New government has plans for Serbia's economy

19/07/2012

The new coalition government has detailed plans to pull Serbia out of its economic funk, but experts say citizens will bear a heavier burden.

By Bojana Milovanovic for Southeast European Times in Belgrade -- 19/07/12

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More than 600 people used to work at Serbia’s Zele Velkovic textile factory, but employment has been reduced to only a few dozen. [Reuters]

When Serbia's new government takes office on July 24th, one of its greatest challenges will be to tackle the state's growing budget deficit.

The 2012 budget requires Serbia to borrow 4.2 billion euros, but the deficit grew by about 35m euros in the first half of the year and is forecasted to grow by 300m euros by the end of the year, outgoing Prime Minister and Finance Minister Mirko Cvetkovic said.

United Regions of Serbia president Mladjan Dinkic, who will manage the economy and finance sectors in the new government, at the signing of the coalition agreement warned that Serbia "is in a state of the historically biggest budget deficit" and announced the continuation of co-operation with the International Monetary Fund (IMF) and the World Bank.

The detailed, 13-page agreement devotes a significant portion toward economic measures for stopping the crisis, which has resulted in unemployment of about 20% and an average wage of about 375 euros.

Among the new government's economic measures is the continuation of talks with the IMF and the World Bank with the aim of achieving macroeconomic stability and sustainable economic development.

The fiscal consolidation program will primarily be based on the rationalisation and cutting of budget expenditures. All unnecessary state administration costs will be eliminated. The agreement also foresees the adoption of a new public procurement law in October, which will increase the transparency of the process, reduce corruption and enable the reduction of the state's expenditures.

The new government does not plan to freeze pensions and salaries, but their growth in the first year must be harmonised with the budget's real capacity. The tax system will be reformed for the sake of simplification. Unnecessary fees at state and local levels will be annulled.

The government also plans to reform the VAT system and pass an anti-crisis plan for the economy and kick-start production. Entrepreneurs will be given aid and subsidised loans.

Economists said the citizens will bear the heaviest burden.

''One of the new government's measures will probably be a VAT increase from the current 18%, because I see no other way of filling the hole in the budget. That is not good, because it doesn't solve the problem of inflow into the budget," Mihajlo Crnobrnja, professor at the Faculty of Economics, Finance and Administration, told SETimes.

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Danilo Sukovic of the Institute for Social Research said that the government is facing great challenges, primarily "the fight against corruption and the reviewing of controversial privatisations."

"We need a government that will look at the situation realistically and face that reality, and then lead to economic recovery. All this can't happen overnight, it will be a long and painful process, if it occurs at all," Sukovic said.

Miroslav Zdravkovic, representative of the Economics Institute and editor of the web portal Makroekonomija, expects nothing good from the new government and new parliament.

"There are too many parties in the ruling coalition, they will blackmail each other and there will be no economic development," Zdravkovic said.

This content was commissioned for SETimes.com.
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