BELGRADE (Serbia), September 1 (SeeNews) – Serbia's economy will contract by 4.0% this year and not by 2.0% as initially forecast before growing by 1.5% next year, the International Monetary Fund (IMF) said on Tuesday.
“We are to expect a relatively small, but positive growth in 2010 of 1.5% of GDP,” the head of the IMF mission visiting Belgrade, Albert Jaeger, told a news conference. The global lender had initially projected a zero growth of the Serbian economy in 2010.
The IMF mission arrived in Belgrade last week for the second review of Serbia’s performance under the two-year 3.0 billion euro ($4.3 billion) stand-by funding arrangement which the country signed with the IMF in March.
“The tensions on the foreign exchange market have eased considerably. However, this time we must ensure that there will be no need going forward for further downward revision of the growth outlook,” Jaeger told the same news conference.
Serbia's economy contracted by a real 3.5% on the year in the first quarter of 2009 after growing by a revised annual 8.5% a year earlier, the country's statistics office said in June. Serbia’s GDP slowed its growth to a real 5.4% in 2008 from 6.9% in 2007.
Jaeger also said Serbia has received an allocation of some $600 million from the IMF in support of narrowing its budget gap. The funds are unrelated to the stand-by loan deal, Jaeger said.
The funds are part of the general allocation of SDRs equivalent to $250 billion agreed at the Group of 20 summit in London in April and designed to provide liquidity to the global economy by supplementing the foreign exchange reserves of the IMF member states.
Jaeger also said the IMF has decided to delay until October the completion of the current review mission, on which the release of the second tranche of the stand-by loan hinges. The IMF mission will arrive in Belgrade for the third review on October 20, Jaeger added.
“We agreed to complete this review in October, and if our executive board approves this review, the combined second and third tranche will be made available to Serbia,” he told the news conference.
"The total amount is on the order of 1.4 billion euro," Jaeger said. Serbia withdrew the first tranche of some 800 million euro of the stand-by loan facility in May.
The global lender has agreed to a rise in Serbia's 2009 budget deficit forecast to 4.5% of GDP from the 3.0% set initially under the loan deal, and to a freeze on taxes, salaries and pensions in 2010 in exchange for a comprehensive reform of the public sector, Finance Minister Diana Dragutinovic told the same news conference.
“Fiscal trends from June onwards improved compared to the first half of the year. The economic recovery is on its way,” Dragutinovic said.
“There will be no need to cut salaries in the public sector and pensions,” she said, adding that the value added tax, currently at 18% and personal income tax, currently at 12%, will remain unchanged next year.
The IMF will decide whether Serbia's 2010 budget deficit will be equivalent to 3.5% of 4.0% of the projected GDP after completing the third review mission, Dragutinovic said.