Raiffeisen Bank sees Serbia's fiscal gap loosening to 4.5%/GDP in 2013.

By bne IntelliNews March 20, 2013
Serbia's budget deficit will reach 4.5% of GDP this year, missing the government's forecast of 3.5% of GDP, because of ambitiously planned fiscal revenue and underestimated expenditure, an analysis of Raiffeisen Bank Serbia cited by news agency Tanjug indicated. The analysts underlined the harmful impact of the state behaving as a lender of last resort and only to meet the needs of the public sector, pointing out to the planned state support for steel mill Zelezara Smederevo as one of the latest examples. The government could not find a new owner for the former unit of US Steel and has decided to restart one of the blast furnaces at the plant (shut down after US Steel's exit last year) and bring back to work 5,200 employees, cutting their salaries by 20% (the average salary prior to the cut was EUR 500), the report said. It, however, underlined that even though the expenses for salaries have been included in the 2013 budget, not all costs linked to the production restart have been calculated, which might endanger the current fiscal planning. Finance minister Mladjan Dinkic has said that the production at Zelezara could be financed via commercial loans guaranteed by the state Development Fund. The plant might start manufacturing tin plates for Fiat's Serbian plant in Kragujevac, which could additionally attract banks to give it loans. The Raiffeisen experts welcomed some of the government measures in the public sector restructuring but said there is a lot more to be done to complete this process since the sector is the biggest burden in the state budget and has major impact on the public debt growth. The government continues to intervene in companies like flag carrier Jat Airways and drug maker Galenika after failing to attract strategic investors to bring the firms back to profit. The analysis also said that the Jan-Feb budget deficit fell 15.3% on the year thanks to higher revenue due to the 9.1% increase in all tax rates (VAT, excise duties, profit tax). Expenditure over the period rose only modestly thanks to the lower subsidies allocated as part of the government package of subsidised loans to companies (down 36% y/y) - costs for interest payments and public sector wages, however, rose by 112% and 11%, respectively, in the first two months of 2013.
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