposes (%) 4 Breakdown of government debt and maturities of outstanding debt * (as % of total) 14.3 56.5 29.2 0.7 ■Domestic Bonds Foreign Bonds Loans 28 0.1 99.3 ■Fixed rate Floating rate Maturity breakdown of Outstanding Domestic Government Securities over 10 years, 27.1% up to 1 year, 9.8% 3 2 0 Jan/2018 1 Jul/2018 Jan/2019 Jul/2019 Jan/2020 Source: BNB Jul/2020 Jan/2021 Jul/2021 Jan/2022 Jul/2022 Jan/2023 Jul/2023 71.9 5 to 10 years, 34.3% EUR BGN Other currencies Source: Ministry of Finance, data as of September 2023 1 to 5 years, 28.9% 32