Serbia Has Cash to Last Through September, Deputy Premier Says

Serbia has enough cash to finance public wages and pensions through the end of September, Deputy Prime Minister Aleksandar Vucic said, increasing pressure on coalition partners to deepen an austerity program.

Vucic, whose poll-leading Serbian Progressive Party agreed to eject a junior ruling coalition partner and continue in a cabinet with Prime Minister Ivica Dacic’s Socialists yesterday, told Belgrade-based broadcaster B92 last night the government would continue cutting the budget deficit. Coalition partners “who don’t want to make savings, can leave,” he said.

“I think we have funds through mid-September or end-September,” Vucic told B92, when asked how much cash the government had to pay public wages, pensions and other budget liabilities. He wasn’t asked by the interviewer what the government would do in October to fund itself. Vucic declined to elaborate to Bloomberg at a later press conference.

Serbia is under pressure to shrink spending and clinch a new agreement with the IMF to backstop its public finances and restore investor confidence. The fund refused to discuss a new deal in May after saying Belgrade had slipped on its commitments, drawing criticism from Finance Minister Mladjan Dinkic, dismissed from his post on July 30, that it was “too tough”.

The yield on the government’s dollar bond maturing in 2021 fell 15 basis points, or 0.15 percentage point, by 11:19 a.m. to 6.79 percent, falling back from an almost half a percentage jump yesterday to its highest level in a month, according to data compiled by Bloomberg.

‘No Backstop’

“Serbia has no backstop in place,” Nomura international Plc strategist Peter Attard Montalto said in a note to clients last night. “We remain very negative on Serbia as a credit.”

The Finance Ministry was not immediately available for comment.

Serbia spent on average 80.1 billion dinars ($931 million) a month in the first half of the year, versus average revenue of 63.9 billion dinars, according to Finance Ministry data.

The government held 104.5 billion dinars ($1.2 billion) in hard currency deposits with the central bank at the end of June, more than double what they inherited from the previous government one year ago, according to central bank data. It has 102.44 million dinars in debt coming due by the end of the year.

Vladimir Vukovic, a member of the Fiscal Council, a three-member body that monitors Serbia’s financial performance, said the cash flow was worrisome and it’s unclear how investors would react.

Fiscal Warning

“This is the situation the Fiscal Council has been warning about,” he said by phone today. “Still, I wouldn’t expect Serbia to default on its debt under current global circumstances and considering its overall economic performance.”

Serbia’s debt is rated junk by all three major credit rating companies. Standard & Poor’s said in May Serbia risked a downgrade unless the government cut spending, promoted export growth and secured a new IMF deal.

Dacic’s year-old cabinet plans to raise $1 billion from a Eurobond sale by year-end to finance its budget gap. The Fiscal Council warned on July 4 that it would be “crucial” for the government to hammer out a new agreement with the IMF and more spending cuts to keep a lid on borrowing costs.

The political turmoil surrounding the cabinet shuffle cut the ruling coalition’s majority to one vote in the 250-seat parliament, though early elections were averted for now.

“The political crisis is far from being resolved and the risk of early elections has clearly increased,” a Barclays Capital Plc economist in London, Eldar Vakhitov, said in a note to clients. “We recommend maintaining a cautious stance on Serbia credit for now.”

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