Serbia’s Next Cabinet to Restart Reforms, Finance Chief Saysby and
Government to end bankruptcy ban on state-owned companies
Serbia doesn’t need Eurobond now as financing needs drop
Serbia’s next government will end a ban on bankruptcy procedures against large state-owned companies “very soon” and stop paying subsidies that drain hundreds of millions of dollars from the budget each year, Finance Minister Dusan Vujovic said.
Premier Aleksandar Vucic, whose Progressive Party is poised to create a new government after winning April 24 snap elections, will resume an economic overhaul endorsed by the International Monetary Fund that includes selling state-owned companies and consolidating public finances, Vujovic said in an interview on Thursday. Still, the Balkan economy of 7.4 million people will grow by 2 percent this year, a pace that will accelerate to 2.5 percent in 2017, he said.
“We have a new mandate,” Vujovic, 64, said on the sidelines of the annual meeting of the European Bank for Reconstruction and Development in London. Vucic, in his yet-to-be-formed administration, wants to speed up the process in the first three months of the new term and try to “close the gap with Europe,” Vujovic said.
With their election win, Vucic’s Progressives restarted the clock by winning a new parliamentary majority and securing four more years to push through IMF-backed reforms that include ending budget support for unprofitable state companies, liberalizing markets, and pruning a bloated public-paid workforce. Vucic has pledged to help Serbia, which has unemployment exceeding 18 percent and average take-home salaries of $407 a month, to catch up with richer countries in the European Union, and he’s trying to prepare it to be ready to enter the bloc by 2020.
The measures will probably hit his support in the short term but induce changes that the IMF sees as necessary to create jobs and improve living standards.
Vujovic said that, while he hasn’t yet been invited to Vucic’s new cabinet, he has “at least a three-year mandate that I sketched for myself when we entered” power in 2014, and a “huge agenda” still ahead.
One of the new government’s first moves will be to eliminate bankruptcy protection for 11 big state companies that have been protected by the court from creditors, Vujovic said. He countered pessimistic comments on Thursday from the Fiscal Council, a three-member body appointed by parliament to supervise the government’s budget performance, which said that most of the companies now protected by the court will remain in state hands and continue to drain 200 million euros a year ($228 million) from state coffers.
Some of the companies will be “successfully privatized, some of them will be brought out of bankruptcy, and some will disappear,” Vujovic said. “But we will definitely not have any more uncontrolled subsidies from the budget.”
Vujovic expects three to four of the biggest companies, including electricity provider Elektroprivreda Srbije JP and gas monopoly Srbijagas JP, will be restructured rather than privatized this year.
Vucic’s outgoing administration, in which he rules with the Socialists, almost halved the budget deficit last year to 3.7 percent of gross domestic product by cutting pensions and public wages. Government borrowing costs have fallen, with the yield on Serbian dollar bonds maturing in 2021 falling to a record low 4.2 percent on Thursday.
The leaner deficit has also led to lower financing needs and has eliminated the need for issuing international for now, Vujovic said. While the government has planned a 1 billion euro note in the 2016 budget, Serbia last turned to foreign investors in November 2013 with a five-year $1 billion dollar bond with a 5.875 percent coupon.
“We have been ready to go out with larger bond issue but we believe that we don’t need the Eurobond right now,” Vujovic said. “We are trying to optimize debt management and borrow when the time is right and the cost is right.”