Bulgaria’s central Government will be able to extend interest-free loans to cash-strapped local governments, the Parliament has decided.

To be eligible for interest-free financing, indebted municipalities will have to show plans for their financial recovery that will have to be endorsed by the Minister of Finance, according to changes in the Public Finances Act passed on second and final reading on 25 May.

The Finance Minister will have the power to set conditions for extending the loans and suspend financing should the recovery plan fail to meet its targets.

The combined outstanding debt of local governments in Bulgaria exceeded BGN 210 M (EUR 105 M) as of end-January 2016, according to data of the Ministry of Finance. The outstanding debt of some municipalities totalled as much as 90% of their budgets as of end-2015.

Bulgaria’s consolidated budget, which comprises the central Government budget and the budgets of the municipalities, was expected to show surplus of BGN 2.3 B at the end of April, the Finance Ministry said.