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Serbian Central Bank Warns of Looming Crisis on High Debt Level

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July 3 (Bloomberg) -- Serbia’s expanding public debt and dwindling liquidity can tip the country into a debt crisis, unless a new government takes office soon to ensure economic recovery, the central bank said.

A liquidity crunch, the Euro-area crisis and economic stagnation threaten Serbia’s financial stability and growth prospects, the Belgrade-based National Bank of Serbia said in an e-mail today, after submitting a report to parliament.

“Public debt has already exceeded not only the limit set by the law, but also the limit above which a debt crisis is possible and it requires a forceful fiscal adjustment,” the central bank said.

Public debt reached 52.1 percent of gross domestic product in April, exceeding a 45 percent limit set by self-imposed fiscal rules.

Serbian parties have been trying to form a new government for two months, following inconclusive May 6 general elections. The Balkan nation’s economy contracted 1.3 percent in the first quarter, unemployment rose to 25.5 percent in April from 23.7 percent in November and industrial output declined for a fifth consecutive month in May.

The fiscal deficit expanded to 7.3 percent of GDP in the first three months and the current-account gap stood at 17.2 percent, double the full-year target.

Non-performing loans have also been rising reaching 20.4 percent in March from 19 percent of total lending at the end of 2011, the bank said.

“All these figures point to a need to form a government as quickly as possible, which will be able to curb public spending and ensure conditions for economic recovery,” it said.

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

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

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