Serb Premier Vows to End EU Talks, Win Investment Grade by 2019

  • Country wants clear timeline for EU accession process
  • Vucic pledges to raise Serbia from junk to investment grade

Serbian Premier Aleksandar Vucic vowed that his new government will complete membership talks with the European Union by 2019, further trim the country’s fiscal shortfall and try to lift the country’s credit rating from junk to investment grade.

After winning April snap elections, Vucic said his coalition cabinet will take advantage of better-than-expected budget performance to cut the public deficit to about 2.5 percent of gross domestic product. That amount undershoots the government’s earlier estimate of 4 percent, which it has targeted under a program with the International Monetary Fund.

With a new four-year mandate, Vucic announced the plans ahead of a confidence vote for his cabinet in parliament, in which his Serbian Progressive Party and his coalition partners, the Socialists, hold a majority. The 46-year-old former ally of wartime leader Slobodan Milosevic is trying to strike a delicate balance of pursuing EU membership while also maintaining close ties with Russia, a traditional ally and the largest backer of Serbia’s refusal to recognize the independence of the breakaway province Kosovo.

“The path to EU membership will be full of political challenges,” Vucic said on Tuesday. They include “tectonic global shifts, a partial change in the balance of power and economic disparity between those who hold the biggest political and military power and increasingly frequent local and regional conflicts,” he said.

The yield on Serbia’s dollar bonds maturing in 2021 fell two basis points to 3.816 percent by 4:33 p.m. in Belgrade. The dinar was little changed at 123.2892 to the euro.

EU Entry

Vucic will ask the European Commission for a detailed calendar for each of 35 negotiation areas under the accession process, he said. Adding to challenges Serbia faces in joining the EU is also “a more complex environment after Brexit and the failed coup in Turkey,” he said, estimating that the U.K.’s vote to leave the trading bloc may undercut Serbian economic growth by between 0.1 and 0.2 percentage points.

The government, which has a precautionary 1.2 billion euro ($1.3 billion) agreement with the International Monetary Fund, will cut jobs from public institutions and change the tax code, creating fiscal consolidation measures equivalent to 0.7 percent of GDP this year, Vucic said.

The cabinet, in which Dusan Vujovic will remain finance minister, will work to lower the government’s borrowing costs and “strive to achieve an investment grade credit rating over the next three years,” the prime minister said. Serbia is now rated at BB-, three steps below investment grade, at Fitch Ratings and S&P Global ratings. Moody’s Investors Service rates the Balkan country of 7.1 million people at B1.

The government is also preparing for the sale of state insurer Dunav and second-largest lender Komercijalna banka, and it will attempt to transform Postanska Stedionica banka into a leader in retail banking, Vucic added.

Before it's here, it's on the Bloomberg Terminal.