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Serbia Must Trim Budget Gap to Stem Debt Surge, Dinkic Says

Sept. 18 (Bloomberg) -- Serbia’s government must trim the deficit to 3.5 percent of economic output next year to avoid a debt crisis and balance the budget by 2016, Finance Minister Mladjan Dinkic said.

Serbia is trying to stave off bankruptcy amid a contracting economy and rising unemployment. The government of Prime Minister Ivica Dacic, which took office in July, wants to narrow the deficit to 1.9 percent of gross domestic product in 2014 and to 1 percent in 2015.

“It’s vital we do this,” Dinkic said in Belgrade today. “We plan to balance the budget in 2016,” he told lawmakers, presenting the draft 2012 supplementary budget to parliament’s Finance Committee.

The 2013 budget gap will be 0.5 percentage point lower than initially planned as the government took into account advice from the Fiscal Council and the International Monetary Fund to ensure public debt does not explode, Dinkic said.

The government needs to narrow the shortfall to convince the IMF it’s committed to medium-term fiscal consolidation, the key to start talks with the Washington-based lender on a new loan program.

IMF Watching

The IMF, which suspended a $1.3 billion precautionary loan in February on evidence Serbia was slipping on agreed deficit and debt targets, said on Sept. 14 it would be watching how the country manages its finances and central-bank autonomy before agreeing to a new loan. Serbia wants a new deal before adopting the 2013 budget, to encourage investors to offer cheaper funds to the indebted state.

Dinkic said one of his main concerns is a rapid increase in debt-servicing costs, which will rise to 93 billion dinars ($1.06 billion) in 2013 from 66 billion dinars this year.

Public debt rose to 49.6 percent of GDP at the end of 2011, with output measured at 31.14 billion euros ($40.7 billion), Dinkic said, citing a report from state auditors. Public debt was 45.1 percent of GDP at the end of last year, according to the government of former Premier Mirko Cvetkovic.

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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