Increasing Serbia’s budget deficit above the rate projected for this year could call in question the realization of previously announced measures for public finances stabilization. Economists warn that, should significant savings measures are not taken, the deficit in the budget will amount to some 10% of the gross social product at the end of the year and will be the highest in Europe.
Serbia’ Law on Budget for 2014 envisages that the deficit should amount to 182.5 billion dinars, i.e. 7.1% of the gross social product. However, according to the Finance Ministry, in the first five months of this year, the budget deficit amounted to RSD 114.6 billion, which means that it has reached the level of some 63% of the sum envisaged for the whole year. According to Fiscal Council projections, if such a pace persists, the deficit will amount to 8.7% at the end of this year, while some economic experts warn that it might reach some 10% of the gross social product. That means that Serbia could reach the highest budget deficit in its more recent history, after the 1994 hyperinflation ended. As of autumn, additional fiscal consolidations will be introduced and they will be visible through budget rebalance, but, for the time being, the public sector and salaries and pension reduction measure has been renounced. Economist Ivan Nikolić, who is a member of the National Bank of Serbia’s Council of Governors, believes that such a measure would have an effect opposite to the expected one, i.e. would not significantly contribute to deficit reduction, but would reduce consumption. The fact that the deficit has grown in the past months was mostly due to the fact that the inflow was lower than the planned income based on VAT and excise taxes and that expenditures were too big. As there is no room for increasing tax rates, Nikolić sees a solution in the improvement of the business setting and a more rational public company business, for which significant funds are set aside from the budget.
One of the measures for filling in the budget is curbing black economy, which is why the government is taking many measures, such as increased controls, inspection service expansion and introducing strict penalties for tax evasion. The measures are a bit late, due to the early parliamentary elections and severe floods, which is why it is not certain whether the planned income for this year, amounting to some RSD 18 billion, will be realized.
If one bears in mind that the central bank and the Finance Ministry recently lower economic growth projections for this year and that recession could ensue, the state will have to take additional debts to cover the deficit. That will increase the public debt, which might reach 70% of the gross social product. Economic experts agree that deficit and public debt reducing measures’ results will be visible on a medium-term basis and that public finances stabilization is a condition for business growth. Another condition is the improvement of the business and investment setting, to which the announced adoption of a set of economic laws could contribute. For a more important economic growth and a higher flow of investments it is necessary to strengthen trust in macroeconomic stability and the payment power of the state. To that end, an arrangement with the IMF could play a key role as thus investors would be sent a message showing that Serbia is a stable state, safe for investments.
Source Radio Serbia
