NBS chief on budget debt reduction

National Bank of Serbia (NBS) Governor Radovan Jelasic warned that inflation in Serbia is higher than it should be. This does not have a good effect on the referential interest rates and the interest rates on the loans, as well as the rates of the industry and citizens as well. NBS chief on budget debt reduction "The state has taken on the obligation of controlling the growth of prices this year to under 15 percent, a level that we are already nearing," Jelasic said in an interview with Beta news agency. He added that the NBS, unlike the state, is adhering to the original plan of the goal inflation rate, but due to the lack of implementation of all the recommended budget measures, the central bank has been forced to continue to lead restrictive monetary policies. "It is important to note that the largest number of earlier business restrictive measures on fiscal policies had a delayed effect, which means that the effects of freezing pensions and wages in the public sector will not be felt until the beginning or middle of next year," Jelasic said. The assumption that by decreasing wages and pensions, in the goal of decreasing the budget deficit, would lead to a decrease in demand and a deepening of the recession, is not economically justified, the governor said. "The government, along with decreasing wages and pensions and increasing Value Added Tax (VAT) - which was called for by the government's economic policies memorandum - also has the possibility to decrease the budget deficit, but it is important that these measures which are taken be effective and that they give results in a short span of time," Jelasic said. He said that because of the difference between the planned income and the spending in the budget, the state is forced to go into debt on the domestic and foreign market, which has totaled about EUR 600mn since the beginning of the year. Commenting the remaining negotiations with the International Monetary Fund mission, which will arrive in Belgrade in the second half of August, Jelasic said that they will be a lot easier if by then the government has a clearer vision of how it will finance the increased budget deficit.

NBS chief on budget debt reduction

"The state has taken on the obligation of controlling the growth of prices this year to under 15 percent, a level that we are already nearing," Jelašić said in an interview with Beta news agency.

He added that the NBS, unlike the state, is adhering to the original plan of the goal inflation rate, but due to the lack of implementation of all the recommended budget measures, the central bank has been forced to continue to lead restrictive monetary policies.

"It is important to note that the largest number of earlier business restrictive measures on fiscal policies had a delayed effect, which means that the effects of freezing pensions and wages in the public sector will not be felt until the beginning or middle of next year," Jelašić said.

The assumption that by decreasing wages and pensions, in the goal of decreasing the budget deficit, would lead to a decrease in demand and a deepening of the recession, is not economically justified, the governor said.

"The government, along with decreasing wages and pensions and increasing Value Added Tax (VAT) - which was called for by the government's economic policies memorandum - also has the possibility to decrease the budget deficit, but it is important that these measures which are taken be effective and that they give results in a short span of time," Jelašić said.

He said that because of the difference between the planned income and the spending in the budget, the state is forced to go into debt on the domestic and foreign market, which has totaled about EUR 600mn since the beginning of the year.

Commenting the remaining negotiations with the International Monetary Fund mission, which will arrive in Belgrade in the second half of August, Jelašić said that they will be a lot easier if by then the government has a clearer vision of how it will finance the increased budget deficit.