“The government’s economic programme will be supported by a 36-month precautionary stand-by arrangement. The overall size would be around one billion euros,” Zuzana Murgasova, head of an IMF mission that visited the Balkan country for the past two weeks, told reporters.
However, the stand-by loan is yet to be approved by the IMF’s executive board, she added.
“The economic programme would seek to lay a ground for macroeconomic stability, sustainable growth and job creation over the medium term,” Murgasova said.
“In particular, the fiscal adjustment aims to halt the rise in public debt and put it on a downward trajectory by 2017.
It looks to contain spending by “scaling down the large public sector wage and pension bills, and reducing budget support to public enterprises,” she added.
Serbia, which began negotiations to join the European Union in January, is expected to report a record budget deficit of 8.0 percent of gross domestic product this year, while public debt is to rise to 68 percent of GDP by the end of the year, according to the IMF.
Serbia has agreed to carry out a comprehensive programme of economic recovery, composed of short-term fiscal consolidation measures and structural reforms, said Serbian Finance Minister Dusan Vujovic.
The aim of the programme is to reduce the budget deficit to 4.25 percent and save some 1.3 billion euros by 2016, Vujovic added without giving further details.
The deal is to take effect on January 1, he said.
– ‘Lack of discipline’ –
Prime Minister Aleksandar Vucic hailed the deal. He said that “following years of lack of discipline,” an economy recovery plan has finally been reached that would be supported by international financial insitutions.
“We want to become a competitive economy… and to ensure a good life for our citizens. It will take time to achieve that,” he said, adding that he expected the economy to improve by 2016.
The talks with the IMF came as the Serbian Central Bank (NBS) said on Wednesday that the country’s economy would contract by 2.0 percent this year. Earlier the government had forecast a 1.0 percent negative growth.
The deal was reached after Serbia had taken various measures to reduce its high fiscal deficit, including a 10-percent cut of pensions and public sector monthly wages above 200 euros ($250).
The adopted measures also included the privatisation of some 500 loss-making state-owned companies by the end of 2015 that cost up to 600 million euros per year in subsidies.
In addition Serbia has also adopted a new labour law to cut some job protections and raise the retirement age for women to 65.
In a country of 7.2 million people, more than 700,000 are employed in the public sector while 1.7 million are pensioners.
The unemployment rate is around 17 percent and has been reduced by three percent in the last six months, Vujovic said. However, “it poses a major social concern,” Murgasova said.
Most people with jobs struggle to live on an average monthly salary of 350 euros ($444).
The IMF had frozen a billion-euro loan ($1.3 billion) in 2012 due to the Serbian government’s inability to meet its terms. -AFP