The new package of aid to citizens and the economy of one billion euros, which was not in the original costs of the state treasury, is the reason for the rebalance, but also for the criticism of the Fiscal Council.
The ink on the budget for 2021 has not dried yet, and the state budget is no longer valid and a correction will have to be made. Expertly speaking, the rebalance. The reason is the new costs of the state for a new package of assistance to citizens and the economy of one billion euros, when it was not in the original costs of the state treasury. This was pointed out by the members of the Fiscal Council (FS) two days ago in the analysis of the aid measures planned for this year.
“Although the budget for 2021 is being executed for only a month, it has already been announced that a new package of anti-crisis measures will be launched, which is not planned, which is a de facto recognition that the budget for 2021 is not good. At the same time, it is completely unclear how such a development could not have been foreseen in December 2020, when the budget for 2021 was adopted. Even then, it was obvious that the epidemic would not end in 2020 and that the budget for 2021 needed to be planned very carefully. The government, however, ignored this and unjustifiably allocated large budget funds for the excessive increase of salaries in the public sector in 2021. This increase was not based on any objective economic parameter and has now become a legal obligation of the government that cannot be avoided, which we warned about in time. The announcement of new measures only two months after the adoption of the budget compromises the budget process,” criticized the FS representative.
Do economic policy makers not know how to weigh revenues and expenditures well, or is it something else?
Milojko Arsic, a professor at the Faculty of Economics in Belgrade, says that the fact that the state treasury will have higher expenditures than planned has something to do with the arrangement with the International Monetary Fund (IMF), which ended in January.
“The budget for 2021 was made last fall, when the arrangement with the IMF was still valid, and it was important for economic policy makers to make it according to their criteria in order for the IMF to evaluate it positively. The IMF is mostly interested in the budget being made with the smallest possible deficit, in this case it is three percent of GDP, and not so much the structure of spending, although they have expressed moderate criticism at the expense of increasing salaries in the public sector,” states Arsic.
According to him, it is quite certain that the budget will have to be rebalanced, because the expenses are higher by one billion dinars. Revenues are also in question if economic growth of six percent of GDP is not achieved. The rebalance can be done later after the costs incurred as last year, but also before that.
“The fact that a rebalance must be done does not affect the voters, but it compromises the economic policy in professional circles, because due to frequent changes, the state leaves the impression that there is no long-term plan and that it reacts impulsively. This is not the first time that regulations in our country are changing quickly. An example of that is the Swiss formula for pensions, which was adopted at the end of 2019, and already at the beginning of 2020, there were suggestions that the weight for salaries be higher, but the epidemic stopped it,” explains Arsic.
He adds that he has nothing to complain about many measures that the state is planning, such as paying the minimum wage, helping certain sectors, the poor, but he reiterates his earlier position that support should be targeted and selective. If there was a justification for helping everyone at the beginning of the crisis, now there is no reason to make excuses. The goal of the support package should be not to increase unemployment, to achieve economic growth and alleviate poverty, and when money is given in a targeted manner and with lower costs, a better effect can be achieved.
The FS states that new government borrowing is inevitable due to the announced package of anti-crisis measures in 2021. In their opinion, a responsible fiscal policy could reduce the state’s additional borrowing in 2021 to less than 300 million euros instead of one billion euros.
Representatives of the FS warned that the budget is in deficit and without a new package. Therefore, the new payment of state aid to the economy and the population, which is not foreseen in the current budget, can be financed only by an additional increase in the deficit and new government borrowing in 2021, in the amount of about 1.5 billion euros planned by the recently adopted budget. This means that the share of public debt in GDP during 2021 will continue to grow to more than 60 percent of GDP instead of slowing down, and that new debt will be returned by taxpayers with interest in the coming years.
“Because of all that, it is rational to limit the cost of new measures, to focus anti-crisis measures in 2021 only on companies and the population that are suffering the greatest negative consequences of the economic crisis and who really need help. Even if Serbia does not have a large public debt, it is not economically justified for all citizens of Serbia to borrow in order to give funds to companies that do not have problems in business or citizens with high incomes during the health crisis,” the FS states, Politika reports.
