Serbia Adopts 2016 Budget as Government Prepares for Job Cuts

  • Government committed to cut 35,000 jobs, sell state assets
  • Budget sees 2016 deficit at 4% of Serbia's annual output

Serbian lawmakers approved the 2016 budget, a plan aimed at keeping the budget deficit stable while the government cuts thousands of jobs and sells or closes unprofitable state companies.

Parliament on Saturday approved a general government deficit target of 164 billion dinars ($1.47 billion), a shortfall estimated about equal to this year’s 4 percent of gross domestic product and less than 2014’s 6.7 percent. The budget was approved 161-10. Following three recessions since 2009, the plan assumes growth of 1.75 percent, average inflation of 2.8 percent and a dinar rate of 122.5 against the euro.

The economic outlook “will depend to a great degree on global economic developments and further implementation of fiscal-policy measures,” Finance Minister Dusan Vujovic said on Wednesday as he presented next year’s plan.

The biggest former Yugoslav republic has committed to an austerity plan backed by the International Monetary Fund aimed halting an increase in public debt by the end of 2017. After implementing public-wage and pension cuts, Premier Aleksandar Vucic needs to eliminate 35,000 public jobs and sell or close 17 big and unprofitable companies to keep the IMF-supported program on track.

The debt level will reach almost 80 percent of GDP next year, with debt-servicing costs peaking at 20 percent of GDP in 2017. The exclusion of the sovereign-backed debt of some public companies from the 2016 budget is one of the risks to achieving the deficit target, the Fiscal Council, a parliament-appointed body that monitors the fulfillment of budget commitments, said on Tuesday

Serbia plans to sell 1 billion euros ($1.1 billion) in bonds to institutional investors and raise $2 billion in a loan from the United Arab Emirates to cover part of its 2016 financing needs.

Vucic’s administration is trying to cut borrowing costs at home as interest rates on dinar-denominated debt account for half of Serbia’s 139 billion dinars in interest payments in 2016, he said. The government is considering selling a “big Eurobond” next year “to create certain pressure to lower interest rates on the domestic market,” Vujovic told lawmakers on Wednesday.

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