IMF-SERBIA, Different Approaches on Budget Cuts

Belgrade, June 23 (SerbiaToday) – Serbian Minister of Economy Mladjan Dinkic declined Monday possibility that government should reduce budget deficit by cuts in public spending and increasing of VAT tax, estimating it would be a “mistake” like one was made “in Baltic states”.
“Decreasing of salaries (in public sector) and tax increase will be a mistake because it could additionally reduce demands and only speed up the downfall on national economy”, Dinkic said during an investments panel in Belgrade.

Serbia last month agreed a 3 bill € ($4 bill) IMF loan to protect its economy and currency from the effects of the global crisis, obliging it to keep the deficit at 3 % of GDP. But the officials in Belgrade warned deficit will reach more than 4% of GDP.

For Serbia, the ways out of crisis is “to get on to small debt, increase the budget deficit” and reduce administration. According to Dinkic, Serbia should hold low taxes in order to attract world companies which plan to relocate business in countries with low production costs.

Dinkic praised Italian companies for investing in Serbia some 800 mil €. Italian banks hold 25% of banking market in Serbia, while insurance companies from that country took 44% of market in Serbia.

IMF: It is too early to say, but...

Serbian finance minister Mrs. Diana Dragutinovic said last week government will consider further cuts in public spending, since revenues are lower than budget expenses and new budget revision may be an option. The first revision of budget was adopted by Serbian Parliament in late April.
Dragutinovic expressed belief the IMF will approve an increase up to 4.5% because Serbia’s demands are “well grounded”.

But IMF doesn’t share Finance Minister’s opinion. Bogdan Lissovolik, the IMF representative to Serbia, said Monday the International Monetary Fund will not make planned payments unless Belgrade introduce measures to reduce its budget deficit.

“Without corrective measures we cannot proceed with disbursement as planned. The sooner they come out with the plan, the sooner they will be able to implement those measures”, Lissovolik said in Belgrade Chamber of Commerce.

It will not be an easy decision for us because fiscal criteria are the most important in whole IMF-Serbia agreement, stated IMF representative to Serbia.

Asked if the IMF would consider allowing Serbia to raise its deficit above the previously agreed 3 %, Lissovolik answered: 'It is too early to say.'

The next round of IMF-Serbia talks is scheduled for August.