The problem of the budget deficit financing will be a key challenge for the new Serbian Government, considering that, due to the reduced economic growth in 2012, there will be 35 billion dinars less in the state treasury. This is the reason why as soon as they assume their responsibilities, the new government must deal with reduction of public spending and unnecessary costs, so that the economic crisis would not worsen further. Our regular feature Economic Review, prepared by Zorica Mijuskovic, is dedicated to this issue.
Serbia's public debt is likely to reach 55% of the GDP by the end of the year, with a tendency of further growth, so that by the end of 2015, it might reach 60% of the GDP. According to European standards, that would make Serbia one of heavily indebted countries, which is unacceptable from the standpoint of maintaining the country’s fiscal stability. Judging by what has lately been heard in public, PM designate Ivica Dacic and his coalition partners are trying to find a solution to the problem in the new proposal, which would rule out freezing of wages and pensions in the public sector. To avoid some sort of the Greek scenario, economists say that politicians should implement short-term measures as soon as possible to stabilize public finances, such as increased company profit tax, as well as VAT. On the expenditure side, the measures would involve freezing, or possibly a differentiated reduction, of the public sector wages and pensions. Reduction of salaries in agencies should also be considered in terms of reducing those to the level of earnings in the field of public administration.
The National Bank of Serbia has also pointed to the seriousness of the situation, turning attention to the fact that the growth of public debt is threatening financial stability and economic growth. Governor Dejan Soskic said that the central monetary authority will ensure the stability of the foreign exchange market and prevent excessive short-term fluctuations of the dinar, and that foreign currency reserves area sufficient guarantee that the central bank is able to do so, but that the dinar exchange rate is under the regime of controlled floating, and formed in the market. Standing IMF Representative in Serbia Bogdan Lissovolik also expressed concern about increased levels of public debt, stating that the measures proposed by the Fiscal Council should be seriously considered, but different solutions can also be proposed. The future economic policy should take into account the latest trends, opportunities for the deficit financing, and government priorities, but any action should be based on reality, said Lissovolik.
Over the past four years, the state called for some six billion euros in loans and thus made a major "hole" in the budget. Meanwhile, there was a crisis in the eurozone, which has significantly slowed the inflow of investments and limited the fresh capital supply. Under the circumstances, all countries, especially developing ones, such as Serbia, resort to "breach" of fiscal rules, which, admittedly, is not a criminal offense. Experts warn that the economy is again in recession and remind that the first quarter this tear is the third consecutive quarter with the GDP falling down. This is why the use of foreign exchange reserves to support economic growth threatens the financial stability and distracting politicians from the measures that can really affect the stimulation of economic growth.