Bulgaria aims to cut budget deficit in 2012

Bulgaria aims to bring down its budget deficit to 1.35 percent of gross domestic product next year to protect its economy from the impact of the European debt crisis, Finance Minister Simeon Djankov said on Monday.
The Balkan country is the European Union's poorest member but its public finances are in much better shape than those of most EU states, and it has been largely insulated from the sovereign debt crisis that threatens to engulf the euro zone.
"The 2012 budget demonstrates the government's resolve to carry out fiscal consolidation and achieve a balanced position in 2014," read the budget draft published by the finance ministry.
Sofia will end this year with a fiscal shortfall of about 2% of GDP, less than an initially targeted 2.5%, Djankov said last week.
The draft is due to be approved by the centre-right government next Monday after discussions with the trade unions. Parliamentary approval is also still pending.
Bulgaria needs to keep fiscal policy tight to avoid the deficit spiralling out of control and putting pressure on its currency peg to the euro. It operates a currency board regime which significantly curtails central bank operations, leaving fiscal policy as the main tool to influence the economy.
The cabinet cut its 2012 economic growth forecast to 2.9% from a previous 4.1% after revising this year's growth target to 2.8% as the crisis in the euro area crimps expansion among Bulgaria's major trading partners.
For 2012, the government plans to raise 9.6% more in revenues, which will allow spending to rise by 5.5% while still trimming the deficit, the budget draft showed.
The spending increase is mainly due to a 43% hike in capital expenditure, as the centre-right government uses EU aid funds to help farmers, overhaul ageing infrastructure and build new highways. EU fund inflows are seen almost doubling to 3.3 bln levs next year from 2.1 bln levs in 2011.
National budget spending, which excludes EU funds, will be almost flat on 2011, with public sector salaries and pensions frozen for a third consecutive year.
The cabinet, whose candidate faces a run-off at presidential polls next Sunday against a Socialist rival, said it may agree to raise minimum monthly pay to 290 Bulgarian levs ($206) from 270 levs currently.
Sofia plans to keep its flat 10% income and corporate tax rate, one of the lowest in the world, unchanged in 2012.
The country, which is one of the least indebted in the EU, sees its debt to GDP ratio rising to about 19% next year from 16% at the end of 2011.
The government may sell up to 1.0 bln euros ($1,3 bln) in bonds on the international markets next year to finance a bond that matures in early 2013 if market conditions are favourable.
It plans to issue 1.2 bln levs on the domestic market.