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UPDATE 1-Bulgaria aims to keeps budget gap low in 2013

(Adds detail, background)

SOFIA, Oct 3 (Reuters) - Bulgaria aims to keep its budget deficit unchanged at 1.3 percent of gross domestic product next year as growth picks up, hoping to avoid risking its currency peg to the euro, a draft budget showed on Wednesday.

Bulgaria plans to raise state pensions by an average 9.3 percent after a three-year freeze, betting that higher revenues will help it keep one of the lowest fiscal deficits in the European Union, said the draft, which has to be approved by government by the middle of October.

"The 2013 budget has three main points: to continue with fiscal consolidation to maintain stability, to direct spending towards sectors that encourage growth and to fight poverty," the Finance Minister Simeon Djankov said in the draft report.

The centre-right government, which faces a re-election battle in 2013, expects improving domestic demand and a pick in exports in the second half of next year to accelerate growth to 1.9 percent from 1.2 percent this year.

The draft sees revenues increasing 6.3 percent next year to 30.5 billion levs ($20.17 billion), mainly due to an increase in value add tax revenues.

Spending will also increase, by 6 percent, to allow for better use of EU funds that spur investment and increase pensions of about 2.2 million retired people in a country of 7.3 million to compensate them for accumulated inflation since 2009.

The International Monetary Fund, which sees Bulgarian economy expanding by 1.5 percent next year, said the government has a scope to increase pensions, but urged it to resist pressures to hike state pay overboard to protect stability.

($1 = 1.5122 Bulgarian levs)

(Reporting by Tsvetelia Tsolova; Editing by Toby Chopra)

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Keywords: BULGARIA BUDGET/