Serbia to negotiate a three-year loan agreement with the IMF

Serbia is to negotiate a three-year loan agreement with the International Monetary Fund (IMF), the Serbian newswire B92 reported July 15.

“The loan would reduce the public debt and deficit and make state budget cuts easier, which would make austerity measures less painful,” Serbian Economy minister Dusan Vujovic stated, as cited by the newswire. “Serbia hopes to finalize the talks with the IMF by the end of September or early October 2014.”

Vujovic, who currently also serves as acting finance minister after July 12 resignation of Lazar Kstic, promised to keep the country out of bankruptcy and stated that effects of planned reductions will be more evenly distributed in the economy by 2017.

Serbian leaders hope to discuss easing of the state’s monetary policy during the negotiations with the IMF and have asked the IMF to “relax some of the monetary instruments” as “a more-relaxed monetary policy may be in order, given the exceptionally low level of inflation at 1.3 percent.”

According to Vujovic, the Serbian government should announce shortly equally credible, but socially more manageable program of narrowing the deficit by EUR 500 mln per year through 2017.

Vujovic, also pointed out that although it is still too early to assess necessary cuts which are a must in order to save the Serbian economy, he hopes that a USD 250 mln loan from the World Bank will be accessible immediately after an agreement with the IMF is reached.

“The government has yet to draft its 2014 supplementary budget,” Vujovic noted, as cited by B92 newswire. “It is still too early to assess the depth of necessary cuts that come hand-in-hand with a resolution to preserve dozens of state-owned enterprises that employ around 60,000 people and drain an estimated USD 800 mln a year from the budget.

Nevertheless, new laws on bankruptcy and sale of state assets will be adopted by the end of July 2014,” he added. “This should allow the government to move fast to resolve unprofitable companies and qualify for a USD 250 mln loan from the World Bank for the budget. The money should be available by the end of the year, right after the signing of the agreement with the IMF.”

According to Vujovic, Serbia will not go bankrupt.

“Even with its high deficit, Serbia will not go bankrupt because it has sufficient liquidity and capital inflow, which will be more than enough to finance the existing deficit,” Vujovic ponted out, as cited by the newswire.