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Serbia Will Start Cutting Deficit as of May, Dinkic Says

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May 17 (Bloomberg) -- Serbia will start cutting its budget deficit this month, after the Cabinet adopts measures to save an equivalent to one percentage point of gross domestic product.

Fiscal consolidation will come in steps, with the first one in May, when the Finance Ministry wants to launch measures to save 32 billion dinars ($370.8 million), the Belgrade-based ministry said citing Finance Minister Mladjan Dinkic.

“We will start cutting the deficit as of this month and adjust spending to an existing quantity of money,” Dinkic said, according to the statement. “We will then monitor what happens during the summer and if needed, we will have another wave in September, which means that we will keep adjusting and spending only what we earn.”

Serbia’s budget gap reached 62.3 percent of the full-year target in the first four months as social-benefit payments doubled and payments of interest rates on past debt more than tripled. The central government deficit expanded to 75.9 billion dinars, compared with a 122 billion-dinar shortfall planned for the entire year.

The government needs to cut spending while leaving some cash for growth because “Serbia is in a difficult economic situation,” Dinkic said.

The deficit of 49.8 billion dinars in the first three months was equivalent to almost 6 percent of quarterly GDP. Dinkic said on May 10 that the gap will likely be 4.5 percent of GDP, compared with a target in the 2013 budget of 3.6 percent of GDP and last year’s gap of 6.7 percent of GDP.

The International Monetary Fund wraps up its two-week mission to Serbia on May 21, checking the health of the economy as part of the periodical Article IV consultation. The mission had no mandate to negotiate a new loan agreement.

The government had two months to agree on fiscal policy goals that would have paved the way for the start of talks on a new loan with the IMF.

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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