Serbia's consolidated budget deficit narrowed 26% y/y to RSD 82.7bn (EUR 727mn) in January-June 2013 due to a higher revenue growth which offset a mild spending increase, data from the finance ministry showed. The reading accounted for 2.2% of the full-year GDP forecast, down from 3.3% a year earlier.

The H1 consolidated budget revenue rose 6.2% y/y to RSD 693bn whereas spending inched up 1.5% y/y to RSD 776bn.

Income from VAT increased 9.6% to RSD 186bn in January-June, reflecting the VAT hike as of October 2012, while social contributions revenue grew 7.3% to RSD 194bn. Income from profit tax, however, continued retreating, shrinking 12.8% y/y to RSD 29bn.

Spending remained subdued as falling capital, subsidies and goods and services expenses partially offset rising social transfers and employment expenditures. Current spending increased 4.6% y/y to RSD 738bn (95% share in total) whereas capital expenditures shrank 37.0% to RSD 30bn.

In June alone, the consolidated budget deficit touched a record low of RSD 4.3bn due to the implementation of the recently agreed austerity measures, the finance ministry said in a statement. June's stabilization of the state budget is also the result of significant tightening of fiscal discipline and improved revenue collection, the ministry said.

However, the independent fiscal council warned earlier that it is too soon to build on the reading. The council added June’s performance might be explained by higher excise duties proceeds due to increased cigarettes imports from Croatia prior to its EU entry on July 1 and lower goods and services spending because of the planned budget rebalance.

Serbia’s parliament endorsed on July 5 the 2013 budget revision which aims to prevent the consolidated budget gap to exceed 5.2% of GDP in 2013.