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UPDATE 1-Bulgaria's govt approves 2021 budget with fiscal gap of 3.9% of GDP

(Adds details, background)

SOFIA, Oct 28 (Reuters) - Bulgaria’s government approved on Wednesday the 2021 draft budget with a deficit of 3.9% of economic output, offering more support for those hit by the COVID-19 crisis and boosting public sector wages and pensions in a general election year.

Like other countries, Bulgaria increased spending to contain the crisis with millions of levs in wage subsidies and business loan guarantees and support for pensioners, turning its plans for a balanced budget into a forecast deficit of 4.4% of gross domestic product for 2020.

The centre-right cabinet, under pressure from anti-government protests and a spike in coronavirus infections, has dubbed the 2021 budget “anti-pandemic” and plans to put 2.5% of GDP to support frontline medics, vulnerable groups and jobs.

“The budget is drafted so that people can continue to work and live in Bulgaria,” Prime Minister Boyko Borissov said in a video posting on Facebook from his home, where he is being treated for COVID-19. “It is not a pre-election budget,” he said.

Economists and the opposition have slammed the plan as lacking focus and aimed at winning the votes next year of over 2 million pensioners and thousands of public servants rather than offer genuine support measures for the businesses.

The government based its budget revenue calculation - 47.6 billion levs ($28.8 billion) - on estimated economic growth of 2.5% next year after an expected contraction of 3% in 2020. But a spike in new infections is casting doubts on the speed of economic recovery.

Under the plan, which is pending parliament approval, the European Union’s poorest member state will raise the minimum state pension to 300 levs per month and increase all state pensions by 5% as of July. It will also boost all state sector wages by 10% and increase teachers’ pay.

More funds are earmarked to prop up its health and education systems, strained by the pandemic, and keep the value added tax it lowered to 9% as of July for restaurants.

The government plans to tap domestic or global markets next year, depending on market conditions and issue up to 4.5 million levs in new debt to finance its fiscal shortfall and roll over maturing debt. ($1 = 1.6545 leva) ($1 = 1.6545 leva) (Reporting by Tsvetelia Tsolova; Editing by Jon Boyle and Emelia Sithole-Matarise)

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