Public debt to reach 70 pct of GDP by year's end

Public debt to reach 70 pct of GDP by year's end

Compared to the beginning of the year, the public debt increased by about EUR 2.0 billion and it is evident that by the end of the year it will exceed EUR 23 billion, said the Fiscal Council.

The report reads that in September the country's deficit stood at RSD 14 billion, which is the result of a temporary increase in revenues and almost equal, also temporary, increase in public expenditure. The September deficit is somewhat below the monthly average in 2014.

The consolidated public deficit in 2014 will most probably reach RSD 300 billion, or 7.6 percent of the GDP, including all expenditures on state-owned enterprises and banks, which are not included in the budget review or monthly reporting on the budget of the Ministry Finance, said the Fiscal Council.

The September revenues were significantly greater than in August, and the one-time increase resulted from a temporary rise in excises and an extraordinary growth in donations and capital profits, reads the report.

September's increase in expenditures came from extremely high interest rate payments, a significant increase of other current expenditures and growth in capital expenditures.

High interest rate payments in September were expected considering maturity dates of coupons of issued Eurobonds, the report reads.

An increase in public allocations for the payment of interest rates over years is a direct consequence of a public debt increase.

The temporary increase in current expenditure in September came from repair of the damage caused by the May flooding totaling around RSD 6.0 billion, which is the highest amount since the beginning of the year.

The increase, however, is temporary given that the funds that have been earmarked are intended for the repair of the damage caused by floods. This transaction is almost equal to an increase in donations, and therefore does not influence the amount of the deficit, the Fiscal Council said.

"Below the line" budget expenditure will be around RSD 80 billion this year and that amount should be added to the formal deficit to get the real level of budget expenditure, the Council stated.

"Below the line" expenditure covers the government expenses caused by bad business results of government owned companies and banks, the council said in a statement, adding that that expenditure should be included in the budget in a transparent fashion, along with expenditure financed from project loans.

The consolidated budget deficit in 2014 will probably be around RSD 300 billion, which is EUR 2.6 billion, or 7.6 percent of GDP, the statement says.

"The realisation of overall budget revenue and expenditure in the first 9 months indicates that the consolidated deficit could be lower by RSD 15-20 billion compared to our previous projection, because it did not include the effects of the budget review, RSD 310-315 billion," the report states.

"The budget deficit in the first 9 months was RSD 140 billion, which indicates, along with the expected revenue and expenditure for the rest of the year, that it could be somewhat lower than the RSD 225 billion stated in the budget review. We estimate it at Rsd 210-215 billion," the council said in its report.

Public revenue of consolidated government for 2014 will probably be in line with the council's earlier projections, at around RSD 1,530 billion, the council believes.

The Fiscal Council states that the trends noticed in the first 8 months pointed to a significant drop in some revenue categories, like VAT, payroll taxes and excise taxes, which was adopted in the budget review.

Excise taxes could be RSD 2 billion above the level set in the review, the council says.

"Excise tax revenue was lowered by around RSD 16 billion in the review, compared to the starting budget, most probably because of the illegal trade in tobacco products," according to the report, which adds that the remaining big categories of public revenue within the budget will most probably be in the amounts set in the review.

"Great changes to the macroeconomic environment in the last quarter of this year are not likely, and September data shows there has been no improvement in collection. In order to get a significant boost of revenue from tax collection, it is necessary to conduct a comprehensive reform of the Tax Administration, which would take 2-3 years," the council notes.

The total savings on the consolidated expenditure could be up to RSD 20 billion, mostly because of poor realization of public investments and lower expenses on commodities.

Most of the expenditure will be according to the budget review projections, the report states.

The Fiscal Council points out that some of the errors made in drafting the original budget were corrected in the review like the funds meant for debt payments to banks related to the program of subsidized interest rates, which is the basic reason for the increase in the amount intended for subsidies.