IMF to Push New Serb Government to Reduce Spending More

The International Monetary Fund will push the new Serb government to cut budget spending more before starting talks with the Balkan country on a new precautionary loan, a top Finance Ministry official said.

The Washington-based lender may open talks on a new loan program in June or July, after a new government is formed following March 16 elections, Nikola Corsovic, the state secretary at the Serbian Finance Ministry, told Serbian state TV broadcaster RTS in Belgrade today.

“They will be looking for a long-term sustainability of public finances and that means a deficit reduction, implementation of reforms, completion of the privatization process and the resolution of problems associated with the restructuring of companies,” Corsovic said.

The IMF is assessing Serbia’s public finances for the fifth time since July 2012, when Premier Ivica Dacic took office. The two sides have held no discussions on a standby agreement since February 2012, when Serbia’s IMF program was suspended because it slipped on agreed budget targets.

Yields on Serbia’s Eurobonds maturing in 2021 fell 5 basis points, or 0.05 percentage point, to 5.465 percent by 10:40 a.m. in Belgrade, the lowest since June 4, 2013, according to data compiled by Bloomberg.

The state of Serbia’s economy is “very grave” and the IMF is coming to “assess the urgency of measures” the new government will have to take, Tanjug news agency reported, citing Kori Udovicki, a former central bank governor and the current head of the Center for Advanced Economic Studies.

Budget Savings

The biggest former Yugoslav republic will need to save 400 million euros ($550 million) to qualify for new loan talks, Deputy Premier Aleksandar Vucic said on Jan 30. His Progressive Party pushed for early elections two years before they are due to have a shot at replacing Dacic.

Parliament adopted Finance Minister Lazar Krstic’s 2014 budget in December, targeting a general government deficit of 7.1 percent of gross domestic product. The World Bank wants to see the gap 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. A World Bank decision is also tied to the IMF.

Junk-rated Serbia has repeatedly said it wants to agree on a precautionary program with the IMF to assure investors it’s committed to implementing tough measures that may leave tens of thousands out of work.

Fitch Ratings downgraded Serbia to ‘B+’ from ‘BB-’ on Jan. 17, citing weak economic prospects. It is rated B1 by Moody’s and BB- by Standard & Poor’s.

IMF said on Jan. 20 its mission will be in Belgrade through March 13, to “initiate discussions on a possible IMF-supported program.”

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