Serbia Plots Ambitious Course On Deficit Reduction

By Igor Jovanovic

Seeking to halt a severe economic crisis, Serbian officials have adopted a 9 billion euro 2013 budget that includes an ambitious effort to cut the nation’s deficit in half.

Economic experts told SETimes they have doubts about the plan, which hinges on a projected export growth of about 25 percent to 11 billion euros. The Fiat automobile factory in Kragujevac and the Pancevo oil refinery will play key roles as the government aims to reduce the budget deficit to 3.6 percent of GDP.

The auto factory began exporting the Fiat 500L earlier this year and expects to move 110,000 to 180,000 cars off the line in 2013. The Pancevo refinery was reopened in November after a modernisation project.

“The Kragujevac automobile industry’s exports will total at least 1.5 billion euros and we are even hoping for 2 billion, while exports from the refinery are estimated at between 600 and 800 million euros,” Finance and Economy Minister Mladjan Dinkic said. “It will be crucial for the Serbian economy that the budget deficit will be halved, that the economy will have better liquidity and that growth of exports will be secured.”

Mahmud Busatlija, a fellow at the Institute of Economic Sciences, said he doubts the government’s plan can be realised.

“Incredible fiscal discipline is necessary to earn the planned revenues, hence it will be very difficult to carry out that plan,” Busatlija told SETimes.

Pavle Petrovic, head of the Fiscal Council, an independent state body that answers to the Serbian parliament, said it would be difficult to cut the budget deficit in half next year, despite strict austerity measures announced by the government.

“Our dilemma is whether the government’s measures are sufficient to reduce the deficit to 3.6 percent of GDP. Our estimates say those measures will not be enough. We see a gap of around 250 million euros, by which the deficit would be higher and would account for 4.3 percent of GDP,” Petrovic told SETimes, adding that the large public debt is a serious hazard to the state.

The debt has grown to 17.5 billion euros and economists said that in the new cabinet’s first 130 days, it has increased by about 2 billion euros — the equivalent of 186 euros per second.

Dinkic said the state planned to reduce foreign debt, after it was forced to take loans this year to ensure the payout of pensions and salaries.

“We will downsize the public debt by selling the public property that is used irrationally. We will diminish the need for loans,” said Dinkic.

But, Busatlija said, reducing foreign debt requires production growth.

“Serbia must save drastically,” Busatlija said. “If it saves money, that will negatively affect production, and that in turn will result in the further loss of jobs. That is not a scenario to Serbia’s benefit.”