Bulgaria has for years been facing some of the highest credit growth rates and current account deficits in Central and South-Eastern Europe, raising concerns about possible risks for macroeconomic and financial sector stability. Since standard monetary policy instruments are not available within the currency board arrangement, the Bulgarian National Bank resorted to a combination of administrative and prudential measures to curb credit growth. The introduction of defacto credit ceilings has successfully reduced credit growth to below 20%. However, increased recourse by the corporate sector to direct foreign borrowing and to nonbank financial intermediation has meant that the hoped-for reduction of external imbalances has failed to materialise. The Bulgarian experience underlines the importance of a comprehensive policy response to the challenges and risks associated with high credit growth during transition

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