* Government originally targeted deficit of 3.6 pct of GDP
* FinMin proposed savings of 30 bln dinars ($352 million
* Serbia emerged from recession in Q1 (Adds context, details)
By Carolyn Cohn
ISTANBUL, May 10 (Reuters) - Serbia’s budget deficit this year could be as much as 4.5 percent of national output, wider than previously forecast, Finance Minister Mladjan Dinkic said on Friday.
Serbia had originally targeted a shortfall of 3.6 percent of gross domestic product for 2013, although the International Monetary Fund and economists warned the projection was too optimistic.
“The budget deficit last year was 7 percent of GDP. Now we envisage ... that this year it will be up to 4.5 percent, which will be higher than we predicted in our original budget,” Dinkic told a session on investment in Serbia at the European Bank for Reconstruction and Development’s (EBRD) annual meeting in Istanbul.
Low fiscal revenues in the first quarter have widened the deficit, and Dinkic said last month that he had proposed savings of about 30 billion dinars ($352 million) from state spending to compensate. He said the government would revise the budget later in the year.
Serbia, a candidate for membership of the European Union, emerged from recession in the first quarter of this year, with economic growth of 1.9 percent compared with a year earlier, according to a flash estimate. The government is targeting 2 percent growth for the year.
Serbia’s finance ministry plans to auction around 1 billion euros ($1.31 billion) in dinar and euro-indexed maturities in the domestic market in the second quarter, roughly the same amount it sold in the first quarter.
Serbia’s public debt is expected to rise to 65 percent of national output by the end of the year and the Balkan country needs to raise about 4.8 billion euros in 2013 to service it.
In February, it sold a $1.5 billion seven-year bond at a yield of 5.15 percent, down from 6.625 percent on a $1 billion tap of its debut 10-year Eurobond in September last year.
“The price of our borrowing declined very sharply compared to one year ago,” Dinkic said. “I believe investors ... like the measures we adopted.”
Serbia raised value-added tax last year among other measures and has maintained a tight monetary policy to attract investors.
Trying to further reassure investors, Serbia is seeking a precautionary loan deal from the IMF. The Fund began a two-week mission to Serbia on Wednesday, but said it was a “health check” of the Serbian economy and its officials would not discuss a new loan arrangement yet.
The Fund froze a previous 1 billion euro loan deal early last year over broken spending promises. ($1 = 0.7637 euros) (Writing by Daren Butler and Aleksandar Vasovic; Editing by Susan Fenton)