By Georgi Mitev Shantek
IMF officials wrapped up a second visit to Belgrade last week, but not the way the government would have wanted. The mission, headed by Zuzana Murgasova, left without giving Serbia the green light to borrow funds available if Belgrade needs them. In technical terms, the Fund delayed revising the current precautionary Stand-by Arrangement struck last September.
As of now, the best-case scenario is a review of the arrangement sometime over the summer.
The Fund criticised the government on several fronts, but the bottom line is that Belgrade will not be entitled to use special drawing rights, as they’re called, worth about 1.1 billion euros.
Public debt already exceeds the statutory limit of 45% of the GDP, on top of which the government issued guarantees on loans taken by state enterprises — including Jat Airways, the Galenika pharmaceuticals factory and gas distributor Srbijagas — for amounts in excess of what was previously agreed.
Murgasova encountered an even worse situation this month because its turns out that the budget is inflated, along with all other amounts based on it. The budget was created under the assumption that the economy this year will grow by 1.5%. But the latest IMF analyses indicate that 0.5% GDP growth is optimistic. No growth would mean no increased tax and customs revenues, so the gap between money in the treasury and actual costs is widening.
Belgrade is downplaying this latest disappointment. Prime Minister Mirko Cvetković stressed the bare facts: the arrangement has not been terminated and the government is continuing to hold to agreed parameters. Negotiations are set to continue with the government formed after parliamentary elections, which must be held by May 6th.
Serbian employers maintain that due to the elections and the new government, there is no one in the country capable of making serious decisions for the next six months, leaving the IMF to play a corrective role.
“At the Union of Employers of Serbia (UPS), we believe the IMF is our greatest ally. Their arguments are connected to ours and point to excessive spending by the state. Without this arrangement and the previous ones, the impact of such policies on the Serbian economy would be disastrous,” UPS President Nebojša Atanacković told SETimes.
“If the government really wanted to pass the audit [it would be] able to carefully draw up the guarantee and put them into law. But then the next revision would be in April, just before the election. As it stands, the government, that is to say political parties in power, will spend in the pre-election period as much as they need,” investment adviser Milan Kovacevic told SETimes.
Stojan Stamenkovic, economist and editor of Macroeconomic Forecasts and Trends of the Economics Institute in Belgrade, predicts “the new government will need to increase the VAT to 20% [from the current18%], as well as reduce government spending, and reduce the number of state employees to one third.”
Tax reforms are persistently avoided but most agree that concerted efforts must be made to improve business conditions for attracting foreign investors. Serbia currently rank 92nd among 183 countries listed in World Bank’s “Doing Business 2012”, and is at the back of the line in regional rankings.