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Serb Fiscal Council Says Budget Measures Don’t Go Far Enough

The Serbian government’s savings measures won’t be enough to bring the first quarter fiscal gap to the 26 billion-dinar ($311.2 million) target agreed with the International Monetary Fund, the Serbian Fiscal Council said.

The savings total about 15.7 billion dinars, compared with an estimated deficit of 55 billion dinars at the end of the first quarter, the Belgrade-based council said in an e-mailed statement today.

The three-member body, appointed by parliament to monitor budget performance, said it “welcomes every effort” to lower the budget gap “but the measures to consolidate the fiscal deficit won’t ensure sufficient savings even if those were to fully materialize.”

The government was also right, it said, to cut sovereign guarantees for public company borrowing to a minimum, eliminating one of the reasons that led to a freeze in a $1.3 billion loan program with the IMF in February.

According to its own fiscal rules, Serbia needs to keep the fiscal deficit within 4.5 percent of gross domestic product and public debt below 45 percent of total economic output. The Fiscal Council said in February unchanged policies would push the deficit to at least 5.25 percent and public debt-to-GDP to 51 percent in 2012.

The government reported a two-month budget gap of 41.3 billion dinars at the end of February. The IMF has said a 61 billion-dinar fiscal deficit at the end of June would have signaled that policies were on track.

Additional Savings Needed

The government’s new program will manage to save 13 billion dinars at best, the Council said.

Serbia urgently needs additional savings measures, the Fiscal Council said, because there is no sign of reversal of negative trends from the first quarter. The amount of funds needed has expanded and the savings measures will need to be broadened and include local governments and public companies, it said.

The IMF encouraged Serbia today to limit excessive debt issuance and interest rates and convince investors Serbia is serious about keeping its fiscal house in order, the lender’s resident representative Bogdan Lissovolik said.

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