IMF, Serbia reach deal on standby loan but warn recovery slower than expected

Serbia to tap loan amid slower recovery

BELGRADE, Serbia — An International Monetary Fund mission agreed for crisis-stricken Serbia to make another draw from a standby loan, officials said Thursday, but warned that recovery is slower than expected.

Mission chief Albert Jaeger says Serbia must submit a pension law to the parliament and make cuts in public administration before the IMF gives the final approval next month of the €380 billion ($467 billion) draw.

It is part of a €2.9 billion ($3.57 billion) loan agreed last year when Serbia was hit by the global economic meltdown. Officials said Thursday slower recovery partly was the result of continued insecurity caused by the Greek debt crisis.

“Serbia’s recovery has been more hesitant than expected,” Jaeger said at a press conference. “In our view, 2010 and 2011 will be another two difficult years for the Serbian economy, we have to be realistic about that.”

But Jaeger added that “we continue to believe that the economy will gradually pick up” and that the growth rate will reach 3 percent in 2011, from 1.5 percent in 2010.

Jaeger explained that two main reasons for the downturn are lower exports and lower private investment, both reflecting “higher uncertainty” in the region and the European Union as a whole.

Serbia’s finance minister Diana Dragutinovic also said that “the Greek debt crisis and its influence on the region is one of the main reasons for Serbia’s slower than expected recovery.”

As the result, pensions and wages will remain frozen in 2010, although government officials had asked that they be increased, officials said. Serbia will instead allocate 6,5 billion dinars (€65,000; $80,600) in the budget as one-time payments to the poorest in the public sector, they explained.

Jaeger said that Serbia’s fiscal deficit will be larger than planned to reach 4.8 percent of the GDP instead of 4.5 percent in order to accomodate the revenue downfall.

But Serbian officials remained optimistic that budget revenues will stabilize after improving slightly in April and May. Economy Minister Mladjan Dinkic said “we expect better results for the next (IMF) review in August.”

Dinkic also said that Serbia’s foreign currency reserves are more than sufficient and that the country does not need to withdraw additional funds from the IMF. Still, Dinkic he said that “it is good that the money is available” as it adds to stability and improves Serbia’s image.

Serbia so far has withdrawn €1.3 billion in three installments from the IMF loan. The IMF has also come to the aid of Hungary, Romania, Belarus, and Ukraine throughout the global financial crisis.