UPDATE 2-Bulgaria raises 2019 fiscal shortfall over F-16 aircraft purchase

Bulgaria's fiscal deficit will jump to 2.1% of economic output this year as the Balkan country prepares to finance the purchase of eight new F-16 fighter jets from the United States, its biggest military deal in decades, the government said on Monday. Bulgaria had initially targeted a 2019 deficit of 0.5%, but that has changed now it plans to pay for the $1.26 billion warplanes in full this year - which it says can afford thanks to a healthy economic outlook and budget performance.

The decision is pending parliament approval. "The government has approved changes in the state budget for 2019 in relation to the acquisition of new fighter jets that are of extreme importance for the national security, NATO collective defense, and the EU defense and security policy," the government said in a statement.

The payment on Bulgaria's biggest military procurement since the fall of communism will increase the state budget's deficit to 2.2 billion levs ($1.27 billion) and the total consolidated fiscal shortfall to 2.4 billion levs or 2.1% of GDP, a draft of the proposed budget changes showed. The new deficit target will not breach the European Union's threshold on fiscal shortfalls - 3% of gross domestic product - and is unlikely to be an obstacle to Bulgaria's plans to join the euro zone's "waiting room" this year.

Bulgaria will issue state bonds on the local market and use the hefty fiscal reserves it keeps under its currency board regime, which pegs its lev to the euro, to finance the purchase. Sofia sees the deficit's jump this year as a one-off and plans to balance its budget in 2020. It sees economic growth at 3.4 percent this year and 3.3 percent in 2020.

Because of the fighter jets deal, NATO member Bulgaria will delay its plans to buy new military ships and armored vehicles for next year. In April, Italy's Fincantieri, German shipyard Luerssen and Bulgaria's MTG Dolphin submitted bids in a 984 million levs tender to build two patrol ships for the Bulgarian Navy.

Deputy Defence Minister Atanas Zapryanov told reporters he hoped that a deal to buy new ships will be sealed by the end of the year with payments planned to start next year. ($1 = 1.7340 leva)

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