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Sep 24, 2009 17:35 EEST
BELGRADE (Serbia), September 24 (SeeNews) – Serbia will manage to draft a comprehensive reform of the public sector in time for the arrival of an International Monetary Fund (IMF) mission in the capital Belgrade next month which will review the country’s performance under its aid deal with the lender and decide whether to disburse further tranches totalling 1.4 billion euro ($2.0 billion), local analysts said.
Contrarians, however, argue the country should not be borrowing from the IMF because this type of relationship undermines its independence.
The IMF has agreed to a rise in Serbia's 2009 budget deficit forecast to 4.5% of the projected gross domestic product (GDP) from the 3.0% set initially under the two-year 3.0 billion euro loan deal signed in March, and to a freeze in taxes, salaries and pensions in 2010 in exchange for an overhaul of the public sector.
In its report on Serbia’s public spending released last week, the World Bank said pensions account for the biggest chunk of the country’s public outlays at around one third.
Serbia will lay off 10,000 public sector workers by the end of the year, Economy Minister Mladjan Dinkic said earlier this month, adding that ministers that fail to cut staff will be fined 1.0 million dinars ($15,869/10,726 euro) each.
The IMF decided earlier this month to delay until October the completion of its second review of the aid arrangement, tying the release of the combined second and third tranches to the findings of the upcoming mission.
In May, Serbia received the first tranche under the loan deal, totalling some 800 million euro.
Three analysts polled by SeeNews issued the following comments on the IMF deal and Belgrade’s efforts to retrench public spending:
JURIJ BAJEC, ANALYST ADVISOR TO PRIME MINISTER MIRKO CVETKOVIC:
“These reforms are related to the labour law and affect people employed in the public sector. Some standards will have to be set and it should be made clear why people are being made redundant at this or that local municipal administration.”
“Cutting the number of employees, slashing other spending items in the budget, changing the labour law, these are all things that are being figured out right now. I absolutely believe this will be done because the IMF has not completely broken off its talks with Serbia. The dialogue will simply be resumed and then finalised which is when Serbia will receive its second and third tranche. I believe this [spend-curbing] programme will be credible enough and that the IMF will approve it. There are no specific figures related to the programme to talk about as of yet as work on them is still in progress.”
DUSKO VASILJEVIC, ECONOMIST WITH SERBIAN THINK-TANK CEVES:
“It seems to me the most important thing is that there is finally political will to fulfill the conditions set by the IMF. A consensus has been reached between the various ministries and everyone is aware that [cutting public spending] is crucial. Because it isn’t just the IMF funds that are at stake, but also loans from the European Bank for Reconstruction and Development and other lenders.”
“The level of salaries will remain the same, but what will change is the number of employed people. It is difficult to lay people off at present because the procedure is so complicated that there is a slew of conditions that need to be met before someone is let go, and they can sue the government over wrongful dismissal. But there is a drive now to change this.”
“On the revenue side, as Value Added Tax [currently at 18%] will remain intact this year, it will have to be raised next year, because I just don’t see a way for the government to close a [budget] gap equal to 4.5% of projected GDP. Serbia will have to continue slashing the funding for some major infrastructure projects in 2010. This year, infrastructure funding was lowered to 3.5% of GDP from 5.0% in 2008.”
“The IMF has changed its approach towards Serbia and is no longer as strict as it was in 1998 when it had extremely rigid requirements. It is more flexible now.”
“Salaries in the public sector and pensions will be frozen, which means that, if not nominally, they will go down in real terms due to inflation.”
MILOJE KANJEVAC, HEAD OF BELGRADE-BASED MARKETING RESEARCH INSTITUTE IZIT:
“We don’t need the IMF telling us that we need to reform our public sector and that our bureaucracy is bloated. We know that ourselves. Debt is a fair-weather friend. We lose our independence when we agree on terms set by an external agency.”
“As for the reform of the public sector – I don’t see how it will be done. No one [in the government] has come out with anything resembling a strategy.”
(1 euro=93.2230 Serbian dinars)
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