Serbia is not under threat of bankruptcy but should reduce rising fiscal gap – World Bank

By bne IntelliNews May 28, 2013

Serbia is not close to bankruptcy since it has foreign exchange reserves and will be able to finance its liabilities but the positive attitude of international creditors towards it might alter if the minus in the budget continues to rise, the World Bank’s country manager for Serbia, Loup Brefort, told state TV broadcaster RTS.

Brefort said the World Bank is concerned about the current trend in the public finances and will encourage the government to implement savings measures already in June. The government needs to act fast in order to as soon as possible see the results of these measures and avoid the scenario of this year’s fiscal gap reaching beyond 8% of GDP as recently predicted by the IMF if no consolidation measures are undertaken.

The cabinet in Belgrade is preparing to revise this year’s budget, which targets a 3.6%/GDP deficit, after Jan-Apr data showed the consolidated fiscal gap already reached 45% of the full-year plan. Finance minister Mladjan Dinkic said earlier in May lower than planned VAT and excise revenue will most likely push this year’s budget gap up to 4.5%/GDP. The government might therefore revise its budget bill already in the next month and a half and not in September as initially planned, he added.

Brefort said that since Serbia has no room to act on the revenue side, all tools to reign in the deficit are on the expenditure side – bringing wages and pensions under control, cutting subsidies and introducing better efficiency in other costs.

Reducing pensions and public salaries will not save the budget but considering these two items make 50% of the expenditure, there is no way to escape them when targeting to cut the deficit, Brefort added. This could be part of the measures that would bring the deficit to a sustainable level. The World Bank has also proposed that Serb municipalities take over part of this financial discipline so that the size of salaries, the number of public sector employees and the subsidies to state firms are controlled at local governments’ level.

Government members already signaled they are ready to freeze public salaries and wages by the end of the year and not raise them by 2% in October as initially planned. Salaries and pensions were already hiked by 2% as on May 2013. Independent experts consider these expenditures should be left unchanged next year as well, or their rise in full 2014 should be no more than 2%. The cabinet is due to announce its savings plan in the coming days.

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