Serbia tells state development fund to stop lending

BELGRADE Thu Oct 10, 2013 11:52am EDT

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BELGRADE Oct 10 (Reuters) - Serbia's economy ministry has asked the state-run Development Fund to stop lending after discovering that bad loans constituted almost half of its portfolio, it said on Thursday.

The ministry said in a statement the credit freeze should last until it has scrutinised the fund.

Serbia's new Finance Minister Lazar Krstic, a 28-year-old former McKinsey consultant brought in to reverse years of economic stagnation and growth in government debt, told the nation this week it needed to save 1.5 billion euros ($2 billion) by 2017 to avert default.

The ministry said the Development Fund, a state body that aids financing in domestic investments, has more than 40 percent of non-performing loans in its 217 billion dinars ($2.57 billion) portfolio.

"More than 40 percent of the loans have matured fully and have not been paid at all. Furthermore, another 20 percent have reached partial maturity and have delays in payments...," the ministry said.

It said the Fund had also issued guarantees worth more than 79 million euros to businesses that are not solvent.

The government plans to cut subsidies to as many as 179 loss-making state firms and trim the public sector, which employs more than 660,000 of Serbia's 7.3 million people, through job and wage cuts and a gradual reform of the pension system.

The International Monetary Fund said this week the government had taken the right step to tackle its economic troubles but warned that the 2013 deficit - including non-budgeted spending which Serbia accounts for differently - could reach 7.5 percent of gross domestic product (GDP), from the targeted 4.7 percent.

The IMF also cut Serbia's economic growth forecast for this year to 1.5 percent.

Belgrade lost a previous 1 billion euro ($1.35 billion) deal with the lender in 2012 over inflated spending and debt and hopes to start fresh talks with IMF in the first quarter of 2014. ($1 = 0.7395 euros) (Reporting by Aleksandar Vasovic; Editing by Zoran Radosavljevic and Ruth Pitchford)

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