Serbia to raise public sector wages and pensions in 2018

Serbia to raise public sector wages and pensions in 2018
By bne IntelliNews October 15, 2017

Pensions and wages of workers in Serbia’s public sector will be increased by 5%-20% as of 2018, Prime Minister Ana Brnabic announced on October 14 when she marked the first 100 days of her government.

The announced increase is mainly a result of the improved balance in the general government budget. Serbia has managed to significantly improve its fiscal situation thanks to the precautionary €1.2bn three-year stand by arrangement (SBA) approved in February 2015 by the International Monetary Fund (IMF).

Serbia’s consolidated budget surplus stood at RSD80.41bn (€670.09) in January-August, a significant improvement compared to the RSD9.1bn surplus recorded in the same period of 2016, the latest finance ministry data published on September 26 showed.

According to Brnabic’s October 13 statement, as of January 1, 2018, pensions will be raised by 5% while pensioners will get a one-off payment of RSD5,000 (€42) in November. Meanwhile, salaries of workers in education, healthcare, social services, defence and the police, as well as in the intelligence services, courts, prosecutions, institutions for the enforcement of criminal sanctions, cultural institutions and the tax administration, will be increased 10%. Meanwhile, employees of the civil services and the parliament will get a 5% pay rise as of the beginning of 2018.

“The percentage of increase shows that the government is focused on education, health, science, culture…” Brnabic said.

Minister of Finance Dusan Vujovic said that the percentages of increases y which wages and pensions will be raised have been agreed with the IMF, and they are in accordance with the projected GDP growth.

“We have used the maximum room and that increase of 5% (when it comes to pensions) next year is what we can afford in this moment so as to not jeopardise key parameters of macroeconomic stability. The same goes for salaries, a total increase of wages in public sector, including local governments, can’t go over the projected share in GDP for next year,” Vujovic told public broadcaster Radio-televizija Srrbije (RTS) on October 15.

“We expect GDP growth or 3.5% and in accordance with that we projected figures which allow us to make such increases of pensions and salaries,” Vujovic said.

The IMF said in its latest World Economic Outlook (WEO) released on October 10 that Serbia’s economy will grow by a real 3% in 2017 and 3.5% in 2018.

GDP in Serbia increased by 2.8% y/y in 2016, maintaining the upward trend achieved in 2015 when it went up by a modest 0.8% y/y after devastating floods forced a contraction in 2014.

Even though Brnabic’s announcement of pay rises was basically good news for Serbians, it has led to speculation as to whether it actually is an ‘increase’ or just bringing back wages and pensions to the level before November 2014. 

That was when the government cut public salaries and retirement incomes by approximately 10%, in a necessary move which significantly contributed to the stabilisation of public finances and averted a deeper crisis. Also, this move was crucial for the signing of the precautionary SBA approved in February 2015 by the IMF.

According to Serbia’s President Aleksandar Vucic, who was prime minister in November 2014, salaries of policemen and in the military have been already brought back to the level before the cut, while wages in the education sector are 0.7% higher. Workers in the healthcare sector will get higher salaries soon, the president said.

“The problem is that there is a false campaign of lies which has inconspicuous consequences. To whom are wages are not brought back? I will tell you — to the public administration, more precisely to 17,000 people which work in Belgrade, and partially in the province [Vojvodina] and local administrations,” Vucic’s answered a journalist’s question on October 13. 

Serbia's average net monthly wage totalled RSD44,206 (€365) in November 2014. Average net salaries paid in August 2017 totalled RSD47,220 (€393).

After the November 2014 cut, the first modest increase was announced in November 2015. The Serbian government announced another modest raise in public sector wages and pensions on October 30, 2016 after an agreement with the IMF. The raise came into effect in January, 2017. 

In 2016, Serbia managed to bring its general government budget deficit down to RSD57.06bn (€461.23mn), equal to 1.4% of GDP, also significantly lower than envisaged under the SBA. Initially, the planned gap for 2016 was RSD163.5bn or 3.9% of GDP, but this was lowered to RSD89.1bn or 2.1% of GDP after the IMF’s sixth review of the SBA in late 2016. Mainly thanks to the SBA, Serbia managed to reduce its budget gap to 3.7% of GDP in 2015 from 6.6% in 2014. The budget deficit for 2017 is expected be less than €150mn, well below the official €600mn target planned by the government and the IMF.

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