Serbia minister raises issue of state pay after IMF budget warning

By bne IntelliNews May 28, 2013

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Serbian Finance Minister Mladjan Dinkic said the country's 500,000 state employees should not expect to keep their special pay rates, in comments that are being taken as a sign the government is responding to pressure from the International Monetary Fund (IMF) to revamp its 2013 budget in order to secure a fresh loan programme.

The IMF warned Serbia last week that it won't reach its budget target this year without radical policy changes, and warned tax revenue shortfalls and higher spending could drive Serbia's 2013 budget deficit above 8% of GDP unless things changed. The IMF froze a EUR1bn stand-by loan to Serbia in early 2012 after the previous government let the budget deficit and debt levels rise above targets, and has yet to agree to discuss a new deal with Belgrade.

"The public sector cannot expect privileges... if everywhere in Europe revenues are going down, we cannot pretend we're living on Mars, we are in Serbia," Dinkic said, according to the Beta news agency.

The World Bank's country economist in Serbia, Lazar Sestovic, suggested on May 27 the government should freeze public sector wages and pensions, according to Reuters. "The measure might not be the most popular one, but when one considers the participation of wages and pensions in total spending, then it... becomes one of the key priorities," Sestovic was quoted as saying.

The Progressive-Socialist government initially set a target for the budget deficit of 3.6% of GDP this year, but this month revised it up to 4.5%. Yet the government's own economic advisory body questioned the official estimates last week, saying a debt crisis was possible. On May 17, parliament continued debating measures to try to stop public debt rising to 65% of GDP in 2013, far above the legal limit of 45% of GDP.

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