Bloomberg News

Serbia Targets 2012 Budget Gap at 4.25% of GDP With 1.5% Growth

December 15, 2011

Dec. 15 (Bloomberg) -- Serbia will narrow its budget gap next year to 4.25 percent of gross domestic product to fulfill pledges made to the International Monetary Fund, Deputy Finance Minister Dusan Nikezic said.

The deficit target set in the draft 2012 budget, which the government adopted today and forwarded to parliament, compares with a gap of 4.5 percent of GDP this year and is based on economic growth of 1.5 percent in 2012, compared with a similar amount in the latest government forecast for this year.

“The government has adopted the budget that is realistic, rational and contains elements of an anti-crisis policy,” Nikezic told a press conference in Belgrade today. The draft includes a central budget shortfall of 140 billion dinars ($1.8 billion), with revenue planned at 750 billion dinars and expenditures at 890 billion dinars.

Keeping the gap within 4.25 percent of GDP was agreed to with the International Monetary Fund, which approved in September a 1 billion-euro ($1.3 billion) precautionary loan for Serbia in case Europe’s debt crisis triggers capital flight from the Balkan economy, putting pressure on its currency and the balance of payments.

A Finance Ministry report released earlier today showed Serbia’s January-November fiscal deficit at 120 billion dinars, compared with a full-year target of 142.7 billion dinars.

Public Debt

The narrower fiscal deficit in 2012 should in part offset an increase in Serbia’s public debt, which has already hit 44.8 percent of GDP, just below the self-imposed limit of 45 percent of GDP. An immediate measure the government has taken this month was to halt any further borrowing in the local market to keep the public debt target under control.

The government will mainly rely on the local-market borrowing to finance the deficit next year.

"We have not planned a new eurobond issue for deficit financing but I can’t exclude that it may be considered in the course of 2012," Nikezic said

Serbia is still emerging from its worst recession in a decade and the government is trying to boost tax collection and keep spending under control without cutting social benefits just months before general elections next spring.

The ruling coalition, led by the Democratic Party of President Boris Tadic, relies on a lean majority of 126 deputies in a 250-seat parliament, and a failure to pass the budget by the end of December would trigger temporary financing, which limits spending to what was available in the corresponding three-month period of the previous calendar year.

‘Refuse to Finance’

Earlier this week, economic research institute FREN said fiscal conditions in Serbia have been deteriorating for two consecutive quarters due to shrinking personal spending, falling employment and declining real wages and if the government wants to rely on market financing of its deficits it must stick with policies that aim to lower the gaps to avoid a debt crisis.

“There is a chance that investors at one point, which is difficult to predict, assess that Serbia is insolvent and then refuse to finance its fiscal deficit and the repayment of matured debts, which would mean the beginning of the debt crisis,” FREN’s chief economist and central bank’s board member Milojko Arsic said on Dec. 12.

--Editors: Douglas Lytle, Balazs Penz

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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