IMF to lend Serbia more money
The International Monetary Fund said Wednesday it had agreed to release a slice of rescue lending to Serbia on condition the government clamps down on public sector wages and pensions.
The IMF said that it would now release the next installment of an emergency loan totaling 2.9 billion euros.
Serbian Economy Minister Mladjan Dinkic said that this would allow Serbia to draw up to EUR700 million of the total, in addition to EUR788 million taken out earlier this year.
The agreement was based on smaller shrinkage of the economy than previously expected and a reduced budget deficit, but with the focus still firmly on controlling inflation.
Serbia insisted on reducing its budget deficit with cost cuts instead of raising taxes as proposed by the IMF.
The deal will result in a freeze on public sector wages and pensions extended into 2010 and the start of pension reform next year, along with a half-a-percentage point cut in the budget deficit next year.
“An IMF mission and the Serbian authorities have reached an agreement,” the IMF mission leader Albert Jaeger told reporters here.
“Completion will allow Serbia to draw an amount compatible with its external financing need,” Jaeger said.
He explained that “financial tensions have eased, the output decline has been contained and inflation is falling.”
“We now expect gross domestic product to fall by 3% in 2009, with a still modest recovery of 1.5% in 2010,” he said.
In September, the IMF had forecast a 4.0% contraction of the economy.
The two sides also agreed that monetary policy “will remain focused on inflation,” the IMF official said.
Serbia’s central bank governor Radovan Jelasic said that the target for inflation in 2010 would be 6%, but with a margin or error of 2%, implying a range of 4%-8%.
It was also agreed that Serbia’s budget deficit would be 4.0% of GDP, below the expected 4.5% for 2009.
Finance Minister Diana Dragutinovic said the two sides had agreed that Serbia would extend a freeze on wages in the public sector and pensions in 2010, and therefore “reach the most savings in the public costs.”
Serbia will also launch pension reforms in 2010 to ensure a long-term reduction of the budget deficit. It has already moved towards cutting public administration by 10%.
“Serbia has managed to go through the worst crisis in history without increasing taxes,” Dinkic said.
The accord is subject to approval by the IMF management and executive board, expected to meet Dec. 21.
AFP
November 04, 2009
