July 30, 2014 / 5:12 PM / 3 years ago

Bulgaria's fiscal gap widens, adding to Corpbank worries

SOFIA, June 30 (Reuters) - Bulgaria reported a ballooning budget deficit on Wednesday, adding to uncertainty about whether the outgoing parliament will back efforts to seek solutions for failed Corporate Commercial Bank (Corpbank).

Corpbank was closed in June after bank runs, raising the prospect that holders of its dollar-denominated bond won’t be repaid when the debt matures on Aug. 8.

Wednesday’s figures from the finance ministry showed Bulgaria’s budget deficit ballooned to 995.6 million levs ($681 million) in the first half of the year due to higher social spending and increased outlays for EU-funded projects.

In the same period last year the Balkan country recorded a shortfall of just 7.6 million levs.

The outgoing parliament voted on Tuesday to increase the 2014 fiscal deficit to 2.7 percent and raise 3.4 billion levs in new debt, giving the interim government some tools to solve the county’s banking crisis.

But the GERB party, tipped to win a snap election in October, backtracked on Wednesday, saying it would not support the hike at a final reading.

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.

Prime Minister Plamen Oresharski said on Wednesday that the proposed budget gap increase was meant to provide fiscal buffers for the interim government, but the fiscal target was still achievable.

“There is no drama whether the revision will be approved or not. If approved, the next government will have more calm, if not - it would have to be more careful about spending,” he told reporters after his government’s last meeting.

Sofia needs to keep fiscal policy tight to protect its currency peg to the euro.

The finance ministry said the higher deficit through June was partially the result of faster tapping of EU funds, up by 48 percent on last year, and increased spending on pensions.

Total fiscal revenues in the first six months of the year were 14.2 billion levs, virtually flat from last year, while spending rose 7 percent to 15.2 billion levs, data showed.

Fiscal reserves, which Bulgaria needs to support its currency peg, stood at 6.6 billion levs at the end of June, compared with 5.8 billion levs a month earlier.

The budget deficit so far this year is equivalent to about 1.2 percent of gross domestic product, the data showed. The target for the year is 1.8 percent.

$1 = 1.4621 Bulgarian Levs Reporting by Tsvetelia Tsolova; Editing by Ruth Pitchford

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