Bloomberg News

IMF Postpones Review of Serbian Loan Due to Budget Issues

January 23, 2012

(Updates with comment from Premier’s adviser in sixth, seventh paragraphs.)

Jan. 20 (Bloomberg) -- The International Monetary Fund postponed the first review of its precautionary loan program with Serbia because of the Balkan nation’s 2012 budget plan.

The plan “deviates from the program parameters” and especially “issuance of public debt and guarantees and projected implementation of investment projects are in excess of what would be consistent” with expected budget gap and debt targets, the Washington-based lender said in a statement published on its website late yesterday.

Keeping the budget deficit within 4.25 percent of economic output was agreed on with the IMF, which in September approved 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.

The IMF move “might cause some volatility on the foreign- exchange front, and might cause” Serbia’s central bank “to slow the pace of rate cuts” which has been the trend in recent months, said Timothy Ash, the chief economist for emerging markets at the Royal Bank of Scotland in London.

‘Certain Concerns’

The arrangement is “precautionary” and “the cash is not that important” and the budget financing isn’t in question, Ash said in an e-mailed note to clients.

Even though the adopted 2012 budget is in line with agreed debt and deficit targets, the IMF has “certain concerns” about public investments in infrastructure, sovereign guarantees and a 100 million-euro capital increase in Komercijalna banka AD, in which the government wants to keep a controlling stake, said Jurij Bajec, an economic adviser to Premier Mirko Cvetkovic.

As for debt issuance, Serbia plans 300 million euros in euro-denominated debt in 2012, compared with 200 million euros last year, “but this will only serve if need be, as a backup scenario if things go wrong,” Bajec said, adding he hopes for a positive outcome from the talks in early February.

Serbia is emerging from its worst recession in a decade and the government is trying to keep spending under control and boost tax collection without cutting social benefits. The government will increase subsidies this year for tourism, agriculture, roads and railways and is keen on allowing a 5.5 percent annual increase in public wages and pensions affecting as many as 2 million voters ahead of elections.

“Clearly, the government wants some flexibility to “pork barrel” in the run up to the vote,” Ash said.

The government guarantees on loans for state-run companies are probably the budget items the IMF saw as the biggest risk that Serbia’s public debt will go above the self-imposed limit of 45 percent of gross domestic product, said Vladimir Vuckovic, a member of the country’s Fiscal Council.

The dinar fell to 105.164 against the euro at 1:18 p.m. in Belgrade from 105.04 earlier today.

--Editors: Alan Crosby, Douglas Lytle

To contact the reporters on this story: Gordana Filipovic in Belgrade at; Misha Savic in Belgrade at

To contact the editor responsible for this story: James M. Gomez at

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