The IMF is expecting to start talks on a new loan deal with Serbia in the next one or two months, considering the 2014 budget bill provides a good basis to resume the negotiations on a possible Fund-supported programme, the IMF's deputy head of European department, Aasim Husain, said on Jan 14.

Husain told IntelliNews that it is too early to talk about what specific conditions Serbia will have to meet to receive the long-sought financial support. Still, the broad areas that will be covered apart from fiscal will also include structural matters relating to the labour market, the very measures that will address the very high unemployment, as well as the state enterprise reform and business climate issues, he said, speaking on the sidelines of Euromoney's Central & Eastern European Forum held in Vienna.

Husain said the Fund acknowledges not all the steps that need to be taken can be taken in one year. He underlined the need of taking significant steps to reform the state-owned companies, saying the economy ministry has the right ideas to achieve this - but it now needs to translate them into the right actions.

"State enterprises, to the extent that they are costing the budget very large sums, do need to be addressed," Husain said.

Serbia's latest EUR 1bn stand-by deal with the IMF was frozen by the Fund in February 2012 over signs of fiscal slippage. Another attempt by the government to reach an agreement with the IMF failed in 2013 when the parties again disagreed over vital fiscal austerity issues with the Fund warning further support depends on cuts in the public sector and the pension system.

At the end of last year, shortly after the parliament approved the 2014 budget bill, the finance ministry said Serbia is ready to start the negotiations with the IMF on a new precautionary arrangement in January. The ministry said a possible deal would help Serbia implement the planned reforms and send a clear signal to foreign investors that the country is safe, stable and attractive market.

The 2014 budget bill targets a consolidated budget gap of 7.1% of GDP, which is among the highest in the CEE region as it includes the payment of activated state guarantees and spending on saving troubled banks and companies.

The government, however, is launching an ambitious programme to end subsidies to state-owned firms in restructuring, which now cost the state some USD 750mn annually (as estimated by economy minister Sasa Radulovic). The programme will be activated by the new privatisation and bankruptcy laws, which the economy ministry expects will be approved by parliament by the end of January. The plan aims to resolve the status of 153 state companies that have been under restructuring over the past 10 years - by either selling or liquidating them by the end of 2014, thus putting an end to the government support to them.

The adoption of the laws that will enable the completion of privatisation and restructuring of state-owned companies is also a condition Serbia needs to meet in order to receive as early as March a World Bank loan of USD 250mn. The funding is intended to support the government’s basket of structural reforms, which the World Bank believes are very important for the Serb economy. The Bank's executive board is likely to consider the loan disbursement in late February after the anticipated start of negotiations on Jan 15.