Serbia raises economic growth target to 2-3 pct

Wed Jun 19, 2013 9:49am EDT

* Industrial output driving growth

* Budget revision in works

* No agreement on Telekom Srbija sale

By Aleksandar Vasovic

BELGRADE, June 19 (Reuters) - Serbia raised its full-year economic growth target to between 2 and 3 percent, thanks to car exports from its joint venture with Italian automaker Fiat and prospects for a good harvest.

The ruling coalition, which is battling to rein in a ballooning deficit, had forecast growth of 2 percent This year, bouncing back from a 1.7 percent contraction in 2012.

"Even that growth, which will be the biggest in the region, is not big enough for people to feel the benefit," Mladjan Dinkic, the Finance Minister told a news conference.

He said industrial output, driven mainly by manufacturing, rose 5.3 percent in the January to April period.

Dinkic said the coalition would consider revising 2013 budget on Monday, raising the shortfall from 3.6 percent of gross domestic product to 4.7 percent. The International Monetary Fund warned last month that Serbia's budget shortfall could balloon to more than 8 percent of GDP this year.

Investors are growing nervous over the government's failure to cut spending, with political leaders split over calls to cut, or at least freeze, pensions and public sector wages.

But the government has shied away from freezing or cutting public sector wages and pensions, which account for around half of the state's outgoings. They will rise 0.5 percent in October.

"We have decided to keep the revenue side of the budget unchanged," he said. "Tax increases would overburden industry."

Dinkic said the coalition government, an alliance of nationalists, socialists and technocrats, has not agreed on selling state-run telecoms operator Telekom Srbija.

"We will not proceed with the privatisation," he said.

Dinkic did say, though, that Serbia would invite bids for a licence to operate a 4G mobile network, expecting to bring in around 125 million euros ($167.41 million). ($1 = 0.7467 euros) (Additional reporting by Valerie Hopkins; Editing by Matt Robinson and Louise Heavens)