IMF agrees to Serbian public spending hike, with conditions

Published on 2. November 2016., News

On the back of signing off on a 1.2 billion euro loan, the IMF has agreed to the Serbian plans to hike public-sector wages and pensions. But, the loan is on condition it speeds up the sale of troubled state companies.

Prime Minister Aleksandar Vucic (above) said discussions with a “cautious” IMF had been “long and difficult” and that Serbia could be “proud of its great results.” “We had long and difficult talks with IMF,” he said. “They are always cautious, but I think we have achieved great results that can make us proud.”

In February 2015, the IMF approved a 1.2 billion euro stand-by arrangement to help Serbia restore the health of public finances, increase the stability and resilience of the financial sector and implement comprehensive structural reforms.

Vucic told a Belgrade press conference Sunday – following a visit by an IMF delegation to review the fund’s 1.2 billion-euro loan – that public-sector wages would rise 5 to 7 percent in 2017 and pensions would given a one-time payout this year followed by an increase in 2017.

The IMF also gave Serbia a further six months to resolve difficulties at the indebted RTB Bor copper mine. “We will not allow RTB Bor to collapse,” Vucic said of the state copper mine. “I will beg the Chinese; I am capable of kneeling before Chinese Prime Minister Li Keqiang for that.”

“I will ask the main Chinese company to buy the mines Rtb Bor,” Vucic said in a press point at the end of the visit to Belgrade of the representatives of the IMF. “There’s nobody else that will buy: ask the Chinese leader Li Keqiang about this,” he added.

The Ministry of Economy owns 174 companies that it plans to sell, but only a few of them are attractive enough for privatization, with 13 slated for sale by the end of the year, among them “Lasta” and “Luka Novi Sad.”

Growth expected

The IMF said in September that Serbia’s growth could pick up further in 2017 after a strong performance in the first half of 2016 pointed to a faster-than-expected recovery – but it also crucially warned the government against the temptation to overspend. “Potential growth could be doubled by the end of the program period,” country representative Sebastian Sosa said, adding that public sector companies and utilities needed further streamlining.

“The upcoming mission will focus on the budget for next year and we will discuss potential issues of wages and pensions,” he said. “We will take into account the strong over-performance of the fiscal, account and the need for the decline of public debt in medium term,” Sosa added.

The IMF confirmed an earlier forecast that the economy would expand by 2.5 percent this year and by 2.8 percent in 2017, while the budget deficit would continue to fall, from 2.5 percent in 2016 to 2.2 percent next year.