January 14, 2014 / 11:37 AM / 5 years ago

UPDATE 1-Failure of needed economic reforms could mean elections, Serbian minister says

(Update with details of Reuters chatroom comments)

By Aleksandar Vasovic

VIENNA/BELGRADE, Jan 14 (Reuters) - Serbia needs to reform its bloated public sector and pass changes to key laws to secure growth in the future, Economy Minister Sasa Radulovic said on Tuesday, adding that failure to do so could lead to early elections.

Radulovic told the Reuters Global Markets Forum, an internet chatroom, in Vienna that changes to laws on labour, privatisation and bankruptcy were key for the country, which is trying to kick start economy.

“If the laws are not passed that means the political parties gave up on reforms and that it’s better to have elections as soon as possible,” Radulovic said.

The laws are important for government plans to close or sell as many as 179 loss-making state forms that are part of a restructuring programme. Ending state subsidies to these firms will also help Serbia to complete fiscal consolidation plans.

“Without political will for reforms we don’t have much to look forward to as far as the economy is concerned,” Radulovic told the forum on the sidelines of the Euromoney and East European conference.

Serbia’s 2014 budget targets a shortfall of 4.6 percent of national output, only slightly down from the 2013 forecast of 4.7 percent.

But spending by municipalities, subsidies and sovereign guarantees for loss-making state companies could push the consolidated deficit to 7.1 percent of GDP.

The government has targeted a 2 percent growth for 2013 and wants to eke out 1 percent growth this year. To cut expenditures, the government has also pledged to trim wages in the public sector that employs about 740,000 people or about 10 percent of population.

Some analysts have said the 2014 budget ducks the toughest spending cuts the government pledged in September, fuelling speculation that the Serbian Progressive Party (SNS), the biggest party in the coalition, has an eye on early elections.

Radulovic has repeatedly warned Serbia should sell or declare bankrupt hundreds of loss-making state firms that have been enjoying hefty state subsidies .

The reforms would lead to unpopular job losses in the public sector, which employs 740,000 people or about 10 percent of Serbia’s population.

Radulovic said the government has set aside 20 billion dinars ($236.6 million) to help redundant workers to cope with job losses.

Serbia, which is expecting to start the accession talks with the European Union this month, also wants a precautionary loan deal with the International Monetary Fund, crucial for assuring investors.

The talks with the lender, which froze its previous 1 billion euro ($1.37 billion) loan deal with Belgrade in 2012, are expected to start in February or March.

On Monday, Aasim Husain, deputy director of the IMF’s European department, said Serbia had made strides in controlling it 2014 budget but needed to do more to ensure fiscal stability in 2015 and 2016.

Radulovic said reforms are more important: “It’s not what the IMF is calling for, it’s what the credible plan is to get the deficit in check and at the same time to achieve growth.”

To boost growth, Serbia sought loans and investments including the United Arab Emirates, China and Russia, but the pace of these deals has been slow.

Radulovic said that nothing could replace reforms: “We are talking too many investors and it ain’t done until its done.” ($1 = 0.7324 euros) (Reporting by Aleksandar Vasovic; Additional reporting Ivana Sekularac Editing by Jeremy Gaunt)

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