IMF urges Serbia for additional spending restraint in 2012 budget rebalance.

By bne IntelliNews September 17, 2012
Serbia should consider additional spending restraint before endorsing its 2012 budget revision, an IMF fact-finding mission said in a statement. The mission visited Serbia in September 10-14. It warned that although the recently adopted budget rebalance draft includes appropriate revenue-enhancing measures (including VAT hike to 20% from 18% as of Oct) and limits mandatory spending indexation (raising salaries and pensions by only 2% as of next month), the envisaged higher expenditure (thirteenth pension, subsidies) more than offsets these savings. The revised budget draft, which cuts fiscal deficit to 6.7% of GDP by end-2012 from current 7.1% of GDP, is due to be voted in parliament this week. The country's independent fiscal council already said last week that the revision is raising this year's fiscal deficit instead of reducing it, adding that without it the newly announced measures the budget gap would drop to 6.5% of GDP by the end of 2012. The IMF also said that Serbia's economic outlook remains dim as this year's GDP is expected to contract 0.5% and to recover only modestly in 2013. The current account gap is seen reaching double digits this year, while increased public spending and the resulting high budget deficit are projected to raise the public debt ratio above 60% of GDP by end-year (up from current 50% of GDP and from legally allowed 45% of GDP). The IMF mission is therefore urging the Serb authorities to embark on adequate policies to restore the fiscal and external viability and boost growth. The mission has welcomed the authorities' plan to preserve the inflation-targeting regime needed for macroeconomic stability but has underlined "the need for corrective measures to help strengthen NBS autonomy, which has been eroded by recent changes to the NBS [the central bank] law". The IMF will next assess Serbia's request for launching talks on a new stand-by loan deal, considering the authorities' policy plans and their implementation.

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