Bulgaria aims to halve its budget deficit to 2.5 percent of gross domestic product next year as its economy returns to growth, according to a draft of government midterm fiscal policy plans seen by Reuters on Monday.

On Tuesday the government is expected to approve the document, which summarises the Balkan nation's key fiscal targets for 2011-2013 on which next year's budget will be based.

The centre-right government plans to cut the fiscal shortfall -- a key task for the European Union member -- to 1.5 percent of GDP in 2012 and to 1.0 percent of GDP in 2013, the document showed.

"In order to comply with the European Union's budget deficit ceiling, Bulgaria will target a deficit not higher than 2.5 percent in 2011," the document said.

A prolonged recession, coupled with the uncovering of hidden deficits piled up by the previous administration, bloated the 2010 fiscal shortfall of the Balkan country to 4.8 percent of GDP.

The huge fiscal deficits could put pressure on the emerging economy's currency peg to the euro. Bulgaria's peg in effect leaves fiscal policy as its key tool for influencing the economy.

To achieve its fiscal goals, the government plans to keep spending at 40 percent of GDP and freeze public salaries and pensions in the next two years. It aims to keep taxes unchanged.

Earlier this year, Sofia froze public pay and pensions as part of its austerity measures to trim a widening shortfall.

The government sees the economy accelerating by 3 percent next year, after crawling out of recession by the end of 2010, mainly due to a rise in exports to the recovering EU.

The Bulgarian economy contracted 5 percent in 2009 as a real estate and construction boom turned to bust while foreign investors fled the country and domestic demand slumped. It shrank 3.6 percent in the first quarter.

The International Monetary Fund and many economic analysts expect Bulgaria to return to growth next year but say its recovery lags behind that of its east European peers and forecast growth of around 2.0 percent.

In April, Bulgaria had to abandon plans to join the euro zone quickly after it revealed dozens of unaccounted for procurement deals signed by the previous Socialist-led government that ballooned its 2009 deficit to 3.9 percent of GDP.

Brussels has expressed concerns about the quality of Bulgarian statistics following the revisions and plan to send a a mission from Eurostat, EU's statistical office, to Bulgaria this autumn. Source; Reuters:Balkans.com