Serbia, IMF Reach Credit Agreement

By Biljana Pekusic

The new credit arrangement between the IMF and Serbia sends a clear signal that the government is expected to present responsible economic policies and maintain macro-economic stability.

With 1 billion euros “in reserve” from the Fund, Serbia has more opportunities to defend its policy of lessening the impact of the global economic crisis and improve its financial position.

“This arrangement strengthens the credibility of public finances of Serbia and our position in the international market,” National Bank of Serbia Governor Dejan Soskic told SETimes.

IMF mission chief Albert Jaeger pointed out that the new arrangement has three objectives.

“The additional funding should insure Serbia from external shocks, tighten fiscal policy and improve the investment climate in the country,” Jaeger said at a news conference in Belgrade after reaching an agreement.

During the two weeks of negotiations, it was determined that the state budget deficit in Serbia by the end of this year will be higher than planned; the deficit will increase from 1 billion euros to 1.5 billion euros, or from 4.1% to 4.5% of the country’s GDP.

The budget deficit occurred because production in Serbia is not growing as expected and fewer taxes will be collected. The IMF has agreed, and reduced expectations for growth of the Serbian economy to 2% from 3%.

“We expect that the new arrangement with the IMF will attract new foreign investors and revive weakened economic activity in Serbia, thereby increasing employment and the standard of living,” State Secretary for the Finance Ministry Dusan Nikezic told SETimes.

He explained that budget revenue will fall by 220m euros, while the largest expenses are expected due to increases in salaries, pensions and social benefits, planned for October.

“For these increases, we will need [172m euros],” Nikezic said. “[To do] so, we have to cut other expenses so that the deficit will be at a planned level of 4.5% of the GDP.”

The government has committed to save 150m to 200m euros by reducing consumption — especially in the public sector.

“We expect limited growth of pensions and wages in the public sector, as well as the rationalisation of employment,” said Resident Representative the IMF Mission in Belgrade Bogdan Lissovolik.

Lisovolik added that the IMF has to understand that in an election year, it is not possible to make large fiscal cuts, but that the government must be fiscally responsible and continue with the present economic policy and measures, and respect the Law on the Budget System.

“The arrangement with the IMF sends a good signal to foreign creditors and investors, but borrowing is not a cure for the growing and devastating insolvency of the Serbian economy and three times lower than expected investment,” Serbian Progressive Party member Milenko Dzeletovic told SETimes.

The government claims that with IMF support, higher budget deficits will not slow capital investment.

“Next year should be easier,” adviser to the prime minister Jurij Bajec told SETimes. “The state budget deficit should be less than this year, because the Law on the Budget System places [restrictions] on public expenditure and [boosts] revenues.”