If it does not take radical measures, Serbia could be affected by a public debt crisis by the end of the year, as public debt growth could exceed 55% of the gross social product, the Fiscal Council told a press conference, adding that the budget deficit is to exceed the gross domestic product level of 6%. More from Zorica Mijušković.
It will be necessary to provide 2.5 billion euros of additional debts by the end of the year for budget deficit financing and public debt principal payment and the task of the new government will be to implement strict measures in order to reduce the debt to a reasonable level, the president of the Fiscal Council, Pavle Petrović, said. Short-term measures include freezing pensions and salaries, tax reforms entailing VAT increase to 22% and additional cutdown on expenditures. This is necessary, says Petrovic, as it is essential to realize savings amounting to one billion euros in 2012 and 2013 and to another 1.2 billion euros by 2016. Salaries and pensions are to be frozen as of October this year and throughout 2013, whereby up to 300 million euros will be saved. Short-term measures also include additional cutdown on expenditures, by 400 million euros, the reduction of too generous and unselective subsidies and the cancellation or merge of some agencies and non-budget funds.
Another set of measures entails tax system reforms, which could save EUR 300 million. With all these measures, the public debt would just stop in 2013 and start dropping, to reach 48% of the GDP in 2016. Medium-term reforms, which are to be implemented in the period from 2014 to 2016, entail budget deficit reduction to zero level, which implies reforms of pensions, salaries, public companies, the subsidy system. Should such measures not be implemented, Serbia will be threatened with a public debt and budget deficit explosion, which implies an inflationary shock, mass dismissals, an abrupt drop in the level of pensions and salaries, Petrovic points out.
Petrović also supports the continuation of the arrangement with the IMF, which would not be necessary if the government managed to implement the planned measures on its own, but they are much easier to implement in cooperation with the IMF as the IMF guarantees that they will be actually realized. If the measures were delayed, salaries and pensions would not only be frozen, but would drop abruptly, as it was the case in Romania or Latvia, he says. The savings measures would compensate for all the losses as early as in 2014 or 2015 and exceed all the negative effects by 2016, says Petrovic. The draft consolidation measures of the Fiscal Council include social protection measures as well as financially-conditioned assistance to households and minimal pensions would be exempted from freezing and a fund for one-off assistance to vulnerable social strata would be established.