February 26 (SeeNews) - Erste Group said on Monday it expects Serbia's public finances to remain sustainable in the mid-run despite the upcoming introduction of various tax-related subsidies for companies and increase in wages and pensions.
According to the budget plan and announcements from the government, the increased fiscal space will be used for a more expansionary fiscal policy stance in 2018, but these measures will not pose a huge risk for mid-term public finance sustainability, Erste Group said in a Central and Eastern Europe Insights report.
"The government has already increased public wages (5-10%) and pensions (5%), while for the rest of the year we could see an additional adjustment of pensions, while we also expect stronger public investment activity. In addition, we should see the introduction of various tax-related subsidies for companies, especially small and medium-sized enterprises (SMEs)," Erste Group said.
However, there are still no major steps on the structural reform agenda in the pension and healthcare system, which represent key challenges for the mid-term and long-term sustainability of Serbia’s fiscal system, the bank noted.
The budget execution of the Serbian government in 2017 outstripped all expectations, as the general government recorded a surplus equivalent to 1.2% of gross domestic product (GDP). Such a notable improvement in the fiscal position was a result of stronger-than-expected revenue inflows, despite the disappointing growth figures, Erste Group added.
Serbia's budget swung to surplus of 33.9 billion dinars ($354 million/287 million euro) in 2017 from a deficit of 7.9 billion dinars in the previous year, according to finance ministry data. Primary budget surplus increased to 152 billion dinars last year from 120.1 billion dinars in 2016.
(1 euro = 118.067 dinars)