CORRECTED-UPDATE 2-Serbian finance minister says savings needed to avert default
(Corrects year to 2013 from 2014 in para 13)
* Krstic wants to cut deficit to 2 pct of GDP by 2017
* VAT on some goods to rise to 10 percent from 8 percent
* Serbia to cut subsidies to state firms
By Aleksandar Vasovic
BELGRADE, Oct 8 (Reuters) - Serbia's new Finance Minister Lazar Krstic intends to cut the government's budget deficit to 2 percent of GDP in the next 3-4 years and save 1.5 billion euros by 2017 to avert default, he said on Tuesday.
The Socialist-led government will raise value-added tax (VAT) tax on some goods to 10 percent, up from the current 8 percent, end subsidies to unprofitable state companies, cut wages in the public sector and plug revenue holes such as black markets in tobacco and oil derivatives, Krstic said.
He outlined the measures at an open government session, broadcast live on state television, a rare event usually intended to demonstrate a coalition government's unity.
"Without these measures we would go bankrupt in two years," Krstic said.
He said the measures he outlined, combined with prospects for a new loan deal with International Monetary Fund and structural reforms planned to start next year could encourage investors to finance Serbia on cheaper terms.
The IMF is ready to support Serbia with a financial arrangement or advice to curb its debt in the medium term, the Fund's representative for central and eastern Europe told Reuters in an interview.
"If they want advice we can provide advice, if they want a financial arrangement we can work with them to do that," said James Roaf, IMF's Senior Resident Representative for central and eastern Europe.
The Fund was expected to issue a press release later in the day summing up a week-long visit to assess Serbia's economy and finances.
Earlier this year, the IMF said Serbia's budget shortfall this year could reach 8.3 percent of gross domestic product (GDP) if no measures were taken.
Serbia lost a previous 1 billion euro ($1.36 billion) deal with the lender last year over broken spending promises.
Krstic said he would seek extra 2013 revenues of about 0.6 percent of GDP and end unbudgeted support for the public sector in 2014, estimated this year as worth about 1 percent of GDP this year.
After the session, a finance ministry official told Reuters that preliminary IMF projections for 2013 would put the deficit at about 7.5 percent of GDP, including non-budgeted spending which under Serbian law counts as debt and is not included in the deficit.
"This would put the IMF estimate higher than ours, primarily due to additional revenue risks and a reduction the IMF puts on the value of government efforts to contain expenditures in the last quarter of 2013," said the high ranking official who asked not to be named.
"If correct this estimate would be still 0.75 percentage points lower than the IMF estimate (of 8.3 percent of GDP) for 2013," he said.
The grey economy - transactions evading tax and other regulations - accounts for an estimated 31 percent of Serbia's total economic output.
Krstic reiterated plans to stabilise Serbia's debt, currently around 60 percent of GDP, at about 75 percent of GDP by 2017 and then to gradually lower it.
The Serbian dinar fluctuated only slightly after Krstic's earlier announcement, trading at between 114.5 and 114.13 per euro at around noon (1000 GMT) on Tuesday.
Krstic, a 28-year-old Yale graduate who was offered his role in a government reshuffle last month, also said the government would discuss and start an overhaul of spending including on the pension system.
"At face value it seems a bit short of measures to curb the deficit in 2013," Timothy Ash, head of emerging market research at Standard Bank.
($1 = 0.7368 euros) (Reporting by Aleksandar Vasovic; Writing by Ivana Sekularac; Editing by Christian Lowe/Ruth Pitchford)
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