Serbian Wage Pledge Sets Stage for August Wrangling With IMF

Serbia will raise pensions and public salaries by year-end, Prime Minister Aleksandar Vucic said, backtracking on cuts made under a loan agreement with the International Monetary Fund.

Wages will rise for as many as 360,000 of Serbia’s 493,000 public workers, including teachers, doctors, soldiers, and police, Vucic said in Belgrade on Wednesday. His government will discuss the plan, which will also affect half of the country’s 1.7 million pensioners, with the Washington-based lender when its representatives conduct an Aug. 20-Sept. 2 review of Serbia’s three-year stand-by accord.

Facing a contracting economy and protests from pensioners and the employees of state companies, Vucic has pushed to soften the terms of the IMF deal by reversing public wage and pension cuts. His government is trying to reduce a budget deficit to 4 percent of economic output this year from almost 7 percent in 2014, and the planned raises won’t hurt public finances or the IMF agreement, he said.

“The wage and pension increase will not be symbolic, but it will be below what the IMF would accept,” Vucic told reporters in Belgrade.

The IMF has advised Serbia to use savings made by cuts in spending and dividend payments by state-owned companies to reduce the country’s debt load, which it expects to rise to 77.3 percent of gross domestic product this year. The government has kept the budget shortfall at about 70 percent of its target in the first half of 2015.

Serbia’s economy shrank 1.8 percent in the first quarter versus a year earlier, matching a 1.8 percent drop the previous three months. Vucic has also asked for more time to sell or close about 500 state-owned companies that drain about $1 billion from the budget each year and has proposed raising electricity tariffs less than agreed with the IMF.

The dinar was little changed at 120.2 against the euro at 1:58 p.m. in Belgrade. The currency has gained 1 percent against the euro this year.

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