• Party backs plan to call vote two years before term ends
  • Early vote designed to avoid `major' cabinet shuffle

Serbian Prime Minister Aleksandar Vucic won his party’s approval to call elections two years before his term ends to change the make-up of the ruling coalition and carry out unpopular reforms demanded by the International Monetary Fund.

Vucic, whose party controls 135 seats in the 250-member parliament, is using early elections as a political tool for the second time since his Progressive Party first rose to power in 2012. The party initiated a snap ballot in 2014, elevating him to the head of the government.

“My decision is to have elections,” Vucic said Sunday at a meeting of his Progressive Party’s main board in Belgrade. Serbia needs four years of stability and the government needs “a full mandate for tough decisions so Serbia can be ready to join the European Union by 2020,” he said.

Vucic, who wants to prepare Serbia for European Union membership by 2020, is trying to repair the economy after three recessions since 2009. He signed a three-year accord with the International Monetary Fund in 2015 to stabilize public finances and unleash growth. The government must still tackle issues including bad loans and unprofitable companies, while struggling to sell state assets.

Political Uncertainty

The early elections will help avoid a major cabinet shuffle that would translate into “months of agony,” Vucic told reporters on Jan. 14.

Early elections may “increase political uncertainty briefly delaying reforms,” Deanie Jensen, an emerging-market economist at ING Groep NV in London, said in a note to investors. “There is also increasing implementation risk in Serbia, as some tough reforms have yet to be carried out.”

The three-year austerity plan should help Serbia narrow its budget gap and public debt of close to 80 percent of economic output. It includes cuts in public wages and pensions, finding a solution for money-losing companies, increases in taxes and their better collection as well as shrinking the public administration. The IMF discontinued its earlier accord with Serbia in 2012 due to fiscal slippages ahead of the general ballot that year.

The yield on Serbia’s dollar bonds maturing in 2021 rose three basis point to 4.741 percent on Friday, the highest since Oct. 10, according to data compiled by Bloomberg. The dinar traded at around 123 against the euro on Friday, its weakest in a year.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE