IMF delegation in Belgrade as Serbia attempts to secure new deal

By bne IntelliNews November 4, 2014

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An International Monetary Fund delegation has arrived in Belgrade for talks with Serbian officials, as Belgrade attempts to secure a new IMF loan agreement by the end of the year.

Talks between the IMF delegation and a Serbian delegation led by central bank governor Jorgovanka Tabakovic and Finance Minister Dusan Vujovic started on November 4.

According to the National Bank of Serbia, discussions will cover both regular consultations under Article IV of the IMF’s Articles of Agreement, and talks about the economic programme to be supported by a new arrangement with the IMF. “A comprehensive review will be made of the current economic, balance of payments and fiscal developments, with a special emphasis on budget execution in 2014,” the bank says.

The Serbian government wants to reach a new a new three-year standby loan agreement with the IMF by the end of 2014 at the latest, though government ministers have indicated they are hopeful of securing a deal in November. The government also aims to raise up to €2bn through a Eurobond issue in either late November or early December. 

A new IMF deal will go a long way towards restoring confidence in Serbia among international investors, Erste Bank analyst Alen Kovac said in an October interview with bne. “We don’t expect the government to withdraw the money, but it will be there as an option and will help Belgrade secure bilateral deals with international creditors,” Kovac said.

Progress has already been made during a Serbian delegation’s visit to Washington last month for talks with the IMF and World Bank, while Prime Minister Aleksandar Vucic’s government is pressing ahead with public spending cuts and other reforms.

Serbia’s revised budget was adopted on October 27 after 12 hours of debate within the parliament. Key changes, effective from November 1, included a reduction of public sector salaries and pensions over RSD 25,000 ($265). This sparked protests by teachers and doctors, who are planning to strike in November, and there is still a risk that cuts could be blocked by a legal challenge by unions, Tim Ash of Standard Bank warned in an October 30 analyst note.

Despite the cuts in the new budget, in the aftermath of devastating floods in May, overall public spending will increase this year, and revenues have been lowered as flood damage caused a slowdown in growth. As a result, Serbia’s budget deficit is set to increase by RSD42bn to RSD224.7bn, or 4.64%. On November 4, the European Commission downgraded its 2014 GDP forecast for Serbia to a 1.0% contraction, down from the previously anticipated 1.1% expansion. On a more positive note, Serbia posted a monthly budget surplus in October thanks to an increase in tax revenues, Prime Minister Aleksandar Vucic said on November 4, according to state news agency Tanjug.

The IMF’s resident representative for Serbia, Daehaeng Kim, commended the adoption of the revised budget in an October 27 statement. “We welcome the authorities’ renewed commitment to pursue the urgently needed fiscal and structural reforms,” Kim said.

Alongside public spending cuts, the government is also seeking to raise revenues by selling off state-owned companies. A list of 502 companies earmarked for privatisation has been drawn up, with the first companies to be sold off in January 2015. High profile companies up for privatisation include loss-making Zelezara Smederevo, which absorbs around €100m a year in state subsidies, as well as Tanjug and other state-owned media.

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