Serbia’s Budget Gap May Come in at Half of Government’s Plan

  • Shortfall seen around 2 percent of GDP instead of 4 percent
  • Fiscal Council urges government to keep up consolidation

Improved tax collection may help reduce Serbia’s 2016 budget deficit to half of the government’s plan, squeezing it to less than a third of the fiscal shortfall two years ago.

With better-than-projected revenue through August, the Balkan country may finish the year with a shortfall of 2 percent of gross domestic product, not the 4 percent originally planned, the Fiscal Council, an independent three-member panel of economists, said on Monday. While that will help reduce government debt, officials must continue on their path of budget consolidation, the council said.

“The expected level of 2016 deficit is sufficient to halt the rise of public debt relative to GDP, which removes the immediate danger of a public debt crisis,” the council, which is elected by parliament, said in a statement. “But we warn that Serbia is still an over-indebted country.”

The assessment marks progress for the government of Prime Minister Aleksandar Vucic, who has pledged to overhaul the $37 billion economy and prepare the country to be ready to join the European Union by 2020. While pursuing a precautionary agreement with the International Monetary Fund, Vucic has pledged to trim the size of the state administration, cut public debt and close down or sell hundreds of state-owned companies that drain more than $1 billion from state coffers a year.

If one-time revenue is excluded, the budget shortfall will be around 2.5 percent of GDP, compared with 3.7 percent in 2015, the council said. It added that while the current budgetary trend will arrest public debt at below 77 percent of GDP, “it would take just one external shock or recession” to push that ratio beyond 80 percent. The dinar lost 0.1 percent to 123.26 against the euro at 5:55 p.m. in Belgrade.

“The sustainability of the fiscal results will mainly depend on solving the problem of public companies and completing the privatization of state enterprises,” the council said, specifically mentioning utility Elektroprivreda Srbije, gas company Srbijagas, and copper miner and smelter RTB Bor.

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