Serbia’s consolidated budget gap shrank 17.7% y/y to RSD 179bn (EUR 1.5bn) in 2013 and the figure was by 10.1% lower than expected thanks to the government’s austerity measures, finance minister Lazar Krstic said in a statement on the ministry’s website. He added that local governments recorded a surplus last year also helping to push the overall deficit down.

The 2013 budget gap equalled to 4.8% of the full-year GDP projection, down from 6.4% of GDP a year ago, according to IntelliNews calculations.

The public debt to GDP ratio at end-2013 was 62.7%, likewise, lower than the plan for the period (64.7% of GDP), Krstic added.

Krstic also said that he expects the 2014 budget deficit to be smaller than the government's target of 7.1% of GDP due to lower-than-expected expenditures related to troubled state-controlled banks.

This year's deficit will be financed through borrowings on the domestic market as well as loans from the UAE, Russia and the World Bank. If necessary, Serbia may also place Eurobonds worth EUR 750mn on the international markets this year, Krstic also said.

Serbia’s budget gap has been on a steady upward trend during the past four years. Earlier in January, Fitch Ratings has downgraded Serbia's long-term foreign and local currency Issuer Default Ratings (IDR) to B+ from BB- and the country's ceiling to B+ from BB-, citing continuous deterioration of public finances. The rating agency expects Serbia's consolidated general government deficit to increase for the fourth year in a row to 7.1% of GDP in 2014 from an estimated 6.5% in 2013. It pointed out that Serbia has overshot its original consolidated deficit targets in 2012 and 2013, notably as a result of the restructuring of state-owned enterprises (SOE) and the recapitalisation of state-owned banks.