Serbia Seeks Revised Budget by End-June After IMF Warning on Gap

Serbia will try to revise its 2013 budget by the end of June as it seeks to curb the deficit and dodge a debt crisis, addressing concerns aired by the International Monetary Fund and the country’s Fiscal Council.

The budget revision is possible “within a month and a half,” Finance Minister Mladjan Dinkic told lawmakers today in the capital, Belgrade, during a debate about proposed amendments to a set of tax laws that would result in savings equivalent to 1 percent of gross domestic product.

“The situation is grave, but it’s neither dramatic nor catastrophic,” Dinkic said, adding that the first set of measures will only “mitigate” rather than resolve issues.

The IMF, the Fiscal Council and the central bank have urged the government to target savings equivalent to 2 percent of economic output to curb the fiscal gap, which risks exceeding 8 percent of GDP with unchanged policies. The Fiscal Council, a three-member body appointed by parliament to oversee the government’s fiscal compliance, cautioned against a threat of a debt crisis and said measures to bring the deficit down to 4.5 percent this year and 3 percent in 2014 are needed to avoid it.

The yield on Serbia’s 10-year Eurobond maturing in 2021 rose to 5.2 percent by 3:09 p.m. in Belgrade, the highest since April 19, from 4.84 percent yesterday, according to data compiled by Bloomberg.

Not Imminent

While the danger of a debt crisis looms over Serbia if the government takes no measures to cut the budget gap, that “threat isn’t imminent,” Dinkic said. The budget’s liquidity is “excellent,” with the government holding the equivalent of 1.3 billion euros ($1.6 billion) on its accounts.

The Balkan nation ran a 76 billion-dinar ($886 million) budget deficit through April, or 62 percent of the full-year target. Dinkic said the wider-than-planned gap reflected a poorly planned increase in corporate taxes, while sales tax collection suffered from the country’s expanding shadow economy. The government also had to pay 30 billion dinars to service old debt obligations and rescue deposits at two failed banks.

The IMF and the Fiscal Council have urged the government to include decreases in public wages and pensions in a medium-term fiscal consolidation plan. Deputy Prime Minister Jovan Krkobabic, who leads the Pensioners Party, ruled out freezing or cutting retirement benefits for as long as he is a member of the government.

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