Serbia Seeks Cost Cuts, Asset Sales to Keep Gap at 4.7% of GDP

Serbia will reduce administrative costs and sell money-losing companies, leaving thousands without work, to avoid cuts in public wages and pensions as it works to trim the budget gap and prevent a public debt crisis.

The government will raise the 2013 budget’s deficit target to 177 billion dinars ($2.1 billion), or 4.7 percent of gross domestic product, from a previously planned 122 billion dinars, Finance Minister Mladjan Dinkic said in Belgrade today. The revenue target was trimmed 9.8 percent to 849.3 billion dinars and spending will fall 3.5 percent to 1 trillion dinars.

“Our plan aims for drastic savings in the public sector while seriously encouraging investment in the private sector” as revenue has been affected by declining private consumption, weak financial discipline and an expanded shadow economy, Dinkic said. Public wages and pensions will rise 0.5 percent this year and 1 percent next, he said.

The International Monetary Fund has warned the deficit may top 8 percent, more than double the target, if no measures were taken. The Fiscal Council, appointed by parliament to oversee fiscal compliance, said a debt crisis is looming without urgent savings and Standard & Poor’s said there is a risk of credit-rating downgrade in the event of significant fiscal deterioration.

The government will submit the draft revised budget to lawmakers by July 1 and the document will include a “drastically changed” financing plan, Dinkic said. Serbia needs a maximum $500 million in additional budget financing by March next year and “we’ll see” if international debt will be offered, he said.

Seeking Support

Prime Minister Ivica Dacic’s 11-month old Cabinet needs support from trade unions and Serbian economists to overhaul the public sector, including 179 companies with 54,000 workers that have been subject to restructuring programs for 12 years and cost the state 750 million euros ($1 billion) in a single year, he said. Almost 90 firms with about 13,000 workers will be closed this year if no buyer can be found, Dinkic said.

The government will refrain from issuing sovereign guarantees to public companies for any new debt because it has to pay 3 billion dinars in activated guarantees after Srbijagas JP gas monopoly failed to service its debts.

It will also call tenders to sell stakes in the Resavica coal mines, JAT Airways AD, drugmaker Galenika AD Zemun and insurer Dunav Osiguranje.

The coalition has identified Russian and Gulf region investors interested in a 20-30 year lease for Belgrade airport Nikola Tesla, with the entire rent collected upfront. No agreement has been reached on the sale of Telekom Srbija AD, the nation’s dominant landline provider, Dinkic said.

At least 125 million euros and as much as 250 million may be raised from a tender on the country’s first 4G license, Dinkic said.

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