* 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 (Reuters) - 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 banking crisis.
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)