"Debt reduction requires major budget cuts"

"Debt reduction requires major budget cuts"

The deal would be a precautionary stand-by arrangement and drawing IMF money is not envisioned, Krstić said.

In view of the high level of public debt and its growth rate over the past five years, one of the goals of the new government will be to stabilise the debt and "reverse the trajectory it has had thus far."

"This makes major budget cuts a necessity in order to reduce the deficit to two or three percent of GDP, but the talks with the IMF focus much more on structural reforms and the plan for fighting the grey economy," Krstić said.

Budget cuts must be accompanied by a set of new reform laws as well as reforms of the state administration, the health care and education systems and the local self-government authorities, while the process of restructuring state-owned enterprises must be completed, Krstić said.

Asked whether the IMF has suggested salary and pension cuts that would save EUR 400 million in 2014 and whether it would be possible to save that amount of money without the measure, Krstić said that there has been no explicit insistence on specific measures "because it was unrealistic to have a caretaker government voice its opinion on the matter."

The basic causes of the fiscal burden are the wage bill in the bloated public sector, the costs of budget transfers to the pension and disability fund due to high unemployment, and high interest rates on loans used to finance the deficit over the past years, Krstić said.

In addition to the set of reform laws, the new Serbian government will also present a National Priority Plan, which will define the ways the state will encourage job creation and directing foreign and domestic investments into the regions hardest hit by the restructuring, Krstić also announced.