Serbia Needs to Save Additional 400 Million Euros for IMF Deal

Serbia will need to make additional budget cuts and find a way to narrow its deficit by as much as one percent of economic output to qualify for a new agreement with the International Monetary Fund.

The savings totaling “around 400 million euros” ($543 million) are the “key condition” for Serbia to win a new precautionary loan program with the Washington-based lender, caretaker Deputy Prime Minister Aleksandar Vucic said in Belgrade today. The IMF will start negotiations with the government on Feb. 26.

“We told the IMF we are seeking support for the future, for reforms, for serious policies,” Vucic said. “Talks are under way with Finance Minister Lazar Krstic to find ways to narrow the deficit.”

Serbia will hold early parliamentary elections on March 16 after Vucic’s dominant Progressive Party pushed for the snap vote two years before it was scheduled, seeking support for policies that would transform the economy, still reeling from two recessions since 2009.

The Progressives are backed by more than 40 percent of decided voters in a country of 7.2 million people, according to surveys.

Budget Gap

The outgoing Cabinet of Prime Minister Ivica Dacic planned a general government deficit of 7.1 percent of gross domestic product in 2014, which the World Bank wants to see closer to 6.5 percent of GDP before extending a $250 million budget support loan. Serbia’s GDP is estimated at around 30 billion euros. Talks with the IMF will last until March 13.

An IMF agreement would assure investors of the government’s commitment to implement tough measures that could leave tens of thousands out of work. Vucic, whose party’s election victory would give him the post of the prime minister, said the new government would adopt a new labor code and laws on bankruptcy and asset sales by June 30. He plans to keep Krstic as finance minister in the government emerging after the elections.

“The important thing is to pursue bold policies,” Vucic said. “It won’t be easy but it will yield good results.”

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