SOFIA (Reuters) - Bulgaria inched closer to getting a new government, with Boiko Borisov back as prime minister, after his dominant center-right GERB party gave ground in coalition talks with nationalists on Wednesday.

Former Bulgarian prime minister and leader of centre-right GERB party Boiko Borisov speaks during a news conference at the party's headquarters in Sofia, Bulgaria March 26, 2017. REUTERS/Stoyan Nenov

GERB, which won the most seats in March 26 elections but failed to get an outright majority, agreed a deal to raise the minimum state pension - a key demand of the nationalist United Patriots (UP) alliance, which Borisov’s party had previously opposed.

“It is clear to everyone that if we fail to form a government... it will not only bring political crisis with irreversible consequences but will also collapse the economy,” Borisov told reporters in parliament.

Together with UP, his party would have a one-seat majority in parliament.

Senior GERB member Vladislav Goranov - tipped to be the next finance minister - said the breakthrough meant a new government could be sworn in by early May.

The UP alliance campaigned to boost low living standards and double the minimum monthly state pensions, now at 161 levs ($87.30) - the lowest in the European Union.

Analysts say such demands, coupled with GERB’s plans to double teachers’ wages within four years, may boost public spending and keep the public finances in the red. Bulgaria needs to maintain fiscal prudence to protect its currency peg to the euro.

Goranov said the minimum state pension will be increased in two steps to 200 levs per month by October, and will cost about 100 million levs for the year. UP had campaigned for 300 levs.

“Do not expect from me ... to be very happy about this decision, but it is the possible decision,” Goranov said.

Analysts said the pension increase amounted to a populist spending hike that posed a long-term risk to the economy.

“The signal is for a populist spending. That means that when there are some funds available, they will be spent,” said Petar Ganev, an economic analyst with Institute for Market Economics.

“I am skeptical they will manage to boost reforms to overhaul the ailing healthcare and even the education system. We would rather see rise in spending that will support growth through encouraging the domestic demand,” he said.

“We have seen a lot of pledges on boosting incomes and quite less on reforms,” said Lachezar Bogdanov, an analyst with Sofia-based economic think-tank Industry Watch.

Borisov, a former bodyguard, triggered the election by resigning after a GERB-backed candidate lost a presidential election in November to Rumen Radev, a Russia-friendly ally of the Socialists. Bulgaria is currently being run by a caretaker administration.

($1 = 1.8442 leva)