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Serbia to Discuss IMF Loan After EU Entry Talks, PM Says

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May 20 (Bloomberg) -- Serbia may discuss a possible new precautionary loan with the International Monetary Fund once the Balkan nation wins the right to begin European Union membership talks, Prime Minister Ivica Dacic said.

The IMF is waiting for an EU decision in June on whether Serbia will be given a start date, Dacic said in Belgrade today. The mission that tomorrow wraps up a two-week inspection of the Serbian economy as part of a periodic Article IV consultation hasn’t opened negotiations with the former Yugoslav republic on a new loan, he said.

“The second half of the year will be more favorable for loan talks,” Dacic said after meeting executives of foreign companies in Serbia.

Serbian officials hope to start membership talks on June 28, taking another step closer to joining the bloc. Dacic’s 10-month-old Cabinet last month signed a political agreement with the breakaway province of Kosovo and now needs to make progress to start implementing the pact to get the date.

The IMF suspended a $1.3 billion precautionary loan with Serbia in February 2012 on evidence the previous government was slipping on deficit and debt targets. It told Serbia in November to cut debt without choking economic growth, citing an unsustainable fiscal gap, volatile inflation and high unemployment.

The government will meet to discuss the IMF’s policy recommendations and “decide during the summer what to do about them,” Finance Minister Mladjan Dinkic said today in Jagodina, central Serbia, where Vibac SpA, an Italian maker of packaging materials, plans to build a plant.

‘Good Recommendations’

“We’ll certainly accept all good recommendations,” he said. “It’s in our interest to improve the business environment and reduce non-productive spending.”

Spending cutbacks can be applied to public administration, while the government will continue to finance road infrastructure, subsidize jobs and exports and improve standards of living, according to Dinkic.

The authorities have pledged to implement a fiscal consolidation plan to narrow the budget gap to 3.6 percent of economic output from 6.7 percent last year. Dinkic said on May 10 the gap will probably be 4.5 percent of gross domestic product.

Serbia’s budget gap reached 62.3 percent of the full-year target in the first four months as social-benefit outlays doubled and interest rate payments on debt more than tripled.

The central government deficit expanded to 75.9 billion dinars ($880 million), compared with a 122 billion-dinar shortfall planned for the entire year.

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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