BELGRADE (Serbia), November 14 (SeeNews) – Serbia has signed a $520 million standby deal with the International Monetary Fund (IMF) and the two sides have agreed on a 2009 budget gap equivalent to 1.5% of the country’s gross domestic product (GDP), the global lender said on Friday.
The Serbian authorities will tap the IMF funds only if necessary under the deal signed late on Thursday. The 15-month precautionary funding deal equals 75% of Serbia’s total quota with the IMF. The agreement is pending approval by the IMF board of directors and Serbia’s government.
“This arrangement has to support the government’s economic policy in order to maintain macroeconomic and financial stability,” the government said in a statement.
“The global financial turmoil is increasingly spilling over into Serbia,” the head of the IMF mission to Belgrade, Albert Jaeger, told a news conference on Friday.
“With regards to short-term [effects] we are not too concerned because Serbia’s banking system has buffers – high liquidity and low short-term external debt. However, looking beyond this, Serbia is more vulnerable than countries in the region," he said.
The country spends 500 billion dinars more annually than it earns, has a weak export base, low savings rate and deep seeded, structural problems resulting from an oversized public sector, Jaeger said.
He also said that Serbia did not use the good times to its advantage over the past few years to prepare for the changes in the cycle, adding that the fiscal policy should have built up buffers that would have made it easier to face the cyclical downturn.
“The bottom line is that Serbia should be able to withstand financial difficulties that are coming but it will depend on whether it implements much stronger and more credible policies than in the past,” Jaeger said.
The IMF, which advised the Serbian government on the drafting of the 2009 budget, asked it to cut spending and scrap its plan to raise pensions to 70% of average net salaries. The IMF has also recommended that Serbia halve its current account deficit set at 18.5% of the gross domestic product projected for 2008.
As of October, Serbia raised pensions by 10%, increasing its budget deficit to 2.0% of GDP, from 0.5%. The new government, which took office in July, has pledged to raise pensions to up to 70% of the average net salary.
Finance Minister Diana Dragutinovic told the same news conference that the 10% pension hike that took effect retroactively from October will not be rolled back but public spending will be curbed, adding that salaries will be frozen and unnecessary costs cut.
“Next year will be a year of fiscal adjustments,” Dragutinovic said, adding that government subsidies to state-owned loss-makers will be cut as well.
She also said that the fiscal burden currently borne by the state will be alleviated with the privatisation process entering its final stage. Dragutinovic said the burden will be eased significantly after the government cuts subsidies to state-owned railways operator, Zeleznice Srbije.
Serbia’s central bank governor Radovan Jelasic told the same news conference that the government planned to merge four state-owned banks by March and sell its stakes in them.
The government in Belgrade had 442 companies left on its privatisation list by mid-October.
Serbia completed a three-year standby arrangement with the IMF in February 2006.
