Serbia to seek more financing abroad by end-2013 as budget revenue flaws - FinMin

By bne IntelliNews October 11, 2013

Serbia will probably have to seek more budget financing abroad by the end of the year and is currently studying the possibilities, finance minister Lazar Krstic told daily Blic in an interview.

There are three options under consideration – selling Eurobonds on the international market, taking cheap credit from the United Arab Emirates, or signing an IMF loan, Krstic said.

Earlier this week, he announced that Serbia might need a second budget revision this year since its budget is short of RSD 20bn (EUR 176mn), or 0.5%/GDP. The revision might take place at the end of 2013 in case the measures the government has taken to cut discretionary spending in all ministries fail to compensate for the shortfall.

In September, local media reported the government is preparing a new Eurobond issue worth USD 1bn but intends to delay it as much as possible, hoping its new fiscal measures would convince the global markets Serbia’s in control of its finances and help lower its borrowing costs. Serbia last tapped the international markets in February when it sold a USD 1.5bn Eurobond, yielding 5.15%, down from 5.45% in the previous such sale in Nov 2012.

As far as the UAE loan is concerned, deputy PM Aleksandar Vucic said in early October Sheikh Mohammed (UAE’s Vice President and Prime Minister) might approve Serbia a USD 1bn loan at interest lower than 2.5% by end-2013 to help it refinance more expensive debt and boost the economy.

The IMF, on the other hand, is in no stand-by loan talks with Serbia at present but the government has said it plans to sign a deal in early 2014. The Fund visited Belgrade earlier this month to check the budget execution and review the future fiscal policy. The IMF's representative for central and eastern Europe, James Roaf, told Reuters on Oct 8 that the Fund is ready to support Serbia “in any way that suits”, including advisory or financial agreement.

Faced with chronically rising fiscal imbalances and hoping to secure an IMF deal next year, the government revealed a set of austerity measures on Oct 8, including planned cuts in public sector wages and VAT hike. Finance minister Krstic said that without the unpopular measures, Serbia would enter bankruptcy within the coming two years.

In his interview with Blic, Krstic underlined the savings measures are designed to protect the most vulnerable. He said pensions will rise twice in 2014 – by 0.5% in April and by around 1% in October. The needed financing for the pensions’ hike would come from reducing the cabinet ministries’ discretionary expenses by 30-35%.

Still, he pointed out to the unsustainable size of the public sector, saying it should not employ more than 520,000 people (when compared to countries with similar economies), which means the currently surplus is some 30%.

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