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Serbia needs to limit public sector wage growth

Authorities in Serbia are interested in a new arrangement with the International Monetary Fund, but according to its permanent representative in Serbia, Sebastian Sosa, say they do not need funding for the institution, so the new program could be “the successor to the current policy coordination instrument (PCI),” writes Politika.
As Sebastian Sosa says in an interview with Politika, the National Bank of Serbia contributed to the response to the crisis by reducing key interest rates and injecting liquidity into the banking system. At the same time, it introduced a moratorium on the repayment of bank loans and further measures to preserve financial stability.
“We welcome the privatization of Komercijalna Banka, which is expected to be completed by the end of 2020. At the same time, there have been delays in implementing reforms in certain areas, especially during the pandemic,” the IMF spokesman said.
He adds that progress in reforms has been made in modernizing the tax administration and monitoring and managing fiscal risks. However, efforts are still needed. On the other hand, reforms to strengthen the management of state-owned enterprises and to develop market capital are facing “significant delays.”
According to him, the IMF encouraged the authorities to assess the price of electricity in order to ensure a full reimbursement of costs arising from the increased reliance on renewable energy sources and the need for investments to protect production.
“Given the potential social impact, the rise in electricity prices should also take into account the possible impact on vulnerable households and possible measures to protect them,” says Sosa.
He also reminded that the IMF said that the increase in salaries in the public sector in 2021 should be limited, while pensions should increase in accordance with the recently introduced indexation rule, based on the Swiss formula which envisages avoiding additional ad hoc payments or payments.
“Finally, we recommended that fiscal risks arising from state-owned enterprises should be carefully monitored and that any support to these companies should be provided transparently through the budget,” explains Sebastian Sosa.
He also reminds that due to the pandemic, the IMF advised countries around the world to apply strong fiscal and monetary incentives. He adds that, thanks to fiscal discipline in the last few years, Serbia has had enough space to respond to the pandemic crisis with a large package of fiscal measures.
“By implementing these measures, the fiscal deficit in 2020 will rise to almost nine percent of GDP, while public debt will also increase,” Sosa says.
However, he adds that public debt is expected to remain below 60 percent of GDP, while the fiscal deficit should be reduced to about three percent of GDP.
“This means that public debt as a percentage of GDP should continue with a clear downward trend in 2021,” explains Sebastian Sosa, Nova Ekonomija reports.