March 14 (Bloomberg) -- Serbia can’t neglect “structural reforms” after borrowing costs dropped and the government should carefully weigh its role in the economy to preserve macroeconomic stability, a World Bank official said.
While the success of Serbia to raise external funding to cover its budget deficit is “good news,” lower interest rates “should not be used as an excuse to avoid structural reforms” at a time when public debt is extremely high,’’ the World Bank’s resident representative, Loup Brefort, told a business forum in the Serbian mountain resort of Kopaonik today.
“We all know that markets are feeble and it’s not time to lose sight of this fact,” Brefort said. “The government has taken some very, very bold steps, but concern is that the steps were mostly one-off.”
Junk-rated Serbia raised $3.25 billion in three Eurobond sales between September and February to finance the budget deficit and repay debts, taking advantage of optimism about a global economic recovery while extra liquidity from central banks pushes investors to higher-yielding assets.
Prime Minister Ivica Dacic’s eight-month-old Cabinet raised the sales tax by two percentage points and increased excise duties in October to bolster budget revenue and narrow the deficit as part of a pledge to consolidate public finances, balance the budget through 2016 and lead the country out of its second recession in three years.
“The tax rates cannot be raised each year and the erosion of standards of living for wage earners in the public sector and pensioners cannot be repeated indefinitely,” he said. The time is right for “politically brave” measures toward fiscal consolidation as well as a clear “action plan,” he said.
The state should seek to ensure macroeconomic stability and improve the business climate equally for all firms. While efforts to expand the economy have a “fiscal cost” and changes bear a “political cost,” Serbia will need to find its “own dosage of reforms and state aid to growth” to keep fiscal targets on track, he said.
To contact the reporter on this story: Gordana Filipovic in Belgrade at email@example.com
To contact the editor responsible for this story: James M. Gomez at firstname.lastname@example.org