Serbia - Indebtedness continues to rise as budget cuts drawn up The government has announced that public debt to GDP in July rose to 64% of GDP. This is almost 20% of GDP more than the level targeted by law. Indeed, the Fiscal Council believes the actual number is 66% of GDP and will exceed 70% by the end of the year. Against this backdrop, and with the budget deficit going to be more than 8% of GDP this year on current plans, new Finance Minister Vujovic is drawing up a series of budget cuts to be announced in mid-September. It is clear that these will focus on reducing the size of the grey economy, improving management of state-owned enterprises (SOEs), reducing public sector wages and pensions and fiscal savings from reducing the size of and improving management of the public sector. The government has been desperate to avoid cutting pensions as this is very unpopular but its inability to reduce massive losses at SOEs seems likely to force its hand. Some serious fiscal effort will be undertaken to bring the deficit down below 3% of GDP by 2017. However, the risk is that the government will again over-estimate the gains to be made from other reforms in order to minimize the size of the hit on pensions. Even in the optimal scenario that the government hits its deficit targets in coming years public sector debt to GDP will rise above 80% before stabilizing in 2017. Hence, Serbia will continue to be dependent on favorable loans from bilateral donors (such as Russia and the U.A.E) as well on the vagaries of the international capital markets whose appetite for emerging market debt fluctuates widely based on factors Serbia cant control. .
Posted on: Thu, 28 Aug 2014 07:49:01 +0000
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