December 21 (SeeNews) - Erste Group has said it expects Serbia's budget gap to widen but stay at acceptable levels of below 1% of gross domestic product (GDP) in 2018 and 2019 as it sees economic growth picking up to around 3% in the period.
Erste forecasts somewhat wider fiscal deficits in 2018 and 2019 as the government plans to take on a more expansionary fiscal policy stance in order to stimulate growth by increasing wages, pensions, public investments and personal allowance, as well as introducing tax breaks, Erste said in a statement earlier this week.
The debt refinancing efforts of the Serbian government in recent years have reduced the interest rate burden, which is also favourable for public debt trajectory, Erste said. "As for institutional factors, we expect additional efforts on business climate agenda while governance indicators could gradually improve as Serbia progresses on its EU path."
However, Erste analysts do not see any major steps related to most challenging reforms such as healthcare and pension system, restructuring of state-owned enterprises and privatisation. Therefore, Erste does not expect an upgrade of Serbia's credit rating to investment grade before more actions are taken on these fronts.
Fitch Ratings said last week it upgraded Serbia's long-term foreign and local currency Issuer Default Ratings (IDR) to 'BB' from 'BB-', two notches below investment grade, citing an improvement in the country's public finances.