Serbia's standby deal with IMF totals $516 million

BELGRADE (Reuters) - Serbia's new precautionary arrangement with the International Monetary Fund totals some $516 million, which the authorities will draw only if necessary, an IMF statement said on Friday.

The statement, released after the Serb authorities reached a deal with the world lender on Thursday, said the funds made available under the 15-month stand-by arrangement equal 75 percent of Serbia's quota, or the right to borrow from the Fund.

"The Serbian authorities do not intend to draw on the resources made available...under the arrangement, unless the need arises," the statement said.

Even though it saw no need for an IMF rescue package like those granted to Ukraine and Hungary, Serbia turned to the world lender for a potential financial safety line and advice on drawing up its 2009 budget, as it expects the economy to be hit hard by the global crisis.

"Serbia's prolonged stretch of robust growth and moderate underlying inflation of the past few years, underpinned by large capital inflows, has resulted in sizeable external imbalances and vulnerabilities," the statement said.

After three weeks of talks with IMF, Serbia agreed to cut the 2009 deficit to 1.5 percent of gross domestic product, down from this year's 2.7 percent.

The pledge of painful spending cuts almost split the ruling coalition made up of pro-Western parties, the Socialists of late autocrat Slobodan Milosevic and the kingmaker Pensioners Party.

The government also said spending on wages, pensions and subsidies would be balanced so as not to hurt stability in a year when economic growth is expected to halve to 3.5 percent from around 7.0 percent in 2008.

The IMF's board is expected to discuss the deal with Serbia by the end of November.

(Reporting by Gordana Filipovic; Editing by Victoria Main)