"Austerity measures will be necessary in 2018 as well"

"Austerity measures will be necessary in 2018 as well"

Fiscal Council President Pavle Petrovic said at a press conference that fiscal consolation will have to last for four years, instead of three as planned by the government.

He said that additional measures will be needed in 2018 to save around EUR 300 million so as to trim deficit.

According to the government's fiscal strategy, deficit should be reduced from 6.6 percent to 3.8 percent of GDP in 2017, but this calls for tighter austerity measures in the medium term, he said.

The public debt share in the GDP cannot start falling before 2018, when it is expected to exceed the level of 83 percent, he said.

Petrovic said that if there is a halt in realization of riskier parts of the program, stand-by measures should come into force automatically.

“It would be good, had a Plan B been already envisaged in the fiscal strategy. That would be important for international creditors so that they know that the government would not put in place ad hoc measures if the deficit spirals out of control,” Petrovic underscored.

As an example of risky and uncertain measures, the Fiscal Council mentions the issues relating to the future of the petro-chemical sector, subsidies for the Zelezara Smederevo steel manufacturer, whose sale is currently being negotiated with the U.S. company Esmark, downsizing of the public administration.

The Fiscal Council underlined the need for concluding an arrangement with the International Monetary Fund (IMF) that would follow the government program, and increase chances for success.

“A similar plan was delivered in 2012, but the program was initiated without agreement with the IMF, and not even the program for resolving the issue of public companies and restructuring companies was implemented. That is why it is now necessary to carry out this program in agreement with the IMF,” Petrovic stressed.

He noted that austerity measures are painful, but adequate given the difficult public finance situation in Serbia.

“Taking into consideration the size of the problem, a mode moderate plan would not be adequate, and that would lead to a crisis, inflation and GDP decline,” Petrovic said.