Budget deficit financing is one of the most important tasks of economic policy in the forthcoming period. As announced from the Serbian government, the deficit will be covered with expenditure cutdowns and loans from financial institutions and states. Although economists keep warning that the public debt is too high, most find additional debts a necessary evil. More from Biljana Blanuša.
Serbia is facing a high state deficit and its financing is the first big challenge for the new government. Finance and Economy Minister Mlađan Dinkić announced that in the next few months the government will have to take loans in order to cover the budget deficit in the amount of some 2 billion euros. He said the first such arrangement had been made with the World Bank and would provide Serbia with direct budget support of loans amounting to 400 million dollars. The payment period is 18 years and the grace period from five to seven years, whereas the interest rate is 1%.
World Bank representatives emphasized that the condition for the realization of that loan is an arrangement with the IMF, deficit and debt reduction and continuation of reforms. The first loan, amounting to 100 million dollars, is intended for the budget, whereas the remaining sum would be divided into two loans. Serbia will receive another 100 million dollars if it continues with reforms in the pension system, education and health care, which lead to a public consumption reduction, whereas 200 million dollars are intended for reform of public companies. The World Bank is ready to grant investment loans as well and as for the financing of projects in the field of infrastructure, agriculture and energy, negotiations with the EIB and the EBRD will be conducted.
In addition to loans, economizing is necessary as well and, according to economists, considerable amounts could be saved in the field of public purchases and subsidy reductions. According to them, the budget deficit has also been caused by the Law on Fsical Decentralization, which enabled transfer of incomes, but not liabilities, to local self-rules. Therefore the state budget has been deprived of some 40 billion dinars. Economists propose that this law should be cancelled in order that the budget be filled, but it is highly unlikely that such a proposition will be adopted as the creator of the law is the current minister of finance and economy himself. Several months ago, the Fiscal Council proposed a cutdown on expenditures, above all by freezing incomes in the public sector and pensions and enabling an increase of incomes through a higher VAT rate. The programme was supported by the IMF as well, but they suggested that they could consider other proposals as well.
A solution to fill the gap between budget incomes and expenditures is likely to be reached by the end of the year, but what is much more concerning, both according to economic experts and financial institutions, is how to maintain a medium-term macroeconomic stability, which, in addition to budget deficit and public debt reduction, also entails the creation of conditions for economic growth.