New cabinet to negotiate new arrangement with IMF

New cabinet to negotiate new arrangement with IMF

Krstić explained that the technical discussions begun yesterday and that Monday, March 3, will see the start of official discussions at a plenary session that will be held at the National Bank of Serbia (NBS).

"Serbia will have to conclude a new three-year arrangement with the IMF and pledge carrying out a certain strategy for the duration of the period, the finance minister said. “We have no time to waste at all,” warned Krstić," adding that he believes that the future government will behave responsibly, as it will have to pass unpopular measures.

Asked what these unpopular measures, which will probably be agreed with the IMF, may be, Krstić said that the government will not give up on solidarity tax, as earnings in the public sector are rather enormous in comparison to the private sector, especially in public enterprises, and the public sector is too large and must be reduced.

"Since there are no mechanisms for limiting salaries in public enterprises, the state will have to adopt systemic legislation to limit them," said Krstić.

He said that there was "no room for tax increase, but there is room for a tax base expansion, which will be made possible by a decisive struggle against the gray economy."

It will require new systemic solutions, said Krstić, stressing that the state will deal a serious blow to the economy before year's end.

Also, he said, savings can be achieved by a reduction of the public sector, but not through dismissals.

Krstić pointed out that in January, the number of employees in the public sector decreased by 4,000 people without any dismissals whatsoever, adding that given that pace, in two years from now, the number of public sector employees could be reduced by about 100,000.

The finance minister said that Serbia has to pay a EUR 4 billion interest on its external debt this year, but the funds have already been used to service other obligations.

A favorable loan from the Russian Federation for the Serbian budget, which has already been agreed, is conditioned by the new arrangement with the IMF and we therefore need to gain the Fund’s trust, said Krstić.

Kori Udovički, director of the Center for Advanced Economic Studies (CEVES) in Belgrade, said that Serbia has not taken any serious measures to reduce state spending for a very long time, stressing the need to find out where the huge expenditures are stemming from.

Nikola Altiparmakov, member of Serbia’s Fiscal Council, said that Serbia’s public debt has gone over EUR 20 billion, or about 65 percent of the country’s gross domestic product (GDP), and its budget deficit of about seven percent of GDP is one of the biggest in Europe.

He noted that the Fiscal Council has long been warning the public and the government about a potential sovereign debt crisis, pointing out that certain measures should have been taken as early as two years ago, but that, unfortunately, did not happen.

Altiparmakov said that the talks with the IMF will therefore focus on the path of public debt and measures to be taken, but also on pension fund reforms as Serbia allocates EUR 4.5 billion from the budget for pensions every year, and the population is only getting older.

Serbia will have to find ways to discourage early retirement, and also to push the retirement age further still, Altiparmakov said, adding that in some EU countries, the age limit is increasing to 67 years of age.

Earlier in the day, First Deputy Prime Minister Aleksandar Vučić said that Serbia is going before the IMF with truthful data, adding "we have nothing to hide".

"The difficult situation, a large fiscal deficit, we are going with the will to solve these problems, to hide nothing from the citizens, as opposed to many who love to hide the truth even from themselves, we are not doing that and I am not doing that," said Vučić.

Speaking at a press conference after meeting with Austrian Foreign Minister Sebastian Kurz, Vučić said he would not lie that some taxes would be lowered or abolished in order to get more votes. He added that Serbia needed difficult reform "so we can see the light at the end of the tunnel after a year".

The IMF Mission traveled to Belgrade on Feb. 27 to look at the state of public finances and determine the conditions for concluding a new arrangement.