Serbia FinMin says signing of IMF arrangement not realistic in 2013

By bne IntelliNews July 1, 2013

Serb Finance Minister Mladjan Dinkic said on Monday, July 1, it is not realistic to expect that Serbia will sign an arrangement with the IMF by the end of this year, adding though there are still chances it inks a deal with the World Bank, news agency Beta reported.

This is Dinkic’s first statement, acknowledging that Serbia is failing to convince the IMF it is doing enough to tighten its fiscal belt. Until recently, the government hoped it could sign a stand-by loan deal with the Fund in the autumn, saying it does not need the money but intends to use the pact to convince foreign investors its public finances are under control.

Dinkic told the parliament commission in charge of finances on Monday that the IMF recommended Serbia should lower pensions and public wages but the government rejected such a move. He underlined that the government does not want to implement measures that would strangle the economy and result in slowing down the economic growth.

The recent revision of this year’s budget, still pending a parliament approval, lifts the deficit target to 4.7%/GDP from initial 3.6%/GDP and cupped the planned for October public sector wages and pensions hike to 0.5% instead of the earlier envisaged 2%.

On the other hand, Dinkic assured that the World Bank is supporting the structural reforms Serbia has announced, adding he expects the government could sign an arrangement with the Bank to provide cheap budget gap financing and support to the public sector reforms.

Dinkic said he held talks with World Bank officials on sealing such a loan deal last week as talks on it are expected to continue in the coming weeks.

This year’s budget revision comes after the IMF warned in mid-May Serbia’s budget gap will reach 8% of GDP amid the absence of additional austerity measures, lower VAT and excise duties proceeds and unbudgeted spending.

The revision targets savings measures worth RSD 36bn (EUR 316mn), equal to 1% of GDP. The Fund, however, said this is not enough to reduce the fiscal gap to sustainable levels and the government needs to identify an additional 1%/GDP in consolidation to avoid fiscal stimulus this year.  

The IMF already froze Serbia’s previous EUR 1bn stand-by deal in February 2012 over signs of fiscal slippage.

Last week the World Bank country manager for Serbia, Loup Brefort, said that the global lender is considering a new USD 400mn financial arrangement with the Balkan state, to be allocated in two equal tranches in 2013 and 2014. It will support the government’s recently drafted basket of structural reforms to curb the rising budget gap.

The government's action plan for restructuring 179 public enterprises by July 2014 will cost the Treasury EUR 750mn annually, according to the World Bank estimates, finance minister Dinkic has said earlier. Serbia plans to offer for sale 66 state-owned companies by end-year, while 27 others will enter into bankruptcy. Additional steps will be undertaken to improve the business climate by facilitating hiring and firing of employees and getting building permits.

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