Serbia Needs More Savings in 2014 to Get IMF Deal: Petrovic

Serbia needs to make additional savings in its 2014 budget to convince the International Monetary Fund to agree to a new loan program.

Savings of as much as 1 percent of economic output are needed to cut the planned general government deficit of 7.1 percent of gross domestic product to about 6 percent to 6.5 percent, said Pavle Petrovic, head of the Balkan country’s Fiscal Council, a three-member body appointed by parliament to oversee budget discipline.

“If the deficit was lowered in comparison with 2013, that would calm investors and even more importantly get us closer to a necessary deal with the IMF,” Petrovic told reporters in Belgrade today. The 2013 general government deficit will be about 6.6 percent of GDP, he said.

Serbia has made no formal request for loan talks with the IMF. The Washington-based lender last month cut its growth forecast for the country and called for more action to overhaul labor and pension systems as well as to reduce red tape to help the economy expand.

An IMF technical mission will come to Belgrade next month to help assess public finances and better plan budget spending and revenues, Tanjug news agency cited Finance Minister Lazar Krstic as saying. Krstic said “there are no formal talks” on a potential financial backstop, and Serbia is still interested in a precautionary program.

Yields on Serbia’s 2021 dollar-denominated bond fell one basis point, or 0.01 percentage point, to 6.504 percent at 5:58 p.m. in Belgrade. The dinar slid 0.1 percent to 114.1630 to the euro, data compiled by Bloomberg show.

State Companies

The overhaul of state-owned companies, along with a lower budget gap and the adoption of a credible mid-term savings plan are needed to avoid a debt crisis, Petrovic said, less than two months after Deputy Prime Minister Aleksandar Vucic said the country was on the verge of bankruptcy.

Premier Ivica Dacic’s cabinet raised the general government gap forecast to 7.1 percent of GDP next year to include one-time spending aimed at overhauling state-owned enterprises and prop up commercial banks.

The government will need to borrow 5 billion euros ($6.8 billion) a year at least until 2016 to cover the gap and settle debts. Access to funding may become limited and pricey without deficit cuts, Petrovic said.

‘Insufficiently Credible’

Dacic, who replaced the previous finance minister and his party to narrow the number of coalition partners as part of a government shuffle in September, pledged last month to raise taxes, push back the retirement age for women, crack down on the shadow economy and cut subsidies to state-owned companies to curb public debt growth by 2016.

The measures proposed in next year’s budget and the fiscal strategy through 2016 aren’t “balanced and are therefore insufficiently credible,” Petrovic said. “The state of public finances demands more decisive measures” and action “without delay” to resolve issues at state companies and banks that “uncontrollably bleed budget funds.”

Serbia will need 800 million euros in 2014 to cover failed banks, including 360 million euros to boost the capital of its Deposit Insurance Agency, which this year spent 100 million euros after the collapse of Privredna Banka AD Beograd, Petrovic said.

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