BELGRADE: A new call for austerity in Serbia is a step in the right direction, but the government should do more if it wants to revive its ailing economy, analysts warn.
With a budget deficit likely to hit 7.5 percent of output and public debt to surpass 60 percent, the government has opted for an austerity programme that includes public sector wage cuts and a sales tax hike.
The International Monetary Fund, with whom Serbia hopes to strike a loan deal next year, said measures, if fully implemented in 2014, would be “an important step in the right direction.”
Abbas Ameli-Renani, analyst at Royal Bank of Scotland, said the measures “most importantly... should serve to keep the IMF engaged and willing to formalise a loan arrangement.”
An IMF loan worth one billion euros ($1.3bn) was frozen in February 2012 because the previous government had not complied with commitments.
But austerity measures alone would not be enough to meet IMF demands and would fail to significantly fix the budget, Serbian analyst Milan Culibrk said. “With these measures alone there is no way they can ... deliver a sustainable deficit (target),” Culibrk said.
Serbia’s public sector employs almost 700,000 people out of Serbia’s total work force of 1.7 million people and slashing salaries by the proposed 25 percent without cutting jobs will not be enough, he said.
Many state employees see the measures as just “another hit on our incomes,” said Irina Todorovic, a 38-year-old teacher.
“Teachers are already humiliated with the lowest salaries among those paid by the state, which apparently does not care about educating its future working force,” she said.
Culibrk, the analyst, urged the government to deal with over-indebted public companies otherwise Serbia would only continue to borrow money to cover costs.
The IMF also warned that “wide-ranging structural reforms should support fiscal adjustment.”
“Steps to improve the business climate and reduce the state’s footprint in the economy are needed to provide impetus to investment, economic diversification, and sustainable private sector growth in order to create jobs,” the IMF said.
Both newly appointed Finance Minister Lazar Krstic and Economy Minister Sasa Radulovic said they planned more measures to ensure growth, which in 2013 was expected to be around 1.7 percent, according to IMF.
“We identified the grey economy, estimated to be worth 30 percent of the GDP, as an easy target that could provide first results quite fast,” Radulovic said.
Fighting the informal economy had also been the first piece of advice by ex-IMF chief Dominique Strauss-Kahn, recently hired to advise the government.
Strauss-Kahn had no role in preparing the austerity package, but consults on mid- and long-term reforms, a government source said.
AFP
