Serbia slashes wages, raises taxes to avert bankruptcy
Belgrade (AFP) - The Serbian government adopted austerity measures including cuts of up to a quarter in state employee pay on Tuesday, to balance the budget and avert bankruptcy.
A six-measure package was presented by Finance Minister Lazar Krstic amid renewed talks to obtain help from the International Monetary Fund which has frozen a loan.
The measures also include a VAT sales tax increase from 8.0 to 10.0 percent for basic goods, and slashing state subsidies and public sector spending.
"Without these measures, we will be bankrupt in the next two years," Krstic told the session.
Serbia's economy is mired in recession, having contracted by 1.7 percent last year, and the unemployment rate stands at 24 percent.
The government has so far failed to take sharp action to control public finances, allowing the public deficit to rise to 4.7 percent of output this year.
The public debt is higher than 60 percent of gross domestic product.
"Our goal is to stabilise public debt by 2016-2017 and to put the deficit at around two percent of GDP," Krstic said.
The government expects the VAT increase to bring in an additional 200 million euros per year ($271.4 million), while increasing the average cost of living by 0.7 percent.
The wage cut, planned from January 2014 and affecting about 660,000 people, could save up to 150 million euros.
Almost one third of Serbia's budget, or 28 percent, is set for the payment of pensions, and another 27 percent previewed for public sector salaries, Krstic said.
It is "impossible to service it," he said.
Economist Vladimir Vuckovic described the measures as a "solid step," but warned that they were a "process that needs to be effective in practice."
He said: "There will be many political and social challenges which will actually show whether such a mid-term plan is sustainable."
Analyst Bosko Mijatovic praised the announced cuts in the public sector, but warned that these measures could "hardly move the country out of deadlock."
He added: "We have to see more investments and more jobs need to be created."
The government also plans to cut subsidies and finalise the restructuring of state-owned companies which account for about 40 percent of economic activity.
This could generate at least 300 million euros by 2017, or one percent of Serbia's GDP, Krstic said.
International creditors would welcome application of the measures but results "need to be seen very soon" for Serbia to obtain help from the IMF, analyst Anika Pavicevic said.
Last week, Serbian officials met an IMF delegation to relaunch talks on a possible new loan.
In a statement released Tuesday, the IMF said proposed measures were "appropriate."
"Full implementation of these measures starting from 2014 would be an important step in the right direction," the IMF said.
The IMF said it expected Serbia's budget deficit to reach around 7.5 percent of the GDP this year and see a modest recovery of 1.7 percent growth.
An IMF loan worth one billion euros ($1.3 billion) was frozen in February 2012 because the previous government had not complied with budget commitments.
In the absence of favourable loans from Western creditors, Serbia has turned towards other investors and in April, Russia granted a $500-million loan.
However, Moscow linked part of the loan to an agreement with the IMF.
And Serbia's powerful deputy Prime Minister Aleksandar Vucic recently referred to a possibility of seeking "two to three billion dollars" in loans from the United Arab Emirates under "favourable terms."
