October 28, 2018 / 1:57 PM / in 21 days

Bulgaria plans small fiscal deficit in 2019, boosts wages

SOFIA, Oct 28 (Reuters) - Bulgaria’s centre-right government approved a 2019 budget draft on Sunday with a fiscal deficit of 0.5 percent of economic output, earmarking more funds for public wages, education and European Union-backed projects.

The Balkan country plans to boost spending by 15 percent on annual basis to 44.5 billion levs ($25.94 billion) next year, a move that businesses and analysts have linked with an attempt to woo voters ahead of EU and local elections in 2019.

The government will fund a 10 percent increase of monthly pay to all public servants, which will translate into 20 percent increase of teachers’ wages and will extend more money to small municipalities.

The mininum monthly salary in the EU’s poorest member state, which hopes to bridge the income gap with richer Western Europe, will also see 10 percent hike to 560 levs ($326).

“The good economic cycle allows for significantly bigger budget, both in terms of revenues as well as spending,” Finance Minister Vladislav Goranov told reporters.

The government sees revenue up 12 percent to 43.9 billion levs, betting on good economic growth and improved tax collection. The corporate tax rate will be unchanged next year.

Trade unions have called the budget “the best in years”, while business associations have expressed concern that wage growth that is not linked to public sector reforms will only fuel consumption and imports, but will not help a sustainable economic growth.

Sofia sees its small and open economy expanding by 3.7 percent next year compared to 3.6 percent in 2018, while the average annual inflation is expected to increase to 3.0 percent.

The budget draft is pending parliamentary approval.

Under the plan, the country, which hopes to enter the two-year obligatory waiting room for euro zone membership in 2019, plans to balance its budget as of 2020.

Bulgaria is expected to end 2018 with a budget surplus of 0.5 percent.

Bulgaria operates under a currency board regime that requires its central bank to set interest rates and leaves fiscal policy as the only tool to influence its economy.

The government also plans to spend some 150 million levs more for support of disabled people next year, in hopes to quell daily protests of disabled rights activists.

$1 = 1.7153 leva Reporting by Tsvetelia Tsolova; editing by David Evans

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