New Serb Cabinet Vows IMF-Backed Reform, Complete EU Entry Talks

  • Government sees reforms, EU talks completed within 3 years
  • New Serbian leadership to focus on growth and prosperity

Serbia’s new cabinet won a confidence vote on Thursday, promising to continue with fiscal restraint backed by the International Monetary Fund and finalize European Union membership talks within three years.

Premier Aleksandar Vucic, former strongman Slobodan Milosevic’s information minister in 1998, and his 19-member cabinet were preparing to take the oath of office at 7 p.m. in Belgrade following a vote that gave them a support of 163 lawmakers in the 250-seat parliament. Vucic’s Progressive Party will rule together with Foreign Minister Ivica Dacic’s Socialists, controlling 160 seats in parliament.

The cabinet plans to cut jobs from public institutions and amend the tax code, creating fiscal consolidation measures equivalent to 0.7 percent of economic output this year, Vucic told lawmakers on Tuesday. He will rely on Dusan Vujovic, the former World Bank economist, to continue to lead the finance ministry and work to lower the government’s borrowing costs and lift Serbia’s credit rating from junk to investment grade.

Vucic, who is forming the government for the second time in two years, said the new cabinet will focus on “growth and prosperity after the previous one had to focus on stabilizing public finances.” Changes to his cabinet were aimed at bringing in some new energy and “the coming four years will be a golden era for Serbia and its citizens.”

Reform Agenda

Vucic has pledged to use the new four-year mandate to make the country ready for joining the EU, which opened membership negotiations with the country of 7.2 million people earlier this year. He has also pledged to maintain close ties with Russia, cut public debt and spur growth. The country is facing “many challenges, tough political challenges which can change our path,” Vucic said.

The economy is expected to grow 2.5 percent this year, even as U.K.’s vote to leave the EU may undercut growth by 0.1 percent or 0.2 percent, he told lawmakers on Tuesday. The government wants to take advantage of better-than-expected budget performance to cut the public deficit to about 2.5 percent of economic output, below the government’s earlier estimate of 4 percent, initially targeted under the IMF program.

“It is good news that Vucic has recommitted to an EU/IMF reform agenda, which focuses on the need for continued fiscal consolidation,” Timothy Ash, head of EMEA Credit Strategy at Nomura International Plc, wrote in a note Wednesday. “ Vucic though seems to be playing the field a bit, eager to keep warm relations with the EU, the US, Russia, China and the UAE.”

The government was taking the oath of office as the central bank left its benchmark interest rate unchanged despite below-target inflation and a stable dinar. The currency was little changed at 123.315 against the euro by 6 p.m. in Belgrade. The yield on Serbia’s dollar bonds maturing in 2021 rose two basis points to 3.82 percent after hitting a record low on Wednesday, according to data compiled by Bloomberg.

Vucic also has to tackle other issues including improved ties with breakaway Kosovo and respond to growing opposition criticism over suppression of media and weak rule of law, the key areas to bring in line with EU standards on Serbia’s accession path.

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