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Serbia IMF loan talks possible in early 2014: finance minister
September 24, 2013 / 11:39 AM / in 4 years

Serbia IMF loan talks possible in early 2014: finance minister

BELGRADE (Reuters) - Serbia will consider a new loan program with the IMF after adopting the 2014 budget and concluding a technical mission by the lender in early October, Finance Minister Lazar Krstic said on Tuesday.

Speaking at a Reuters Investment Summit, Krstic said full negotiations, “if that were to happen”, would realistically take place in the first quarter of 2014, offering the first timeframe for a new arrangement with the Fund that investors have been waiting for as an anchor for reform.

With public debt already projected to hit 65 percent of national output this year on a budget deficit of 5 percent of gross domestic product, some analysts had expected the former Yugoslav republic would seek and get support this year.

Serbia lost its last International Monetary Fund safety net in early 2012 as the deficit and debt soared and is still struggling economically while making progress toward talks on European Union membership next year.

Krstic, a 28-year-old former McKinsey consultant who took over as finance minister three weeks ago, has promised to undertake the kind of structural reform that successive governments since the fall of late strongman Slobodan Milosevic in 2000 have ducked.

But he faces fierce resistance from the left wing of Serbia’s ruling coalition, raising the risk of a snap election that political sources say could come early next year.

Krstic said he was striving to observe the deficit target ceiling of 4.7 percent for the year under a July budget revision, in the hope of bringing it down to around 4.2 percent in 2014.

SNAP ELECTION?

He said he expected a technical mission from the IMF in the first week of October as part of the government’s preparations for its 2014 budget and longer-term fiscal strategy up to 2016.

“In terms of further negotiations with the IMF on a potential program, we will consider that after this mission, after the budget is adopted,” Krstic said. “But if that were to happen I think it’s realistic just from a feasibility point of view that we would do that in the first quarter of 2014.”

The IMF said later on its website that it would make a staff visit on Oct 1-7 “to discuss recent economic developments and the government’s policy agenda for 2014 and the medium term.”

Concern over the lack of an IMF arrangement and rising debt has driven up the cost of Serbia’s borrowing and kept the dinar under pressure.

Timothy Ash, head of emerging markets research at Standard Bank, said Serbia was “a cast iron case” of a country in need of an IMF program, and that Krstic’s forecast of Q1 loan talks was disappointing.

“That is a long way away, especially with Serbia still having a tricky budget financing situation,” he said. “I would have hoped for a greater sense of urgency from the new team at the MOF.”

Krstic said he expected to unveil a reform program in the next two weeks. He noted, however, that reform of the tax system would likely only begin to take effect from 2015. He said the government would need to “align on” reform of the pension system by mid-2014.

Serbia’s public sector and pension system account for more than half of budgetary outgoings. The IMF says this is not sustainable and has advocated a multi-year freeze on pensions and public sector wages, something the government has so far resisted. Krstic would not be a drawn on a possible freeze.

“We simply need to reduce the budget deficit,” he said. “How we’re going to distribute that reduction between the various constituencies and the various users of the budget ... will be primarily a political process.”

Though not a member of any political party, Krstic was handpicked by the Serbian Progressive Party (SNS), the largest party in the ruling coalition.

Riding high in the opinion polls, analysts say the SNS is ready to force a snap election, possibly in March 2014 after the expected start of European Union accession talks in January, if its partners in government resist Krstic’s policy.

Asked about a previously planned $1 billion Eurobond, expected in September or October, Krstic said he was looking at various financing options and that his imminent reform program and a positive IMF mission in October would provide a “tail wind” for Serbia to tap markets.

(For other news from Reuters Russian and Eastern Europe Investment Summit, click here)

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Additional reporting by Aleksandar Vasovic and Ivana Sekularac; Writing by Matt Robinson; Editing by Ruth Pitchford and Patrick Graham

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