UPDATE 2-Bulgaria targets fiscal deficit of 4.1% of GDP in 2022, more investment

(Adds details, official quotes)

SOFIA, Jan 21 (Reuters) - Bulgaria will target a fiscal deficit of no more than 4.1% of economic output this year under its budget plan as it doubles investment to kick-start an economy hit by a surge in COVID-19 infections, Finance Minister Assen Vassilev said on Friday.

The centrist coalition government plans to double its capital investment in its 2022 budget to underpin economic growth and boost living standards in the European Union’s poorest member state, Vassilev told reporters.

“This is a budget that is trying, and I hope will achieve, a lasting change in the trajectory of economic growth,” Vassilev said.

“We plan to double capital investments from 2.9% of gross domestic product at present to 5.8%,” he said.

A drawn-out political crisis prevented the Balkan country from approving its 2022 budget bill last year, and the coalition government that took office in December plans to send its budget draft for parliament’s approval by the end of January.

Under the plan, the small and open economy is seen expanding by 4.8% in 2022, bolstered by expected hefty inflows of EU pandemic aid funds and national capital investment following an estimated real GDP growth of 3.7% last year.

Vassilev said the fiscal shortfall this year would have been 2.5% of GDP if it was not for the spending needed to support hospitals and struggling businesses amid a surge in coronavirus cases. The fiscal deficit was 3% of GDP in 2021.

The finance ministry plans to raise 7.3 billion levs in new debt this year, part of it on global markets, to roll over maturing debt and finance the planned spending.

Bulgaria, which aims to join the euro zone in 2024, hopes to gradually reduce the shortfall to 3.3% next year and 3.0% in 2024, the 2022 budget draft showed.

The annual average inflation under the EU-harmonised index is expected to quicken to 5.6% this year from 2.9% in 2021, pushed by a surge in energy prices, the draft showed. It should be easing to 2.2% in 2024.

Bulgaria will boost investment in its underdeveloped roads and railways and will increase funding to ensure better healthcare services and free kindergartens for young parents, Vassilev said.

The government, which will keep income and corporate tax rates unchanged at a flat 10%, will raise the minimum monthly wage by 9% to 710 levs. (Reporting by Tsvetelia Tsolova; Editing by Alex Richardson, Elaine Hardcastle)