* New debt could be spent on Corpbank rescue
* Still no consensus on bank rescue package
* Parliament to vote again on debt, deficit on Monday
* Moody's downgrades Corpbank deposits
By Tsvetelia Tsolova
SOFIA, July 29 Bulgaria's outgoing parliament
voted on Tuesday to widen the 2014 fiscal deficit target and
raise 3.4 billion levs ($2.33 billion) in new debt, giving the
next government some of the tools needed to solve the country's
President Rosen Plevneliev is due to appoint an interim
government on Aug. 6 to govern the Balkan state for two months
ahead of a general election, but it cannot raise new sovereign
debt without this parliament's permission.
The debt could be used to rescue Corporate Commercial Bank
(Corpbank), which was hit by a run on deposits in June.
The lender's fate remains unclear, as lawmakers had
previously rejected efforts by the government and the central
bank to push through a rescue package, and political parties
have so far failed to agree on an alternative.
There is a shrinking window for parliament to approve any
new package, as it dissolves on Aug. 6.
There is also no clarity on whether or to what extent the
bank's depositors and holders of Corpbank's 150 million U.S.
dollar-denominated bond will be protected. The bond matures on
Aug. 8 and could default, although bondholders may be repaid at
a later stage.
Ratings agency Moody's on Tuesday downgraded Corpbank's
long-term local- and foreign-currency deposit ratings to Caa1
from B3 and left those ratings on review for a further
downgrade, citing uncertainty over depositors' funds.
"The new debt is needed to provide stabilisation buffers for
the financial and banking system and finance the budget gap,"
said Yordan Tsonev, head of the parliamentary budget commission.
Tuesday's vote is not final, as the changes to the budget
need to be approved again at a second reading on Monday.
The opposition GERB party, which is tipped to win the snap
election in October, and the ethnic Turkish MRF party, which was
the junior coalition partner of the government that resigned
last week, both voted in favour of the budget changes.
Future governments will be allowed to widen the fiscal
deficit to 2.7 percent of GDP, higher than Bulgaria's initial
target of 1.8 percent, giving them the wriggle room to pump some
225 million levs into Bulgaria's ailing healthcare services.
The Socialists, who until last week led the government,
rejected the plan to raise debt. They argued the decision was a
ploy by the president, who was elected on GERB's ticket, to
raise spending ahead of the election, which was triggered by the
Socialists' poor showing in recent European elections.
Bulgaria, among the EU's least indebted countries, needs to
keep its fiscal deficit low to protect its currency peg to the
euro. The country operates under a currency board regime which
restricts the central bank from setting interest rates, leaving
fiscal policy as its main tool to influence the economy.
A source told Reuters last week that no concrete action
would likely be taken on Corpbank until the results of an
ongoing audit into the lender are revealed, which will probably
be in the second half of September.
The centre-right GERB party has already said it does not
favour using taxpayer money to bail out the bank, signalling
that if it is elected, it is unlikely to repay Corpbank's
depositors in full.
The results of an initial audit showed activities in the
bank "incompatible with the law and good banking practices",
according to the central bank.
"The downgrade was prompted by the increased risk of losses
to depositors given the uncertainty with regards to when they
will regain access to their deposits and the authorities' plan
to fully protect uninsured depositors...," Moody's said.
($1 = 1.4575 Bulgarian levs)
(Editing by Matthias Williams and Susan Fenton)