Serbia Adopts 2014 Budget With Europe’s Highest Fiscal Deficit

Serbia adopted 2014 overall budget framework that includes the highest deficit target in the Balkans region even as the government capped public wages and pensions and lowered subsidies for state companies.

The budget, backed by 133 lawmakers in the 250-seat parliament today, sets the general government deficit at 7.1 percent of economic output, up from 6.5 percent this year. It sets 2014 spending at 1.11 trillion dinars ($13.3 billion) and revenue at 930 billion dinars.

“This budget is a chance for a new start” and will ensure that the next year’s gap doesn’t rise to 9 percent of gross domestic product, Premier Ivica Dacic told lawmakers on Dec. 9.

Dacic, whose cabinet shuffle in September narrowed his majority in parliament to one, will raise taxes, push back the retirement age for women, crack down on the shadow economy and cut subsidies to state-owned companies to halt an increase in public debt by 2016, which is expected to stay within 70 percent of GDP.

Serbia will raise 6 billion euros ($8.24 billion) through loans and debt issuance, including a $750 million Eurobond, to cover the gap and settle debts next year, according to the document.

Yields on Serbia’s dollar-denominated Eurobond maturing in 2021 fell 4 basis points, or 0.04 percentage point, to 6.39 percent by 4:23 p.m., according to data compiled by Bloomberg.

Serbia is trying to tackle problems from economic growth to creating jobs and lowering public debt, Finance Minister Lazar Krstic told lawmakers on Dec. 12. “This is not a matter of choice, we’ve been forced to do it.”

Additional Savings

The government needs to save additional 300 million euros or 1 percent of economic output to keep the deficit target on track, the Fiscal Council, a three-member body appointed by parliament to oversee fiscal compliance, said on Nov. 26.

The widening deficit includes one-time spending liabilities assumed in previous years related to the completion of the restructuring process of state-owned companies and spending to establish the stability of the financial sector.

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