"The mechanisms of the Currency Board in Bulgaria have resulted in a short-term financial stabilisation although, in the middle- and longterm perspective, without achievements in the real sector the results from this stability will be undermined. The banking sector is still over-liquid due to high-risk production crediting and the structure of the banks' portfolios. The tendency is to keep assets in short-term state securities and look for possible revenues abroad. The investment policies of the commercial and investment banks should be altered with the emphasis being put on investments in the real sector, which in 1999 is expected to experience the much-prolonged structural reform. Otherwise, Bulgaria may face serious problems with regard to its balance of payments deficit which, under the conditions of the CBA, will have a negative impact on expected economic growth. The conclusion is that reform in the banking sector is lagging behind and, if it is not speeded up in 1998-99 by privatisation, by changes in the regulatory functions of the Central Bank and by the relocation of more assets to the real economy, it will become an inhibiting factor for economic growth and the transition in general."

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