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March 19 (The following statement was released by the rating agency)
The decisive victory by the Serbian Progressive Party (SNS) in Serbia's parliamentary
elections arguably constitutes a mandate to accelerate fiscal consolidation and structural
reform in line with SNS's broad policy commitments, Fitch Ratings says. But it remains to be
seen how a new government will overcome deep-rooted opposition to reform in areas such as
restructuring state-owned enterprises.
SNS leader Aleksander Vucic has reiterated his pro-reform agenda and commitment
to EU accession and a renewed IMF agreement. He said on Monday that he expects
to pass "key laws, including the labour law, the bankruptcy law, the
privatisation law... by the end of June or mid-July," according to news agency
reports. Restructuring state-owned enterprises and successful implementation of
other structural reforms could speed up economic recovery and narrow external
imbalances, supporting Serbia's credit profile.
However, SNS was the largest party in the outgoing coalition government, which
made limited progress on consolidation and reform in the face of popular and
political opposition. Restructuring and privatising of SOEs has been delayed,
for example, while fiscal measures such as wage and pension reform and VAT
increases may not fully address the deterioration in public finances. Popular
opposition to reform may persist, as voters appear to have responded to SNS's
anti-corruption stance as much as its economic programme.
And despite SNS's margin of victory - it won over 48% of the vote and over 150
seats in Sunday's poll, giving it an outright parliamentary majority in the most
emphatic result since the introduction of multiparty elections - Vucic has
appeared to acknowledge the need for broad political support for reform. He said
on Monday he will "extend a hand" to other political parties, with a view to
forming a new government by 1 May.
A precautionary lending agreement with the IMF could provide a policy anchor and
boost investor confidence, but this will depend on reform and consolidation
commitments. Negotiations on EU accession, which began in January, could also
help to sustain reform momentum.
The recent signing of a $1bn loan agreement with the United Arab Emirates may
help Serbia refinance some of its most expensive debt, but Serbia remains
dependent on short-term market borrowing.
We downgraded Serbia to 'B+' from 'BB-' in January to reflect the sovereign's
widening budget deficit and growing debt. The Outlook on the rating is Stable.
Concluding an IMF deal, containing inflation and maintaining exchange rate
stability as well as structural reform and fiscal consolidation would be credit