BULGARIA: ECONOMIC AND MARKET ANALYSES Monthly report, August 2015

BULGARIA: ECONOMIC AND MARKET ANALYSES Monthly report, August 2015 All data in the edition are the last available data as of 29 of August 2015 The quoted data set in this report are the last available data, published in the official source s web sites. The sources are Ministry of Finance, Bulgarian National Bank, National Statistic Institute, National Employment Agency, Bulgarian Industrial Association.The electronic system used for collecting the data from the official sources is CEIC Data Manager. United Bulgarian bank Chief Economist Department 5 Sveta Sofia str., Sofia 1040 CHIEF ANALYST HRISTO DIMITROV E-MAIL DIMITROV_HR@UBB.BG The current account recorded a surplus of EUR 126.1 million in June 2015, compared with a positive balance of EUR 316.3 million in June 2014 Gross external debt amounted to EUR 38 334.6 million (89.3% of GDP) at end-june 2015, decreasing by EUR 1 430.5 million (3.6%) from end-2014 In July 2015 Bulgaria s international reserves grew up by 2.1% m/m and by 29.7% y/y, respectively and exceeded BGN 38.4 billion (EUR 19.6 billion) Gross Domestic Product (GDP) expanded with 2.2% in the second quarter of 2015 compared to the same quarter of the previous year and with 0.4% compared to the first quarter of 2015 The total income average per household member during the second quarter of 2015 is 1 203 BGN and increases by 3.7% In June 2015, the number of the trips of Bulgarian residents abroad was 468.3 thousand or by 13.9% above the registered in June 2014 In August 2015 the total business climate indicator increases by 1.3 percentage points compared to its level from the previous month The annual inflation in July 2015 compared to July 2014 was -0.2% Producer Price Index on Domestic Market in June 2015 increased by 0.2% compared to the previous month In June 2015 working day adjusted Industrial Production Index rose by 5.7% in comparison with the same month of 2014 In June 2015 the working day adjusted turnover in Retail trade, except of motor vehicles and motorcycles grew by 2.7% in comparison with the same month of the previous year The unemployment rate in July 2015 is amounted to 9.4%, which is under 0.2% comparing the previous month In the period January - June 2015 the value of all exported goods from Bulgaria amounted to 22.4 Billion BGN and compared to the corresponding period of 2014 the exports increased by 11.0% The fiscal reserve as of 06.30.2015 is BGN 11,0 billion, incl. BGN 10,8 billion deposit of the fiscal reserve account and banks and BGN 0,2 billion receivables from the European Union funds for certified expenditure and other advances By end-june government debt totalled EUR 12,257.0 million in nominal terms, including domestic debt of EUR 4364.1 million and external debt of EUR 7892.9 million At the end of the six-month period the banking system s main financial indicators remained stable In July 2015 broad money (monetary aggregate M3) increased annually by 3.5% compared to 2.5% annual growth in June 2015 In May 2015 the banking system reported high liquidity and increased profit SOFIX slipped 2.4% in July to close at 473.64, extending year to date losses to 9.3% According to the preliminary data, in June 2015 the index of production in section Construction calculated on the base of seasonally adjusted data was 2.6% above the level of the previous month Construction calculated on the base of seasonally adjusted data was 3.3% below the level of the previous month Main Macro Indicators Reported Data 2013 Source: www.geographicguide.net GDP (mln. BGN) GDP (real growth %) 2014 1.7 Consumption -1.3 Grossed Fixed Capital Formation -0.1 Import of Goods and Services 2016 2017 2018 80 282 82 164 83 581 86 023 89 248 92 477 1.1 Exports of Goods and Services Forecast 2015 1.4 1.7 2.3 2.1 2.4 2 2.8 1.8 2.6 3 2.6 1.5 2.9 9.2 2.2 3.2 2.8 3.1 3.4 3.6 4.9 3.8 3.6 4.0 4.4 4.4 Employment (%) -0.4 0.4 0.3 0.5 0.9 0.5 Unemployment rate (%) 12.9 11.4 10.8 10.2 9.4 9.0 Annual average infalitio(hicp) (%) 0.4-1.6-0.6 1.8 1.9 2.0 Current account (% of GDP) n/a n/a 0.2-0.4-1.0-1.5 Trade balance (% of GDP) n/a n/a -8.5-9.1-9.9-10.6 Foreign Direct Investments (% of GDP) n/a n/a 3.2 3.3 3.3 3.4 М3 (%) 8.9 1.1 5.1 5.7 6.5 6.9 Corporate Loans (%) 0.5-10.8 2.6 3 3.8 4.2 Consumer Loans (%) -0.2-1.6 0.7 1.2 1.9 2.9 Source: Ministry of Finance

Page 2 BULGARIA: ECONOMIC AND MARKET ANALYSES, August 2015 I.EXTERNAL SECTOR 1.Balance of payments The current account recorded a surplus of EUR 126.1 million in June 2015, compared with a positive balance of EUR 316.3 million in June 2014 The current account recorded a surplus of EUR 126.1 million in June 2015, compared with a positive balance of EUR 316.3 million in June 2014. In January June 2015 the current account was positive and amounted to EUR 324 million (0.8% of GDP), compared with a deficit of EUR 156.6 million (0.4% of GDP) in January June 20 The balance on goods recorded a deficit of EUR 113.5 million in June 2015, compared with a deficit of EUR 177.6 million in June 2014. In January June 2015 the balance on goods was negative amounting to EUR 1 210.5 million (2.8% of GDP), compared with a deficit of EUR 1 809 million (4.3% of GDP) in January June 2014. Exports of goods amounted to EUR 2 060.9 million in June 2015, growing by EUR 256.7 million (14.2%) from June 2014 (EUR 1 804.2 million). In January June 2015 exports of goods totalled EUR 10 995.9 million, increasing by EUR 1 231.3 million (12.6%) year-on-year (from EUR 9 764.6 million). In January June 2014 exports fell by 3.4% year-on-year. Imports of goods amounted to EUR 2 174.4 million in June 2015, growing by EUR 192.6 million (9.7%) from June 2014 (EUR 1 981.8 million). In January June 2015 imports of goods totalled EUR 12,206.4 million, rising by EUR 632.9 million (5.5%) from January June 2014 (EUR 11 573.5 million). In January June 2014 imports shrank by 0.2% year-onyear. Services recorded a positive balance of EUR 310.2 million in June 2015, compared with a surplus of EUR 422.3 million in June 2014. In January June 2015 services recorded a surplus of EUR 914.7 million (2.1% of GDP) compared with a positive balance of EUR 962.3 million (2.3% of GDP) in the same period of 2014. The net primary Income (which reflects the receipt and payment of income related to the use of resources (labor, capital, land), taxes of production and imports and subsidies) recorded a deficit of EUR 220.8 million in June 2015, compared with a negative balance of EUR 91.8 million in June 2014. In January June 2015 the balance on primary income was negative and equated to EUR 549.3 million (1.3% of GDP), against a deficit of EUR 406.3 million (1% of GDP) in January June 2014. The net secondary income (which reflects the redistribution of income) recorded a surplus of EUR 150.2 million, compared with a surplus of EUR 163.3 million in June 2014. In January June 2015 the net secondary income was positive amounting to EUR 1,169 million (2.7% of GDP), compared with a positive balance of EUR 1,096.4 million (2.6% of GDP) in the same period of 2014. The capital account recorded a surplus of EUR 65.9 million, compared with a positive balance of EUR 132.8 million in June 2014. In January June 2015 the capital account recorded a surplus of EUR 715.6 million (1.7% of GDP), compared with a positive balance of EUR 324.8 million (0.8% of GDP) in January June 2014. The financial account recorded a net inflow of EUR 29.1 million, compared with an outflow of EUR 153.7 million in June 2014. In January June 2015 the financial account recorded a net inflow of EUR 1 090.8 million (2.5% of GDP) compared with an outflow of EUR 295.1 million (0.7% of GDP) in January June 2014. The net direct investment compiled in accordance with the Sixth Edition of the Balance of Payments and International Investment Position Manual was negative amounting to EUR 144 million, compared with a negative balance of EUR 59.9 million in June 2014. In January June 2015 the balance was negative and equated to EUR 727 million (1.7% of GDP), compared with a negative balance of EUR 395.7 million (0.9% of GDP) million in January June 2014. Direct investment - assets decreased by EUR 39.2 million compared with an increase of EUR 127.2 million in June 2014. In January June 2015 direct investment - assets grew by EUR 56.4 million, compared with an increase of EUR 462.4 million in the same period of 2014. Direct investment - liabilities recorded a net increase of EUR 104.8 million in June 2015, compared with an increase of EUR 187.1 million in June 2014. In January June 2015 the direct investment liabilities grew by EUR 783.4 million, compared with an increase of EUR 858.1 million in the same period of 2014. Portfolio investment - liabilities dropped by EUR 51.7 million compared with an increase of EUR 40.3 million in June 2014. In January June 2015 portfolio investment - liabilities rose by EUR 942.1 million, compared with a decrease of EUR 30.3 million in January June 2014. The balance on other investment was positive amounting to EUR 179.1 million,

Page 3 BULGARIA: ECONOMIC AND MARKET ANALYSES, July 2015 compared with a negative balance of EUR 431.8 million in June 2014. In January June 2015 the balance was positive and equated to EUR 823.8 million (1.9% of GDP), compared with a positive balance of EUR 190.6 million (0.5% of GDP) million in January June 2014. Other investment - assets grew by EUR 211.2 million, compared with a decrease of EUR 477.1 million in June 2014. In January June 2015 they dropped by EUR 1 365.3 million compared with an increase of EUR 95.1 million in January June 2014. Other investment - liabilities increased by EUR 32.1 million compared with a decline of EUR 45.3 million in June 2014. In January June 2015 they decreased by EUR 2 189.1 million compared with a reduction of EUR 95.5 million in January June 2014. The BNB reserve assets dropped by EUR 49.7 million, compared with an increase of EUR 440.2 million in June 2014. In January June 2015 they grew by EUR 2 602.5 million (6.1% of GDP), compared with a decrease of EUR 235.9 million (0.6% of GDP) in the same period of 2014. The net errors and omissions were negative amounting to EUR 162.9 million compared with a negative value of EUR 602.8 million in June 2014. According to preliminary data, the item was positive in January June 2015 and totalled EUR 51.2 million (0.1% of GDP), against a negative value of EUR 463.3 million (1.1% of GDP) in the same period of 2014. 2.External Debt Gross external debt amounted to EUR 38 334.6 million (89.3% of GDP) at end-june 2015, decreasing by EUR 1 430.5 million (3.6%) from end-2014 Gross external debt amounted to EUR 38,334.6 million (89.3% of GDP) at end-june 2015, decreasing by EUR 1,430.5 million (3.6%) from end- 2014 (EUR 39 765.1 million, 94.7% of GDP). On a year-on-year basis gross external debt grew by EUR 1.052.6 million (2.8%) from June 2014 (EUR 37 282 million, 88.7% of GDP). Long-term liabilities totalled EUR 30 404 million (79.3% of the total debt, 70.8% of GDP) at end-june 2015, growing by EUR 703.5 million (2.4%) from end-2014 (EUR 29 700.5 million, 74.7% of the total debt, 70.7% of GDP). On a year-onyear basis, long-term liabilities increased by EUR 2 433.1 million (8.7%) from June 2014 (EUR 27 970.9 million, 66.6% of GDP). Short-term liabilities equalled EUR 7 930.6 million (20.7% of the total debt, 18.5% of GDP), declining by EUR 2 134 million (21.2%) from end-2014 (EUR 10 064.6 million; 25.3% of the total debt, 24% of GDP). On a year-onyear basis, short-term liabilities dropped by EUR 1,380.5 million (14.8%) from June 2014 (EUR 9 311.1 million, 22.2% of GDP). General Government s gross external debt totalled EUR 6 068 million (14.1% of GDP) in end-june 2015. It grew by EUR 41.6 million (0.7%) from end-2014 (EUR 6 026.5 million, 14.3% of GDP). On a year-on-year basis it increased by EUR 2 632.7 million (76.6%) from June 2014 (EUR 3 435.4 million, 8.2% of GDP). Banks external debt totalled EUR 4 142.5 million (9.6% of GDP). It declined by EUR 1 379.7 million (25%) from end- 2014 (EUR 5 522.2 million, 13.1% of GDP). On a year-on-year basis banks debt decreased by EUR 1 719.7 million (29.3%) from June 2014 (EUR 5 862.2 million, 14% of GDP). Other Sectors external debt equalled EUR 12 081.8 million (28.1% of GDP). It increased by EUR 32.8 million (0.3%) from end-2014 (EUR 12 049 million, 28.7% of GDP). On a year-on-year basis it grew by EUR 244.4 million (2.1%) from June 2014 (EUR 11 837.4 million, 28.2% of GDP). The stock of intercompany lending amounted to EUR 16 042.2 million (37.4% of GDP) at end-june 2015, down by EUR 125.1 million (0.8%) from end-2014 (EUR 16 167.3 million, 38.5% of GDP). On a year-on-year basis it dropped by EUR 104.8 million (0.6%) from June 2014 (EUR 16 147 million, 38.4% of GDP). The credits and deposits received from non-residents equalled EUR 3 679.9 million (8.6% of GDP) in January June 2015, compared with EUR 2 684.1 million (6.4% of GDP) in January June 2014. General government received EUR 2 137.6 million (58.1%), mostly due to the nonresident-held securities from Bulgaria s issue of EUR 3 100 million triple tranche bonds on international capital markets in March 2015. Banks received EUR 429.4 million (11.7%), other sectors received EUR 524.5 million (14.3%), and intercompany lending4 totalled EUR 588.4 million (16%). Gross external debt service totalled EUR 5 556.6 million (12.9% of GDP) in January June 2015, compared with EUR 2 484.6 million (5.9% of GDP) in the same period of 2014.4 Net external debt totalled EUR 11 720.6 million at end-june 2015. It dropped by EUR 2 444.5 million (17.3%) from end-2014 (EUR 14 165.1 million). The decrease was due to both the decline in gross external debt (by EUR 1 430.5 million, 3.6%) and the increase in gross external assets (by EUR 1 014.1 million, 4%). As a percentage of GDP, net

Page 4 BULGARIA: ECONOMIC AND MARKET ANALYSES, August 2015 external debt equated to 27.3%, down by 6.4 p.p. from end-2014 (33.7%). On a year-on-year basis, net external debt declined by EUR 3 239.8 million (21.7%) from June 2014 (EUR 14 960.4 million, 35.6% of GDP). 3.Foreign reserves In July 2015 Bulgaria s international reserves grew up by 2.1% m/m and by 29.7% y/y, respectively and exceeded BGN 38.4 billion (EUR 19.6 billion) According BNB data in July 2015 Bulgaria s international reserves grew up by 2.1% m/m and by 29.7% y/y, respectively and exceeded BGN 38.4 billion (EUR 19.6 billion). The monthly increase is determined by the increase in money in circulation that exceed BGN 11.7 billion as recorded monthly growth of 3.2%. Liabilities to banks increased by BGN 514.3 million or by 5% m/m. The section of the asset recorded a significant increase in cash and deposits, which for a period of one month increased by over BGN 1.9 billion, or by 21.3% m/m. For the same period, investments in securities decreased by nearly BGN 1 billion or by 4% m/m. Bulgaria s international liquidity position continued to improve and by the end of May 2015 was 253.8% compared to 163.6% at the end of 2014 and 142.2% in May 2014. 4. Tourism In June 2015, the number of the trips of Bulgarian residents abroad was 468.3 thousand or by 13.9% above the registered in June 2014 In June 2015, the number of the trips of Bulgarian residents abroad was 468.3 thousand or by 13.9% above the registered in June 2014. The trips with other purposes (as a guest, education and visit the cultural and sport events) in June 2015 composed the greatest share of the total number of trips of Bulgarian residents abroad - 44.1%, followed by the trips with holiday and recreation purposes - 33.3%, and with professional purpose - 22.6%. In comparison with June 2014 an increase was registered in the trips with holiday and recreation purposes - by 55.5%, with other purposes - by 2.9%, while the trips with professional purpose decreased - by 3.8%.In June 2015, the number of arrivals of visitors from abroad to Bulgaria was 1 133.5 thousand or by 3.7% below the level of June 2014. A decrease was registered in the trips with holiday and recreation purpose by 23.9%, while the trips with other purposes and with professional purpose increased by 42.2% and 4.6% respectively. The share of visits of ЕU citizens was 57.6% of the total number of foreigners visits to Bulgaria in June 2015 or by 0.5% more in comparison with the same month of the previous year. The visits of foreigners in the group Other European countries decreased by 12.1%, as the highest decrease was observed in the visits of citizens of Russian Federation - by 33.2%. In June 2015, the predominant share of the visits with holiday and recreation purpose was 49.9%, followed by these with others purposes (including as guest and passing transit) - 38.4% and with professional purpose - 11.7%. In June 2015, 2 731 accommodation establishments - hotels, motels, camping sites, mountain chalets and other establishments for short-term accommodation with more than 10 bed places were functioned in the country. The total number of the rooms in them was 123.5 thousands and the bed-places were 269.1 thousands. In comparison with June 2014 the total number of accommodation establishments (functioned during the period) increased by 2.6% and the bed-places in them - by 0.2%. The total number of the nights spent in all accommodation establishments registered in June 2015 was 2 909.4 thousands or by 14.7% less in comparison with the same month of the previous year. In June 2015, the arrivals in all accommodation establishments decreased by 2.7% compared to the same month of 2014 and reached 724.7 thousands. In June 2015, the total occupancy of the bed-places in accommodation establishments was 38.2% as compared to June 2014 decreased by 6.2 percentage points. The total revenues from nights spent in June 2015 reached 127.3 million BGN or by 12.0% less compared to June 2014. A decrease was registered in the revenues from the foreigners - by 15.8%, while those from the Bulgarians increased by 4.5%.

Page 5 BULGARIA: ECONOMIC AND MARKET ANALYSES, August 2015 II. REAL SECTOR 1.Gross domestic product Gross Domestic Product (GDP) expanded with 2.2% in the second quarter of 2015 compared to the same quarter of the previous year and with 0.4% compared to the first quarter of 2015 Gross Domestic Product (GDP) expanded with 2.2% in the second quarter of 2015 compared to the same quarter of the previous year and with 0.4% compared to the first quarter of 2015 according to the seasonally adjusted data. According to the flash GDP estimates for the second quarter of 2015, the GDP at current prices amounted to 20 920 million BGN. GVA in the second quarter of 2015 amounted to 17 901 million BGN. In the structure of GDP by the expenditure approach the largest share has the final consumption (78.3%), which in nominal terms amounted to 16 380 million BGN. In the second quarter of 2015 gross capital formation is 4 787 million BGN and has a share of 22.9% in GDP. The external balance (exports minus imports) has a negative sign. According to the seasonally adjusted data, the GDP growth rate in the second quarter of 2015 is 0.4% compared to the previous quarter. Gross value added increased in the second quarter of 2015 by 0.5%. According to the flash estimates by final expenditure the GDP growth in the second quarter of 2015 is determined by an increase in the final consumption with 0.7 % and gross fixed capital formation with 0.3%.The second quarter of 2015 GDP at seasonally adjusted data increased by 2.2% compared to the same quarter of the previous year. Gross value added increased by 1.8%. As regards the expenditure components of GDP, the final consumption registered a positive economic growth by 2.1%. Gross fixed capital formation recorded an increase by 1.4% compared to the same quarter of the previous year. Exports and imports of goods and services increased by 3.6% and 7.5% respectively. 2.Households Income, Expenditure and Consumption The total income average per household member during the second quarter of 2015 is 1 203 BGN and increases by 3.7% The total income average per household member during the second quarter of 2015 is 1 203 BGN and increases by 3.7% compared to the same quarter of 2014. The highest relative share of income within the total income is this from wages and salaries (55.9%). The relative share of income from pensions is 26.6%, from self-employment - 7.0% and from social benefits - 3.6%. The nominal income by source average per capita changes during the second quarter of 2015 compared to the second quarter of 2014 changes as follows: Income from wages and salaries increases by 5.1% (from 640 BGN to 673 BGN); Self-employment income decreases by 1.6% (from 86 BGN to 84 BGN); Income from pensions increases by 5.1% (from 305 BGN to 320 BGN); Income from social benefits remains without change (44 BGN). The relative share of monetary income into the total income during the second quarter of 2015 is 98.7% and the share of income in kind is 1.3%. The total expenditure average per household member during the second quarter of 2015 is 1 093 BGN and increases by 7.9% in comparison with the same quarter of 2014. Expenditure on food has the greatest share in forming the total expenditure - 33.7% as well as expenditure on housing - 16.6% and transport and communication - 11.5%. The expenditure by group average per capita changes as absolute values during the second quarter of 2015 compared to the same quarter of 2014 as follows: Expenditure on food and non-alcoholic beverages increases by 3.7% (from 355 BGN to 369 BGN); Expenditure on housing (water, electricity, heating, furnishing and maintenance of the house) increases by 18.6% (from 153 BGN to 182 BGN); Expenditure on transport and communication decreases by 1.5% (from 127 BGN to 125 BGN); Expenditure on health increases by 10.1% (from 50 BGN to 55 BGN); Expenditure on alcoholic beverages and tobacco increases by 14.1% (from 45 BGN to 51 BGN); Expenditure on clothing and footwear increases by 5.7% (from 35 BGN to 37 BGN). The consumption of main food products average per household member does not change considerable during the second quarter of 2015 compared to the same quarter of 2014. Decrease is observed in consumption of: bread and paste products by 0.5 kg - from 22.8 kg to 22.3 kg, yoghurt - from 7.3 kg to 6.8 kg, vegetables - from 18.4 kg to 18.2 kg. The consumption of fruit increases from 7.6 kg to 7.9 kg.

Page 6 BULGARIA: ECONOMIC AND MARKET ANALYSES, August 2015 2. Business Climate In August 2015 the total business climate indicator increases by 1.3 percentage points compared to its level from the previous month In August 2015 the total business climate indicator increases by 1.3 percentage points compared to its level from the previous month, which is due to the improved managers opinions in industry and retail trade. The composite indicator business climate in industry increases by 2.1 percentage points in comparison with July due to the favourable industrial entrepreneurs assessments and expectations about the business situation of the enterprises. The uncertain economic environment remains the main factor limiting the business development in the branch. In August the composite indicator business climate in construction remains to its level from the previous month. According to the construction entrepreneurs assessments the present construction activity is preserved, as well their forecasts over the next 3 months also remain favourable. The composite indicator business climate in retail trade increases by 3.0 percentage points compared to the previous month due to the more optimistic retailers assessments about the present business situation of the enterprises. Their opinions about the volume of sales over the last 3 months are also slight improved and their expectations over the next 3 months remain favourable. In August the composite indicator business climate in service sector remains approximately to the level from the previous month. With regard to the demand for services the present tendency is estimated as decreased, as the expectations over the next 3 months are also more reserved. Concerning the selling prices in the sector the managers expectations are for preservation of their level over the next 3 months 3.Inflation The annual inflation in July 2015 compared to July 2014 was -0.2% The consumer price index in July 2015 compared to June 2015 was 99.8%, i.e. the monthly inflation was -0.2%. The inflation rate since the beginning of the year (July 2015 compared to December 2014) has been -0.3% and the annual inflation in July 2015 compared to July 2014 was -0.2%. The annual average inflation, measured by CPI, in the last 12 months (August 2014 - July 2015) compared to the previous 12 months (August 2013 - July 2014) was -0.3%.The harmonized index of consumer prices in July 2015 compared to June 2015 was 100.2%, i.e. the monthly inflation was 0.2%.The inflation rate since the beginning of the year (July 2015 compared to December 2014) has been -0.2%and the annual inflation in July 2015 compared to July 2014 was -1.0%. The annual average inflation, measured by HICP, in the last 12 months (August 2014 - July 2015) compared to the previous 12 months (August 2013 - July 2014) was -1.3%.The price index of a small basket in July 2015 compared to June 2015 was 99.3% and the overall decrease since the beginning of the year (July 2015 compared to December 2014) has been 98.8%. In July 2015 compared to the previous month the prices of goods and services in the small basket for the 20% households with the lowest income changed as follows: Food products - a decrease of 1.1%; Non-food products - a decrease of 0.3%; Services - a decrease of 0.1%. 4.Producer price index in Industry Producer Price Index on Domestic Market in June 2015 increased by 0.2% compared to the previous month Producer Price Index on Domestic Market in June 2015 increased by 0.2% compared to the previous month. The domestic prices rose in the manufacturing by 0.4% and in the electricity, gas, steam and air conditioning supply by 0.2%, while in the mining and quarrying industry the prices fell by 3.4%. Producer Price Index on Domestic Market in June 2015 decreased by 0.3% compared to the same month of 2014. The domestic prices fell in the manufacturing by 2.6%, while prices increases were registered in the mining and quarrying industry by 3.5% and in the electricity, gas, steam and air conditioning supply by 3.3%. Total Producer Price Index in Industry in June 2015 decreased by 0.6% compared to the previous month. Total Producer Price Index in June 2015 decreased by 0.2% compared to the same month of 2014. In the manufacturing, the prices fell by 1.3% compared to June 2014. More significant prices decreases were seen in the manufacture of other nonmetallic mineral products by 1.1%, in the manufacture of food products and in the repair and installation of machinery and equipment by 0.5%, while the producer prices went up in the manufacture of other transport equipment by 7.5%, in the manufacture of basic metals by 7.3%, and in the manufacture of textiles by 5.9%.

Page 7 BULGARIA: ECONOMIC AND MARKET ANALYSES, August 2015 5.Industrial Production Index In June 2015 working day adjusted Industrial Production Index rose by 5.7% in comparison with the same month of 2014 According to the preliminary data the Industrial Production Index, seasonally adjusted, increased by 0.6% in June 2015 as compared to May 2015. In June 2015 working day adjusted Industrial Production Index rose by 5.7% in comparison with the same month of 2014. In June 2015 as compared to May 2015, the seasonally adjusted Industrial Production Index increased in the mining and quarrying industry by 1.9% and in the manufacturing by 1.1%, while in the electricity, gas, steam and air conditioning supply a decrease by 1.4% was seen. On annual basis in June 2015 Industrial Production Index calculated from working day adjusted data increased in the mining and quarrying industry by 6.6%, in the manufacturing by 6.4% and in the electricity, gas, steam and air conditioning supply by 3.0%. 6. Retail and wholesale trade In June 2015 the working day adjusted turnover in Retail trade, except of motor vehicles and motorcycles grew by 2.7% in comparison with the same month of the previous year According to the preliminary seasonally adjusted data in June 2015 the turnover in Retail trade, except of motor vehicles and motorcycles at constant prices increased by 0.8% compared to the previous month. In June 2015 the working day adjusted turnover in Retail trade, except of motor vehicles and motorcycles grew by 2.7% in comparison with the same month of the previous year. In June 2015 compared to the previous month the turnover increased more significantly in the Retail sale via mail order houses or via Internet by 5.7%, in the Dispensing chemist; retail sale of medical and orthopaedic goods, cosmetic and toilet articles by 3.1% and in the Retail sale of audio and video equipment; hardware, paints and glass; electrical household appliances by 1.8%. A decrease was registered in the Retail sale of textiles, clothing, footwear and leather goods - 2.1%, in the Retail sale in nonspecialised stores - 0.4% and in the Retail sale of automotive fuel - 0.3%.In June 2015 compared to the same month of 2014 the turnover increased more significantly in the Retail sale via mail order houses or via Internet by 17.1%, in the Dispensing chemist; retail sale of medical and orthopaedic goods, cosmetic and toilet articles by 12.1% and in the Retail sale of audio and video equipment; hardware, paints and glass; electrical household appliances by 8.1%. A drop was registered in the Retail sale of textiles, clothing, footwear and leather goods - 8.9%, in the Retail sale in non-specialised stores - 2.8% and in the Retail sale of food, beverages and tobacco - 1.8%. 7.Unemployment The unemployment rate in July 2015 is amounted to 9.4%, which is under 0.2% comparing the previous month The unemployment rate in July 2015 is amounted to 9.4%, which is under 0.2% comparing the previous month. In the second quarter of 2015 there were 330.9 thousand unemployed persons and the unemployment rate was 9.9%. In comparison with the same quarter of 2014 the number of unemployed persons went down by 50.9 thousand and the unemployment rate decreased by 1.5 percentage points. In the period concerned the unemployment rate declined for both, men and women, and achieved 10.9% for men and 8.8% for women. Of the total number of unemployed persons in the second quarter of 2015 195.0 thousand (58.9%) were men and 135.9 thousand (41.1%) were women. In the second quarter of 2015 there were 208.8 thousand long-term unemployed persons, represented 63.1% of all unemployed. The long-term unemployment rate was 6.2%, and in comparison with the respective quarter of 2014 decreased by 0.4 percentage points. The long-term unemployment rate by sex was 7.0% for men and 5.4% for women. Of the total number of unemployed persons 48.6 thousand (14.7%) were looking for a first job. In the second quarter of 2015 the unemployment rate for the age group 15-29

Page 8 BULGARIA: ECONOMIC AND MARKET ANALYSES, August 2015 was 13.9% (14.2% and 13.3% for men and women respectively). In comparison with the second quarter of 2014 this rate was lower by 2.9 percentage points as the decline was higher for men than for women (by 3.3 and 2.6 percentage points respectively). In the second quarter of 2015 the total number of employed persons aged 15 years and over was 3 011.2 thousand representing 48.7% of population in the same age group. In employment were 53.7% (1 595.5 thousand) of all men aged 15 years and over and respectively 44.2% (1 415.7 thousand) of women. In comparison with the second quarter of 2014 the proportion of employed persons rose by 0.8 percentage points, by 1.0 percentage points for men and by 0.7 percentage points for women. Between second quarters of 2014 and 2015 the employment increased mainly in services and in this sector the number of employed persons achieved 1 897.8 thousand (63.0% of all employed persons), in industry worked 897.4 thousand persons (29.8%), and 216.0 thousand persons (7.2%) were engaged in agriculture, forestry and fishing. 8.Foreign trade In the period January - June 2015 the value of all exported goods from Bulgaria amounted to 22.4 Billion BGN and compared to the corresponding period of 2014 the exports increased by 11.0% In the period January - June 2015 the value of all exported goods from Bulgaria amounted to 22.4 Billion BGN and compared to the corresponding period of 2014 the exports increased by 11.0%. In June 2015 the total exports added up to 4.0 Billion BGN and increased by 8.7% compared to the corresponding month of the previous year. The total value of all the goods imported in the country in the period January - June 2015 amounted to 25.4 Billion BGN (at CIF prices), or by 4.7% more than the corresponding period of 2014. In June 2015 the total imports increased by 5.8% compared to the corresponding month of the previous year and added up to 4.4 Billion BGN. The total foreign trade balance (exports FOB - import CIF) was negative in the period January - June 2015 and amounted to 3 044.5 Million BGN which was 1 090.4 Million BGN less than the balance in the first six months of 2014. At FOB/FOB prices (after elimination of transport and insurance costs on imports) in the period January - June 2015 the total foreign trade balance was also negative and amounted to 1 936.8 Million BGN. In June 2015 the total foreign trade balance (exports FOB - import CIF) was negative and added up to 383.1 Million BGN. The trade balance at FOB/FOB prices was also negative and amounted to 170.8 Million BGN. III. FISCAL SECTOR 1.Government budget The fiscal reserve as of 06.30.2015 is BGN 11,0 billion, incl. BGN 10,8 billion deposit of the fiscal reserve account and banks and BGN 0,2 billion receivables from the European Union funds for certified expenditure and other advances Based on data from monthly reports on cash execution of the budgets of primary ushers with budget-revenues and grants under the consolidated fiscal program (CFP) to the end of June 2015 amount to BGN 16 303.1 million, which is 53.7% of the annual estimates. Compared with the same period of the previous year revenues and grants increased by BGN 2 132.4 million (15.0%). Tax revenues (incl. Income from social security contributions) amounted to BGN 12 286.0 mln., which represents 75.4% of total revenues CFP. Revenues from direct taxes amounted to BGN 2 364.6 mln., which is 53.8% of the annual plan. Revenues from indirect taxes amounted to BGN 6 040.1 mln., which is 49.9% from the planned income in Law on State Budget of the Republic of Bulgaria for 2015. Incomes from other taxes (including other taxes under the Corporate Income, property taxes, etc.) аmount to BGN 529,6 mln., which is 61.1% of the annual estimate. Revenues from social security and health insurance contributions amount to BGN 3 351.8 million or 50.4% of the annual plan. Non-tax revenues amounted to BGN 2 018.9 mln., which is 60.4% of the annual targets. Revenues from grants from the country and abroad (incl. The assistance from EU funds) amount to BGN 1 998.2 mln., which is 66.7% of the annual plans. Expenditures under the consolidated fiscal program (incl. the contribution of Bulgaria to the EU general budget) to 30.06.2015 amounts to BGN 15 413.0 mln., which is 46.9% of Annual Budget Law plans. Compared with the same period of the previous year total cost of the CFP increased by BGN

Page 9 BULGARIA: ECONOMIC AND MARKET ANALYSES, July 2015 246.0 million (1.6%). Non-interest expenses amount to BGN 14 598.1 mln., which is 47.7% of the annual plans. Current noninterest expenses to June 2015 are BGN 12 640.5 mln. (50.1% of those planned for the year), capital expenditures (incl. Net increment of state reserve) amount to BGN 1 957.7 million (36.3% of the Budget plans for 2015). Interest payments amounted to BGN 309.6 million. (35.5% of those planned for 2015). The budget balance under the consolidated fiscal program at 06/30/2015 is positive in the amount of BGN 890.0 million. (1.1% of GDP) and it is formed by a surplus in the national budget amount to BGN 439.9 mln. and surplus from european funds which are BGN 450.2 million. In comparison to the end of June 2014 the budget balance under the consolidated fiscal program was a deficit of BGN 996.4 million (1.2% of GDP) relative to GDP budgetary position improves by 2.3 percentage points. Higher incomes and grants continue to be the main factors for the improvement in the budget position at June 2015. The fiscal reserve as of 06.30.2015 is BGN 11.0 billion, incl. BGN 10.8 billion deposit of the fiscal reserve account and banks and BGN 0.2 billion receivables from the European Union funds for certified expenditure and other advances. Total revenue and grants in the state budget to 06.30.2015 is BGN 9 536.4 mln., which is 52.3% from the State Budget Law for 2015 and with BGN 831.2 million more compared to the same period of previous year. The amount of tax revenues in the state budget to 06.30.2015 is BGN 8 494.1 mln., which is 51.2% of the annual balance and nominal growth by BGN 764.4 million compared to June 2014. Incomes in the group of direct taxes to June 2015 amount to BGN 2 357.7 mln. or 53.8% of the annual plan. Revenues from indirect taxes to the month of June 2015 are BGN 6 040.1 mln. or 49.9% Annual Budget Law plans. VAT incomes amount to BGN 3 946.3 mln., which is 51.0% of the State Budget Law for 2015 and BGN 459.8 million more compared to the same period of 2014. VAT incomes formed 46.5% of the hole amount of the tax incomes in the state budget. The earnings from other taxes in the state budget as of June 2015 are BGN 96.3 mln or 79.8% of the planned State Budget Law for 2015. The reported non-tax revenues of the state budget amount to BGN 1 034.9 million. The proceeds represent 63.0% of the annual plan. Revenues from other taxes in the state budget to the month of June 2015 amount to BGN 96.3 million, or 79.8% of planned in the State Budget Law for 2015. The total cost of the state budget (incl. transfer to other budgets and contribution to the EU budget) to the month of June 2015 is BGN 9 588.2 mln. or 46.8% from those planned in the State Budget Law for 2015. Non-interest expenses in the state budget (excluding transfers to others budgets) amount to BGN 3 633.1 million to the month of June 2015, which is 44.6% Annual Budget Law plans. Compared to the same period last year, non-interest expenses are BGN 193.7 million. (5.1%) less, mainly due to the decrease in current non-interest expenses. Personnel costs (salaries, wages and other payments to employees and social security contributions) in total amount to BGN 1 884.1 mln. or 53.3% of those planned for 2015. Interest payments on government budget to the month of June 2015 are in total of BGN 288.8 million or 34.1 % of the annual budget plan. 2.Government debt By end-june government debt totalled EUR 12.257.0 million in nominal terms, including domestic debt of EUR 4364.1 million and external debt of EUR 7892.9 million By end-june government debt totalled EUR 12.257.0 million in nominal terms, including domestic debt of EUR 4364.1 million and external debt of EUR 7892.9 million. Government debt posted a decrease of EUR 50.7 million on end-may, reflecting the repayments made during the review month. By end-june the government debt to GDP ratio was 28.7 per cent. Ratios of domestic and external government debts accounted for 10.2 and 18.5 per cent, respectively. Domestic government debt occupied 35.6 per cent and external government debt 64.4 per cent in the debt structure. By end-june the share of euro-denominated debt was 78.5 per cent, in levs, 20.5 per cent, in US dollars 0.4 per cent and in other currencies 0.6 per cent. In the structure of the debt by creditor, Eurobonds issued in international capital markets comprised the largest share (45.2 per cent), followed by domestic debt (35.6 per cent), borrowings from the European Union (9.5 per cent), and from the World Bank (6.1 per cent). Obligations to other creditors and the Paris Club were 3.1 and 0.4 per cent, respectively. By end-june the debt interest rate structure also experienced changes: the share of debt with fixed interest rates reached 93.4 per cent and that of debt with floating interest rates comprised 6.6 per cent. In June government debt payments amounted to BGN 70.8 million. Between January and June payments in euro dominated the currency structure of debt payments (BGN 3175.0 million), followed by payments in US dollars (BGN 1899.5 million), in levs (BGN 228.4 million) and in Japanese yen (BGN 9.8 million).

Page 10 BULGARIA: ECONOMIC AND MARKET ANALYSES, August 2015 IV MONETARY SECTOR 1.Money supply In July 2015 broad money (monetary aggregate M3) increased annually by 3.5% compared to 2.5% annual growth in June 2015 In July 2015 broad money (monetary aggregate M3) increased annually by 3.5% compared to 2.5% annual growth in June 2015. At the end of July 2015 M3 was BGN 70.579 billion (84.1% of GDP) compared to BGN 69.346 billion (82.6% of GDP) in June 2015. Its most liquid component monetary aggregate M1 increased by 11.4% annually in July 2015 (11.5% annual growth in June 2015). At the end of July 2015, deposits of the non-government sector were BGN 60.097 billion (71.6% of GDP), increasing annually by 4.8% (4% annual growth in June 2015). Deposits of Nonfinancial corporations were BGN 16.440 billion (19.6% of GDP) at the end of July 2015. Compared to the same month of the previous year they increased by 7.7% (5.4% annual growth in June 2015). Deposits of financial corporations decreased by 16.4% annually in July 2015 (15.4% annual decline in June 2015). At the end of the month they reached BGN 2.821 billion (3.4% of GDP). Deposits of Households and NPISHs were BGN 40.836 billion (48.6% of GDP) at the end of July 2015, increasing by 5.5% compared to the same month of 2014 (5.2% annual growth in June 2015). Net domestic assets were BGN 48.055 billion at the end of July 2015. They decreased by 11.4% compared to the same month of 2014 (15.4% annual decline in June 2015). At the end of the month their basic component domestic credit was BGN 50.004 billion and decreased by 10.8% compared to July 2014 (14.5% annual decline in June 2015). In July 2015 claims on the non-government sector declined by 9.6% annually (9.5% annual decrease in June 2015) reaching BGN 51.347 billion. At the end of July 2015, claims on loans to the non-government sector amounted to BGN 50.187 billion (59.8% of GDP) compared to BGN 50.262 billion (59.9% of GDP) at the end of June 2015. They decreased annually by 10% in July 2015 (9.8% annual decline in June 2015). The change of loans to the non-government sector was influenced by net sales of loans by Other monetary financial institutions (Other MFIs) - their volume for the last twelve months was BGN 446.7 million. On an annual basis, loans sold by Other MFIs were BGN 482.4 million (of which BGN 5.6 million in July 2015), while the amount of repurchased loans was BGN 35.7 million (of which BGN 1.2 million in July 2015). In July 2015, loans to Non-financial corporations decreased by 14.6% annually (14.5% annual decline in June 2015) and at the end of the month amounted to BGN 30.687 billion (36.5% of GDP). Loans to Households and NPISHs were BGN 18.308 billion (21.8% of GDP) at the end of July 2015. They decreased by 1.7% compared to the same month of 2014 (1.8% annual decline in June 2015). At the end of July 2015 loans for house purchases were BGN 8.686 billion and decreased by 2.2% annually (2.2% annual decline in June 2015). Consumer loans amounted to BGN 7.360 billion and compared to July 2014 they increased by 0.05% (0.1% annual decline in June 2015). On an annual basis other loans decreased by 11.6% (12.7% annual decline in June 2015) and reached BGN 728.7 million. Loans granted to financial corporations were BGN 1.192 billion at the end of July 2015 (1.4% of GDP). Compared to July 2014, they decreased by 1.2% (10.4% annual growth in June 2015). Net foreign assets amounted to BGN 40.099 billion at the end of the reporting month compared to BGN 38.767 billion at the end of June 2015. They increased by 28.5% on an annual basis compared to 37.9% annual growth in June 2015. At the end of July 2015 foreign assets increased by 13.5% annually (17.5% annual growth in June 2015), reaching BGN 49.977 billion. Foreign liabilities amounted to BGN 9.878 billion, marking a 22.9% annual decline (26.1% annual decrease in June 2015). 2.Banking system At the end of the six-month period the banking system s main financial indicators remained stable At the end of the six-month period the banking system s main financial indicators remained stable. The liquidity position of individual credit institutions and the system remained strong as a whole. During the second quarter, the deposits of households and corporations increased. The implemented macro-prudential measures strengthened further the liquidity and capital positions of market participants sensitive to adverse external influence. As of 30 June 2015 the liquid assets of credit institutions in the country amounted to BGN 23.7 billion, or 28.3% of the balance sheet total of the banking system. Cash comprised the biggest share (50.1%) in the liquid assets composition and its role grew during the quarter. The liquidity ratio calculated under BNB Ordinance No. 11 also remained high 32.72%. The reported profit of the banking system as of 30 June was BGN 503 million, i.e. by BGN 171 million more than in the first

Page 11 BULGARIA: ECONOMIC AND MARKET ANALYSES, August 2015 half of the last year. The lower interest and impairment costs had a major contribution to the improved financial result. The impairment of loans and receivables accumulated for the first six months of the year was BGN 416 million (compared to BGN 533 million for the previous year). The level of credit risk in the banking sector remained within the usual limits. During the quarter no significant change was reported in the gross carrying amount of non-performing exposures, which amounted to BGN 10,970 million at the end of June. At the end of the reporting quarter the total assets of the banking system amounted to BGN 83.9 billion and the market share of the five largest banks was 56.1%. During the period, the total assets declined due to decrease of deposits from non-resident credit institutions and decrease of securities issued by nonresidents. The balance sheet aggregate cash and cash balances at central banks and other demand deposits reached BGN 13.8 billion (16.5% of the banking system s assets). At the same time, investments in debt securities decreased by BGN 1.7 billion due to a decline in repo operations with financial instruments issued by non-residents. As a result of that, the share of debt and equity instruments in the balance sheet of the banking system decreased to 13.5%. Gross loans (excluding advances) slightly increased during the quarter (by 0.3%). Loans to non-financial corporations decreased by BGN 77 million under the impact of the realised sales of portfolios. Loans to households increased by BGN 326 million, residential mortgage loans decreased insignificantly, while credit for consumption increased slightly. The loan portfolio currency structure remained similar to the one in the previous quarter and the share of other currencies (excluding the lev and the euro) remained insignificant.at the end of June, the total amount of deposits was BGN 71.1 billion, of which 52.8% were lev-denominated and 38.3% eurodenominated. The upward trend of funds attracted from domestic sources continued and by the end of June 89.4% of deposits were attracted from residents. The share of deposits of households in the total deposit base reached 59.8%. During the second quarter household savings increased by BGN 269 million to BGN 42.5 billion. The resources from non-financial corporations also increased by BGN 46 million as well as those from other financial corporations by BGN 110 million. At the end of June the item total equity in the banking system s balance sheet amounted to BGN 10.8 billion. Compared to the end of March, the dynamics of the item is mainly due to changes in retained earnings and the current financial result. V. STOCK MARKET SOFIX slipped 2.4% in July to close at 473.64, extending year to date losses to 9.3% Bulgaria s stock market benchmark SOFIX ended in the red in July, continuing a downward trend that had started in April 2014. The benchmark slipped 2.4% in July to close at 473.64, extending year to date losses to 9.3%. Furthermore, wider BGBX40 fell 2.1% in July to settle at 93.64, down by 10.5% y t d. Meanwhile, property related BGREIT added 1.6%, narrowing losses from the start of the year to 3.1%. Total market turnover dropped by 24% to BGN 13.7 mln. Stocks of courier services company Speedy were among the rare gainers in July, adding 8.01% to BGN 34.0 per share on favorable earnings numbers. The highest growth for the month distinction shares of Sviloza AD, which added 16.00% of its value in July. VI. REAL ESTATE According to the preliminary data, in June 2015 the index of production in section Construction calculated on the base of seasonally adjusted data was 2.6% above the level of the previous month According to the preliminary data, in June 2015 the index of production in section Construction calculated on the base of seasonally adjusted data was 2.6% above the level of the previous month. In June 2015 working day adjusted data showed an increase by 1.5% in the construction production, compared to the same month of 2014. In June 2015 the construction production, calculated from the seasonally adjusted data, was above the level of the previous month. Index of production of civil engineering increased by 3.6% and the production of building construction - by 1.7%. On an annual basis in June 2015, the increase of production in construction, calculated from working day adjusted data, was determined mainly from the positive rate in the civil engineering by 9.4%, while in the building construction was registered a decrease by 5.4%.