Feb. 5 (Bloomberg) -- Serbia needs a new agreement with the International Monetary Fund to anchor its public finances and convince foreign companies to invest in the country, a member of the nation’s Fiscal Council said.
A new IMF loan accord should be in place “by early spring” or the finances “might get out of control,” council member Vladimir Vuckovic said at a briefing in Belgrade today.
“Even though debt financing has become cheaper both in domestic and foreign markets, and even though the first step of fiscal consolidation was successful, we should not be deceived,” Vuckovic said. “We need the IMF on our side, because the situation in international markets can easily change.”
Serbia and the IMF agreed in November to resume talks on a possible loan this spring, as the Washington-based lender called for measures to cut government debt without choking growth. The lender said Serbia’s fiscal gap was unsustainably large, public debt significant, inflation volatile and unemployment elevated.
An IMF technical mission is expected to arrive in Belgrade “soon” to check fundamentals and a fully-mandated negotiating team would follow to define the terms of a new program, he said.
Prime Minister Ivica Dacic’s six-month-old Cabinet has taken advantage of the “abundance of cash in international markets” to lower the cost of borrowing and bolster the dinar at a time when inflation tops 10 percent, Vuckovic said.
“Due to risks in the country, or abroad, the inflow may become outflow” and undermine “perceived stability of the currency” triggering a “sudden and explosive” dinar fall, he said.
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