November 4, 2013 / 4:06 PM / in 4 years

Serbia plans to borrow 5.8 bln euros next year, trim subsidies

* Draft 2014 budget submitted to parliament

* Targets GDP growth of 1 percent

* Trims budget deficit to 4.6 pct of GDP

By Ivana Sekularac

BELGRADE, Nov 4 (Reuters) - Serbia will need to borrow 662.5 billion dinars (5.8 billion euros) in 2014 to service debt and finance a budget deficit set at 4.6 percent of output, under a draft budget published on Monday.

The Balkan country, whose rising public debt has unnerved investors, plans to borrow 330 billion dinars domestically, by issuing bonds and T-bills in local currency.

It will seek another 264.1 billion dinars through loans from commercial institutions and other governments, and up to 68.5 billion dinars by issuing dinar- or foreign currency-denominated Eurobonds.

Twenty-nine-year-old Finance Minister Lazar Krstic, who has said Serbia must overhaul its spending or risk default, described the budget as “realistic”.

The draft budget assumes gross domestic product will grow one percent in 2014 and inflation will average 5.5 percent.

The Socialist-led government is struggling to keep the budget deficit below five percent this year and to stabilise debt seen reaching 65 percent of GDP by year-end.

It pledged last month to cut subsidies and curb public sector salaries as of 2014.

But while the 2014 draft budget sees subsidies for loss-making state firms at 80.8 billion dinars, down from 83.9 billion dinars this year, public sector salaries will rise by 0.5 percent in April next year.

“It is very difficult to make savings and curb the deficit with such high unemployment and low growth,” Ivan Nikolic of the Economic Institute think tank told Reuters.

At 24 percent, Serbia’s jobless rate is among the highest in the region.

Krstic said the government would try to secure cheaper lending through bilateral arrangements and that he expected Russia and the World Bank to release parts of previously agreed loans that were conditional on reform measures.

“Another source of finances would be through a bilateral arrangement notably with the United Arab Emirates,” Krstic told the Serbian daily Politika on Sunday. “I am very optimistic regarding that loan,” he said.

Serbia has said it is seeking a loan of between two and three billion euros from the United Arab Emirates as it mulls a number of joint projects in agriculture, aviation and IT.

Krstic has said he expects loan negotiations with the International Monetary Fund in the first quarter of 2014, in a move Serbia hopes will reassure investors that the government is intent on reform. (Reporting by Ivana Sekularac; Editing by Ruth Pitchford)

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