IMF Starts New Loan Talks With Serbia as Inflation Rises

An International Monetary Fund mission started talks with Serbian officials on a new loan arrangement as the Balkan nation seeks to overhaul the economy and tame Europe’s fastest inflation.

The IMF delegation, led by Zuzana Murgasova, met with Serbian central bank Governor Jorgovanka Tabakovic, Finance Minister Mladjan Dinkic and Labor Minister Jovan Krkobabic, the Belgrade-based Narodna Banka Srbije said in an e-mailed statement today. The IMF will complete its visit by Nov. 20.

Talks will focus on the “draft budget for 2013, the program of fiscal consolidation and a mid-term macroeconomic pattern,” the central bank said. The IMF suspended a $1.3 billion loan in February after the government slipped on agreed fiscal targets ahead of May 6 general elections.

Serbia is grappling with a surge in consumer prices on rising food costs even as the central bank last week raised its benchmark interest rate for a fifth time since June to ease price growth. The inflation rate advanced to 12.9 percent in October, the highest level since April 2011.

The government of Prime Minister Ivica Dacic is seeking to slow public-sector wage growth and pensions and raise taxes as it focuses on cutting the budget gap to 6.7 percent of gross domestic product in 2013 and to 3.6 percent of GDP next year.

Bold Plan

“The plan to cut the budget gap is bold and we welcome it, but it’s a question if it’s going to be achieved,” Pavle Petrovic, the president of an independent supervisory Fiscal Council, said today in Belgrade. The budget draft for 2013 “lacks additional measures to control spending” and the IMF may seek such guarantees, without which the gap may be reduced to just 4.3 percent of GDP in 2013, he said.

“We strongly suggest to the government to do what it takes to reach an agreement” with the IMF, he said.

Risks to meeting the target include the state’s debt to contractors and suppliers, estimated at as much as 1.5 percent of GDP, Petrovic said. Paying even a portion of that will widen the gap, he said.

Last week, the state said it would pay drugmakers about 26 billion dinars ($296 million) owed for supplying state hospitals and the dominant, state-controlled health fund.

Restricting growth of public wages and pensions, regardless of double-digit inflation, has emerged as key austerity “but that may be exhausted as a method” in 2013, and the government strives to achieve a balanced budget in 2016, Petrovic said.

On the revenue side, the 2013 targets will “probably be achieved nominally due to high inflation,” which the Fiscal Council sees at 11.6 percent next year, compared with the government’s expectation of 10.1 percent, he said.

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