SOFIA – Bulgaria’s government passed a 2008 budget draft this week, targeting a fiscal surplus of 3 percent of GDP to protect the economy from overheating and lower its vulnerability to external shocks. The Socialist-led coalition has set revenue forecasts at 27.2 billion levs ($20.04 billion), or 44.1 percent of gross domestic product. Spending, including a contribution to the EU budget, is targeted at 25.4 billion levs, or 41.1 percent. «The significant external imbalance in the past two years suggests an exceptionally prudent fiscal policy,» Finance Minister Plamen Oresharski told reporters after sending the bill to parliament for approval. «The planned surplus aims to guarantee the sustainability of the lev currency and the stability of the currency board regime. It is also an anti-inflationary measure,» he said. Parliament should approve the plan by the end of the year. Oresharski said the Balkan country will aim to end 2007 with a surplus of 3.3 percent of GDP, after the government estimated the current account deficit at 21 percent of GDP. The government expects the deficit to expand further to 21.9 percent of GDP next year. It sees end-2008 EU-harmonized inflation easing to 4.5 percent from an expected 9.3 this year. Fiscal policy is one of the few tools Bulgaria has to influence the economy as the lev is pegged to the euro in a currency straitjacket that significantly curtails monetary operations. Under the draft budget, the government plans to increase its capital spending by more than 50 percent to 4.25 billion levs next year, mainly for improving infrastructure. The cabinet will also increase social and education expenditure and aims to hike public wages and pensions by between 5 and 10 percent as of July. It will compensate public workers with lower pay, who may be hit by the introduction of a 10 percent flat income tax. The draft has earmarked funds for a gradual increase of teachers’ salaries by 46 percent by July next year, Oresharski said. The teachers have rejected the offer and pushed ahead with their strike for a sixth week. The industrial action, the biggest in the Balkan country since communism collapsed in 1989, has paralyzed schools and kindergartens and put pressure on the government to boost living standards in the poorest European Union member. The International Monetary Fund has urged Sofia to maintain its tight fiscal stance and not bow to pressure to ramp up public wages, to avoid jeopardizing an already overheating economy.