The economic situation in Serbia is difficult, but there is no threat of financial collapse like in the case of Greece and other countries affected by the debt crisis, economic analysts agree. It is therefore very important that the new government immediately come up with a package of measures that would enable them to solve the most pressing problems. While the professional community have different opinions on the subject, most experts agree that the priority is budget deficit financing. More in our regular feature Economic Review prepared by Biljana Blanusa.
Serbia’s biggest problems include the increased budget deficit and public debt, illiquidity of the economy, and high unemployment rate. By the end of the year, according to the Serbian government, the budget deficit will be higher than planned by about 350 million euros. The reason for this is the reduced inflow of funds into the state budget due to the fact that the economic growth is lower than projected. As it is often heard that the increase in the budget deficit has resulted from uncontrolled spending, the Ministry of Finance has announced that in the first six months of the year, only 50% of the total amount planned for the expenses, was spent. Bearing in mind low economic growth forecasts for the upcoming period, we can expect an increasing gap between the budget revenues and expenditures. Therefore, the most pressing issue is now reduction of the deficit in the state treasury, and it will be the first task of the new government. The Fiscal Council has estimated that the budget savings could be enabled by cutting costs in many sectors, but that is not enough, which is why such an extreme measure as freezing wages in the public sector and pensions has been proposed. This solution, however, has been rejected in advance, because it is unacceptable to some parties that would form a new cabinet. The alternative is the new borrowing, which in turn raises the question of the increased public debt that has already exceeded the limit established by law.
According to a member of the Fiscal Council, Vladimir Vuckovic, the new economic program needs to be prepared carefully. He warned that ideas heard from representatives of some political parties on resolving the most difficult problems can be dangerous. Motives might be good, but not all decisions lead to achieving the main goal - an increase in the economic growth and employment rate. According to him, this is especially true of the state’s intervention in the monetary sphere and the idea of using foreign currency reserves for investments, as well as additional borrowing, with the amount of up to 10 billion euros being mentioned. Although at first glance, it seems as an appealing solution, the consequences can be disastrous in the form of high inflation, sharp depreciation of the dinar, and explosion of the total external debt, which would further complicate the already difficult economic situation.
We should be cautious about the new debt, the National Bank of Serbia has also warned, because the level of the public debt has already exceeded the legal limit which is why major adjustments within the fiscal policy are necessary. Although Serbia has increased the credit rating, that can change, and the best example are the EU countries in debt crises. Therefore, economic analysts warn that a further increase in the public debt might be costly and that should be borne in mind when adopting economic policies for the future period of time.