Serbia Cuts 2015 Gap by Almost Half Despite December Surge

  • December debt payments create half of full-year finance gap
  • Shortfall still almost half of 2014 deficit in terms of GDP

Serbia’s government cut its fiscal deficit by almost half in 2015 to bring it in below plan, even as a spending surge caused the shortfall to spike in the last month of the year.

The full-year general government deficit was 148.6 billion dinars ($1.3 billion), or 3.7 percent of gross domestic product, the Finance Ministry said on Monday. That was below a plan of 4.1 percent agreed with the International Monetary Fund and compared with a deficit that was about 7 percent in 2014. Separate data also showed the surplus for last month jumped 143 percent year-on-year to 33 billion dinar.

Pursuing cost-cutting measures endorsed by the IMF agreement, Prime Minister Aleksandar Vucic’s government has trimmed pensions and public wages. While that kept the deficit at about a quarter of its full-year target in November, spending jumped in December to account for about half of the 2015 shortfall. Vucic has now called for early elections in spring, and the end-2015 spending increase may point to potential political pressure for the government to loosen its targets before the vote, Raiffeisenbank analysts in Belgrade said in a note.

“Even without the election scenario, fiscal risks are high,” the analysts said on Monday. “The early parliamentary elections in spring will, to some extent, again postpone the execution of reforms.”

Among other costs in December, the government paid pension arrears for veterans, farmers and police, cash transfers to pension and health funds, and debt servicing for state-owned gas company JP Srbijagas’s liabilities to OAO Gazprom Neft unit Naftna Industrija Srbije AD, according to the Finance Ministry. Meanwhile, the surplus in the first month of this year was driven by revenue from the sale of 4G telecommunications licenses and increased excise duties on tobacco, as well as a 22 percent reduction in pension-fund financing, the ministry said.

Vucic has said he wants spring elections, two years before his term ends, to consolidate support before embarking on more IMF-endorsed cost-cutting measures that have drawn criticism from some workers and state employees. He has pledged to shut down or sell hundreds of unprofitable state companies and trim the size of the state administration to help prepare the country of 7.2 million for European Union entry by 2020.

Serbia’s dinar was little changed at 4:18 p.m., trading 0.1 percent weaker at 122.8193 against the euro in Belgrade. The yield on Serbia’s dollar bond maturing in 2021 rose two basis points, or 0.02 percentage point, to 4.775 percent.

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