Serbia’s plan to cut spending and sell money-losing assets to narrow the budget deficit lacks measures to overhaul the pension system and may be difficult to achieve without rolling part of the gap into 2014.
“Structural reforms” that refer to the sale or closure of 179 companies with 54,000 workers and subsidized by the state “are promising,” said Vladimir Vuckovic, a member of the Fiscal Council, a three-member body appointed by parliament to oversee fiscal compliance, in a phone interview today.
“We have yet to see if their implementation is possible,” Vuckovic said after Finance Minister Mladjan Dinkic presented the plan to the council today. “One missing block is the pension reform and we have yet to see how realistic the plan is, or rather if part of the spending will show up next year, which doesn’t solve the problem.”
Dinkic presented the plan yesterday, setting the deficit target at 177 billion dinars ($2.03 billion), or 4.7 percent of economic output, up from the original plan for 122 billion dinars. The measures will be introduced next month to avoid the gap rising to 8 percent of GDP, the level the International Monetary Fund said was likely without spending cuts.
Premier Ivica Dacic’s 11-month-old Cabinet, which originally aimed for a fiscal gap of 3.6 percent of GDP, promised net spending cuts worth 37 billion dinars. The plan stops short of a public wage and pension freeze or cuts, encouraged both by the IMF and the Fiscal Council.
Yields on Serbian 10-year Eurobonds maturing in 2021 gained 44 basis points on the day to 6.7 percent at 4:03 p.m. in Belgrade while the dinar shed 0.64 percent to trade at 114.6890 to the euro by 4:04 p.m., data compiled by Bloomberg show.
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