UPDATE 1-Serbia seeks 3-year loan deal with IMF - finance minister

Thu May 8, 2014 5:26am EDT

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ST GALLEN, Switzerland May 8 (Reuters) - Serbia is in talks with the International Monetary Fund on a three-year precautionary loan deal, but no firm dates are set, Finance Minister Lazar Krstic said on Thursday.

He said Serbia was seeking a sum within twice its IMF quota, suggesting a figure of around $1.5 billion.

"We are in the process of discussions with the IMF and we will go ahead as planned. We are looking for a standby precautionary loan," Krstic told Reuters on the sidelines of a business forum in St Gallen, Switzerland.

To win the deal, seen by investors as a crucial sign the government is committed to curbing the rising budget deficit, the new government needs to reform the bloated public sector and cut subsidies to loss-making state companies. This could mean thousands of job losses.

"Once we have refined the policies to the required level, I think that's the point when we will be able to begin engaging the IMF again to continue the conversation," Krstic said.

An IMF mission visited Serbia in February and said it would continue talks on the arrangement with the EU candidate country after a new government was formed. This has now happened.

Prime Minister Aleksandar Vucic has said his government would seek an IMF deal but gave no details. The fund froze a previous deal with Serbia in 2012 over failure to restrain spending.

Serbia's budget deficit is set at 7.1 percent of national output, but the government's top advisory body has warned it could exceed 8 percent unless saving policies are implemented.

Public debt stood at 63 percent of gross domestic product in February, higher than the Fund recommends for similar economies. (Reporting by Alice Baghdjian; Writing by by Ivana Sekularac; Editing by Zoran Radosavljevic and Ruth Pitchford)

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