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Serbia Should Cut Incentives by 25% in 2012, Fiscal Council Says

Serbia must reduce subsidies and credit support for the economy by a quarter next year to avoid exceeding a budget gap limit, a member of the country’s Fiscal Council said.

The incentives totaled some 80 billion dinars ($1.02 billion) this year and must be slashed in 2012 if all expenditures are to fit into the deficit of 4.25 percent of gross domestic product, as agreed with the International Monetary Fund, said Vladimir Vuckovic. The commitment is part of Serbia’s $1.48 billion precautionary loan deal with the IMF.

“There are many inelastic items in the budget, such as public wages and pensions whose adjustment for inflation is mandatory, so it’s necessary to cut where possible,” Vuckovic said, speaking at a debate on fiscal planning in Belgrade today. The government is to present its 2012 budget by Dec. 15.

Reducing the support may backfire with a drop in foreign direct investment, Economy Minister Nebojsa Ciric said at the same event, citing the government subsidy of as much as 10,000 euros paid to investors for each new job created. Also, many businesses struggle with liquidity and if they shut down, budget revenue will dwindle, he said.

“Nominally, we’ve been out of recession for many months, but in reality the crisis is still strongly felt and helping the real economy stay afloat is vital,” Ciric said.

To contact the reporter on this story: Misha Savic in Belgrade at msavic2@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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